The Status of the Worker: Which Test?
September 2000

The term 'self-employed' has no legal definition, that is to say it is not defined in any statute. The method of establishing a worker's status, therefore, is through case law. For many years the courts have been trying to determine employment status by applying a variety of different tests. The main problem has been that there is no certainty because the courts have not been able to identify a single test which can be used for all employment status cases. There are four main tests for establishing the difference between a contract of service and a contract for services which are the following:
  • the control test - this test is based on the master and servant relationship and is a relic of common law;
  • the integration test - has the worker become 'part & parcel' of the organisation;
  • the test of mutuality of obligation - is there a mutual obligation between the parties to provide or accept the work offered; and
  • the test of economic reality - this test incorporates all of the above in order to establish whether the worker is in 'business on their own account'.
Within these four tests are various factors which further classify the employment relationship.

The Control Test

Factors: duty to obey orders; power to decide work hours; supervision of mode of working; power of selection and dismissal; and contractual consistency.

The control test is the most traditional method of establishing a worker's status. It has it's roots in common law and is an extension of the concept that the employment relationship is one of master and servant. Up until the nineteenth century the master had property rights in the service of his servant and could enforce his rights through the courts.

This test was well suited to govern relationships like those between a farmer and an agricultural labourer, a householder and a domestic servant, and a factory owner and an unskilled 'hand'. The employment relationship was viewed as one of subordination and one where the individual had little or no personal autonomy. One commentator [1] expressed the view that a test based on control would lead to an over-narrow view of the scope of the employment relationship.

In the contractor based industries, recruitment and direct contracts still include a control clause. Even in the so called 'IR35 friendly contracts' many control clauses can still be found. This is despite the fact that many of the relationships which the contracts govern are not based on control by any stretch of the imagination. One explanation for this is that the inclusion of such a clause is a deliberate ploy by the agencies to avoid liability. By making the direction, supervision and control of the contractor the client's responsibility, the agency effectively releases itself from the liability of the contractor's performance. Another explanation could be that the contract draftsmen have simply failed to understand the nature of such a clause, its inclusion in the contract being more an example of reluctance to change. It is accepted that some contractors are under the control of the client but, many are not and the contract is, therefore, not a true reflection of the working practices.

In more modern times the courts tend to start with the right to control test and then draw attention to its shortcomings. The test most frequently applied is that laid down in Park v. Wilsons and Clyde Coal Company Ltd [2] . and repeated by Lord Thankerton in Short v. J. and W. Henderson Ltd [3] . in which the "four indicia" of a contract of service were set out:
"(a) The master's power of selection of his servant; (b) the payment of wages or other remuneration; (c) the master's right to control the method of doing the work; and (d) the master's right of suspension or dismissal."
The power of control was discussed extensively by MacKenna, J., in Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance [4] . McKenna J. considered what was meant by a contract of service and laid down the following three conditions:
" (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service."
McKenna J. continued explaining that in order to find where the right of control resides "…one must look first to the express terms of the contract, if they deal fully with the matter one may look no further. If the contract does not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication."

The test has been used most recently in Lane v. Shire Roofing Co. (Oxford) Ltd. in 1995 [5] . In this case the Court of Appeal determined whether the individual was an employee or self-employed by suggesting that the test to be applied was 'who lays down what is to be done, the way in which it is to be done, the means by which it is done, and the time when it is done?' It is suggested, however, that in this case it was a matter of public policy to find that the individual was an employee because otherwise the employer would have escaped liability for an industrial injury which the individual had sustained. So, the control test has its uses but, in general it is not a test which can be relied upon by itself to elucidate the status of the employment relationship.

The Integration Test

Factors: Being subject to grievance or disciplinary procedures; having employee rights and/or benefits; and being entitled to holiday or sick pay.

The 'integration' or 'organisation' test can be seen as an extension of the control test but, rather than it being control of the performance it is control over the circumstances of the performance. It was recognised that if the control test was used on workers where there could be no question of the employer telling them 'how' to do the work because of the level of their skills and experience, the result would be that these people could not be employees. Thus, the control test needed to be re-examined in order to accommodate just such a situation.

