Who have you engaged? An employee? Or an Independent Contractor?
We sometimes engage others to help us perform tasks and in return pay them a sum of money. They could in law be engaged as employees or independent contractors. What distinguishes one from the other? The capacity in which they are engaged will determine our mutual rights and responsibilities. But the distinction between the two is sometimes difficult to make and it sometimes falls on the courts to make the determination.
Employer – employee relationship (in a contract of services).
An employee is one who typically supplies his labour exclusively to an employer who supervises and controls the employee’s work directly. This element of ‘control’ is the traditional way of distinguishing an employee from an independent contractor. An employer not only tells an employee what to do, he also tells him how to do it.
But it may not always be possible to control all staff to the very last detail of their work. And if such control is not possible, would it mean that the individual is not an employee? What about a footballer engaged by and playing for a Club? Nobody runs alongside him, instructing him when to pass the ball and to whom. Notwithstanding this diminished control, the courts in the UK (Walker v The Crystal Palace Football Club) have ruled that the footballer is deemed an employee of the Club as he is expected to follow the general instruction of the employer. The fact that the employer does not tell him how to play football and the footballer uses his own footballing judgement uncontrolled by anybody does not alter the position. It must be noted, however, that generally control would point to a contract of service.
If the control test is not totally conclusive what are the other tests that may be used to determine whether an individual is an employee? The courts suggest two other tests. The first is to determine whether the person is engaged as part and parcel of the business (Bank Voor Handel en Sheepvaart NV v Slatford); resulting in work that is integral (i.e. central) to the business and not accessory to it. In such case he is an employee. The second is to establish whether the individual engaged is performing the service as a business (Market Investigations Ltd. v Minister of Social Security) – which requires the individual to provide his own equipment or take financial risks or which enables him to profit from good management of the task, in which case he would not be considered an employee.
Why is it important to identify whether the person one has engaged is an employee or an independent contractor? An employer is vicariously liable for the acts of an employee but not for those of an independent contractor. Provided that such acts were within the scope of the employee’s employment and not as a result of frolics of his own outside this scope. An employer must comply with several laws affecting employees and these include the Employment Act 1955, the Industrial Relations Act 1967, the Employers Provident Fund Act 1991 and the Employee’s Social Security Act 1969. These Acts were designed to safeguard the interests of employees and require the employer to inter alia make EPF and SOCSO contributions and provide other benefits to his employee. These Acts do not apply to the independent contractor.
Unlike an employee, an independent contractor carries out the work as his own principal, and has to complete the work he has contracted for and cannot terminate his services without being in breach of the contract. The independent contractor determines the method he will use in providing his service with his own resources. Unlike the employee, the contractor has no fiduciary duties to the employer beyond his contractual duty to provide the services contracted for. This relationship with a contractor, where he is his own principal, shields the employer from liability for debts and torts of the independent contractor. The employer may however be liable for abnormally or inherently dangerous activities, even if not at fault; eg. where the contractor is involved in very hazardous activity which is likely to cause substantial injury (such as blasting with explosives). In this situation, the independent contractor would also be liable for any damage or injury caused by the independent contractor and therefore an injured party may claim from either the independent contractor or the employer.
So who do you employ?
The question of whether the employer should engage an employee or an independent contractor will depend on the business needs of the organization. If the employer requires temporary staffing to fill a sudden spike in work or if the employer wants to have a lean organization or if the employer wants his staff to gain from exposure to outside specialists then he would outsource those activities and engage an independent contractor. It is usual for employers to want to engage some employees so that the organization builds up the skill sets essential for its core business – for reasons of confidentiality, training and to ensure protection of intellectual property.
This article was written by David Dass and S. Nadarajah of Christopher Lee & Co. (www.christopherleeco.com).
Article length : 858 words
Date : 1 July 2011
Contact : Kuok Yew Chen
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