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HMRC internal manual

Employment Status Manual

Case Law: Brief History

Since the second half of the 19th century the courts have been concerned with the question as to whether or not a contract of service exists. This has led to the evolution of case law on the subject.

Under a contract of service, the relationship between the parties was considered to be that of “master” and “servant” whereas, under a contract for services, it was “principal” and “agent” (today “client” and “independent contractor” is probably more appropriate).

ControlWhat then were the distinguishing features of a master/servant relationship? In the early days there is no doubt that the right of control over how a job was to be done was the main test. This later branched out into other areas of control such as what had to be done, when it had to be done and where it had to be done.

In the 1940’s and 1950’s, control began to lose its importance as a determining factor. In the 1945 case of Queensland Stations Proprietary Ltd v Federal Commissioner of Taxation [1945] 70CLR539, Dixon L.J. said that, although there was a reservation of control over the manner in which droving was performed, it was a mistake to treat it as decisive. The fact that the drover employed servants of his own, provided horses, equipment, plant etc outweighed the right of control.

In Montreal v Montreal Locomotive Works Ltd [1947] 1DLR161, Lord Wright said more complicated tests have to be applied in the more complex conditions of modern industry. He referred to a fourfold test which had been proposed involving control, ownership of tools, chance of profit and risk of loss.

In the case of Cassidy v Ministry of Health [1951] 2KB598, Somervell L. J. pointed out that, although the master of a ship may be employed by the owners, they had no power to tell him how to navigate his ship. So the absence of control in the case of an expert was not a barrier to the existence of a contract of service. This view was later reinforced in the 1965 case of Morren v Swinton and Pendlebury Borough Council [1965] 1WLR576.

In 1953 the subject of control came up again in the case of Bank voor Handel en Scheepvaart NV v Slatford [1953] 1QB248. Denning L.J. said “the test of being a servant does not rest nowadays on submission to orders. It depends on whether the person is part and parcel of the organisation”.

Moving on to 1969, Cooke J. stated in the Market Investigations, [1969] 2QB1973, case that “The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor.”

Finally, in the 1983 case of Narich Pty. Ltd v Commissioner of Pay-roll Tax [1984] ICR286, the “weight watchers” case, the importance of control (as to the manner) made a comeback. In the course of his judgment Lord Brandon said that control is “the most important, and in most cases, the decisive criterion for determining” status.

Other factorsIn the 1960’s there were two very important cases – Ready Mixed Concrete [1967] 2QB497 and Market Investigations. In 1967 MacKenna J. in Ready Mixed Concrete laid down three conditions which had to exist for there to be a contract of service:

  • consideration in return for personal service
  • the master had to have a right of control
  • other provisions to be consistent with a contract of service.Market Investigations followed in 1969 and

  • introduced the “in business on own account” test
  • confirmed the fact that control was no longer the decisive factor; and
  • listed some of the other factors which should be taken into account.This was taken a stage further by the 1993 case of Hall v Lorimer 66TC349. In cases where there are many short-term engagements with different engagers it is necessary to consider the personal factors that exist outside the terms of the direct contractual relationship the worker has with the engager for the specific engagement being considered.

Mutual obligationThere have been many cases in recent years where the concept of mutual obligation has been considered. These cases were in the employment rights field and often concerned temporary casual staff or homeworkers where there were gaps in service. The preliminary matter before the courts was usually that the appellant had to establish that there was an “umbrella” or “global” contract in order to meet a minimum qualifying period.

The courts often found that there was no “global” contract of service because of the absence of mutual obligation and the worker was therefore engaged under a series of short-term contracts. On occasions the courts have found that a course of dealing over a period of years has led to implied continuing mutuality of obligation.

In the McMeechan case, [1997] IRLR353, the court found that a single short-term engagement was a contract of service and that the absence of an ongoing mutual obligation to provide and accept work in such a short-term contract was neither here nor there.

Personal serviceIn the 1999 case of Express and Echo v Tanton [1999] IRLR367, the courts upheld the view that, where there was no requirement for personal service, a contract of service could not exist. This reaffirmed the principle established in earlier cases including Ready Mixed Concrete. However, the more recent case of MacFarlane and Skivington v Glasgow City Council EAT/1277/99 confirms our view that Express and Echo is not unlimited in its application.