Since the early 1950's the integration test has been relied upon to explain why professional and skilled workers with a large degree of personal autonomy can nevertheless be employees. The decisive factor appears to be whether the individual becomes 'part and parcel' of the organisation. This was stated by Lord Denning in Stevenson, Jordan and Harrison v. Macdonald and Evans [6] :
"One feature which seems to run through the instances is that, under a contract of services, a man is employed as part of the business and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it."
Lord Denning went on to state:
"It is often easy to recognise a contract of service when you see it, but difficult to say wherein the difference lies. A ship's master, a chauffeur, and a reporter on the staff of a newspaper are all employed under a contract of service; but a ship's pilot, a taximan, and a newspaper contributor are employed under a contract for services."
The latter three examples would hire out their services to many clients on the basis of a specific piece of work whereas, the former would be employed more long term by one client. The distinction is in the permanency of the post, its place within the organisation and business structure and the type of services being delivered. If the individual is subject to the employer's organisational control then they are an integral part of the business. Can their services, for example, be deployed to another part of the organsation, perhaps incorporating a change of location or to a position which does not necessarily utilise their main skills.

In Beloff v. Pressdram Ltd. [7] a case concerning the ownership of copyright, as with the previous case, the individual was a senior correspondent with a newspaper. The job required a great amount of skill but, as was stated in the case, "…the greater the skill required for an employee's work, the less significant is control in determining whether the employee is under a contract of service." Beloff maintained that she was self-employed and as such owned the copyright in a sensitive piece of information. The courts decided that despite her expertise, contracted position and freedom to write for other journals the work was done as an integral part of the organisation.

In a contrasting position where the worker hoped to be considered an employee it was held that the individual was working under a contract for services. In WHPT Housing Association Ltd. v. Secretary of State for Social Services [8] , Mr Lowe, an architect, applied to be considered an employee. Mr Lowe was offered work on a 'freelance basis' with WHPT for about a month to finish drawings for a project. When the plans had been completed Mr Lowe was told to supervise the work which would take about nine months. He was required to attend the offices from 9.30 am to 5.30 pm was supervised by the chief architect, was supplied with all the same equipment as the Associations architects, was rebuked on several occasions on one time for being late, and was obliged to complete timesheets. He was also expected to 'fit in' with an existing team of architects.

Despite this and further evidence which would support his application to be an employee the court held otherwise. The decision was based in part on the facts that he was paid an hourly rate and only for the hours worked whereas the employees of the association were paid weekly or monthly and none of them were paid an hourly rate; he received no sickness or holiday pay; and the hours he worked and absences from the office were "…entirely up to [him] you…" although not in practice.

Webster J. stated that the question under consideration was "…what was the principal obligation agreed to be undertaken by [Mr Lowe]?" Webster J. continued:
"The inescapable inference that I draw from [the] facts is that Mr Lowe, at no time, undertook any obligation to present himself for service at the association's premises at any time; …[nor] to provide a specific number of hours' service… and that his principal obligation was to work as an architect during the hours of service which he chose to offer…in consideration for which the association agreed to pay him £3 per hour."
From this the Webster J., concluded that if that was indeed the principal obligation undertaken by Mr Lowe, as a matter of law, 'the contract which contained that obligation could not constitute a contract of service and could only constitute a contract for services.'

The aforementioned case cannot strictly be categorised under the 'integration test' but, it is a perfect example of how the choice of test affects the outcome of the case. Had the integration test been applied to this case the outcome may have been very different.


Footnotes

[1] O. Kahn-Freund, (1951) 14 MLR 505 - 8.
[2] (1928) S.C. 1211, 159
[3] (1946) 62 T.L.R. 427, 429, HL.
[4] [1968] 2 QB 497.
[5] [1995] IRLR 493, 495 (Henry LJ).
[6] [1952] 1 TLR 101.
[7] [1973] 1 All ER 241.
[8] (1981) ICR 737.