Defining the Contract of Employment

In this dynamic and globalised environment of work, there is a proliferation of the practice of engaging persons as independent contractors also referred to as self employed persons. In seeking to escape the obligations that must be extended to employees, employers are opting to engage persons on terms that are often misconstrued as being self employed. This has highlighted the need to accurately define who is an employee versus a self employed person.

One of the premises being used by employers to treat persons as self employed, is the practice of not making statutory deductions from the worker’s pay, namely National Insurance and Income Tax. In Barbados, this practice is not peculiar to the private sector, since agencies of Government have been hiring person as self employed workers and requesting them to make their own statutory deductions.

A number of these workers had approached the National Insurance Office to seek coverage as self employed persons. Despite the fact that the employer had determined that the workers were under a contract for service, the National Insurance Office did not permit them to register under that status based on the fact that the workers were in a contractual relationship depicting that of an employee. This brings into focus, the significance of being able to make the distinction between a contract of service and a contract for service.

CONTRACT OF SERVICE

The contract of service refers to persons whose services are engaged as employees also characterized as a master-servant relationship.

CONTRACT FOR SERVICE

The contract for service refers to a person who is hired as an independent contractor/self employed person.

However, given the fact that the global environment is moving away from the traditional notion of secured employment to more flexible work arrangements, interpreting the employment relationship has become more complex. The engagement of persons on fixed term and part-time contracts is becoming the norm in the employment arena.  Several tests can be applied to determine the contractual relationship including:

  1. The Control Test
  2. The Integration Test
  3. The Multiple Test
  4. The Mutuality of Obligation Test
  5. Part Time/Casual Worker

THE CONTROL TEST seeks to establish that a person is an employee based on the extent of control that the employer has over the individual’s work. It includes the worker falling under regulated hours of work, work breaks, rules and regulations and the manner in which the work is to be carried out.

In the case of Sagicor Insurance Co vs. Carter et al BB 2007 HC 19, the Court of Appeal ruled that the defendants were employees based the degree of control that Sagicor exercised over the work they carried out and other characteristics of contract of service such as the integral nature of the job and determining the manner in which the work should be carried out. The workers were not in the business on their own account as entrepreneurs.

THE INTEGRATION TEST seeks to address the deficiencies of the control test and this is determined by the extent to which the worker is integrated in the employer’s business. Reference can be made to the case of Sagicor Insurance Co v. Carter et al BB 2007 HC 19 in which the court ruled that the work carried out by the defendants was integral to the organization and was a contract of service.

The integration test can be applied to determine that highly skilled persons such as doctors and engineers can be employed under a contract of service. Even though the contractual relationship may not dictate the manner in which professionals carry out their work, they can be hired as employees where the nature of work is integral to the business.

THE MULTIPLE TEST provides a wider definition to the concepts used in the integration and control tests. Some contractual relations can depict characteristics of both being employed and self employed.

In such instances, several aspects of the job can be analysed to ensure that the characteristics are consistent with the contract of employment. For example, a worker may be permitted to provide a substitute when unable to attend work, or undertake a level of investment to carry out the job. In such circumstances, the worker can be deemed to be self employed, even though other aspects of the job support the control test.

THE MUTUALITY OF OBLIGATION TEST is used to help determine that a contract of service exists.  Under a contract of service, the employer is obligated to provide work for remuneration and the individual has an obligation to carry out the work under the control of the employer. However, this is not the only test since other factors such as control must be considered to determine whether the worker is acting on his or her own account. Where the worker controls the manner in which the work is carried out and has the freedom to engage his or her services outside the contractual arrangement, a contract for service can be deemed to exist despite the factor of mutuality of obligation being present.

THE PART TIME/CASUAL WORKER arrangement can be a complex issue in determining the contractual relationship. The law courts have not depended solely on the mutuality of obligation test in determining whether a contract for service exists for part time workers.

Statutory provisions have been made to protect part time employees by granting benefits based on serving minimum periods of employment hours worked weekly and aggregated periods of employment. In Barbados, an employee must work for at least twenty-one hours per week as one of the conditions to qualify for severance. A person can qualify for unemployment benefit under Barbados National Insurance Scheme by being insured for at least one year and having paid at least twenty contributions.

 

CONCLUSION

There needs to be an understanding between parties in their contractual relationship so that the required obligations are upheld. Workers can be placed at a disadvantage where they are incorrectly treated as independent contractors. Many contemporary work arrangements cannot be simply characterized as master/servant where the issue of control is not clear cut. Several other tests must be applied to arrive at making an accurate interpretation as to whether the contract is one “for service” or “of service”. Each contract must be judged on all its facts even where a number of similarities may be identified in case law.