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NATIONAL UNIVERSITY OF

STUDY AND RESEARCH IN LAW,

RANCHI

INDEPENDENT CONTRACTOR

SUBMITTED BY: SUBMITED TO:

ARNOLD RUNDA DR. SUBIR KUMAR

SEMESTER – I ASSOCIATE PROFESSOR

SECTION – A LAW OF TORTS

ROLL NO. 858

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INDEX

Acknowledgement……………………………………………………………………………3

Research Methodology……………………………………………………………………….4

Research Question……………………………………………………………………………4

Hypothesis….………………………………………………………………………………...4

Objective……………………………………………………………………….......................4

Introduction….……………………………………………………………………………......4

Difference Between Independent Contractor and Employee………………………………....5

Conclusion…………………………………………………………………………9

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ACKNOWLEEDGEMENT

I have taken great efforts in this research paper. However, it would have not been possible
without the kind support of many individuals and organizations.

With deep sense of regard, I’m thankful to Dr. Subir Kumar for providing an insight and
expertise into topic “Independent Contractor” which greatly assisted the research.

I extend my sincere thanks to every one of those individuals whose guidance and constant
supervision kept me on toes and thereby helped me in the completion of my task. Their
knowledge on the topic and their comments on the same further assisted me in improving my
research paper.

Thank You!

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RESEARCH METHODOLOGY

In this research, the researcher has adopted the doctorial method of research, for this the
researcher has consulted various books, articles, journals, and newspapers.

RESEARCH QUESTION
Difference between Independent Contractor and a regular employee.

HYPOTHESIS

An independent contractor is liable for himself and not the party he works for because he runs
his own business independently.

OBJECTIVE

The aim of this research work is to differentiate between an independent contractor and a
regular employee on the basis of law of torts. A list of cases been used to enrich the information
and various tests by courts have also been mentioned about various aspects of it.

INTRODUCTION

Vicarious Liability deals with cases where one person is liable for the acts of others. So, in a
case of vicarious liability both the person at whose behest the act is done as well as the person
who does the act are liable. Thus, Employers are vicariously liable for the torts of their
employees that are committed during the course of employment. The common examples of
such a liability are:

(1) Liability of the principal for the tort of his agent;

(2) Liability of partners of each other’s tort;

(3) Liability of the master for the tort of his servant.

(4) Liability of the State or Liability of the Administration.

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Constituents of Vicarious Liability:

(1) There must be a relationship of a certain kind.

(2) The wrongful act must be related to the relationship in a certain way.

(3) The wrong has been done within the course of employment.

So, my research work focuses upon independent contractor which comes under the case of
principal agent.

An independent contractor is a natural person, business, or corporation that provides goods and
services to another entity under the terms specified in a contract or within a verbal agreement.
Unlike an employee, an independent contractor does not work regularly for an employer but
works as and when required, during which time he or she may be subject to law of agency.
Independent contractors are usually paid on a freelance basis. Contractors often work through
a limited company or franchise, which they themselves own, or may work through an umbrella
company.

DIFFERENCE BETWEEN INDEPENDENT CONTRACTOR AND


EMPLOYEE

Section 230(1) Employment Rights Act 1996 (ERA 1996) defines an employee as “an
individual who has entered into or works under contract of employment". Contract of
employment means a contract of service or apprenticeship whether express or implied and if
express whether it is oral or in writing. There is no definition under the Act on the meaning of
independent contractor. Therefore, we can say that an employee is someone engaged under the
contract of service.

It is important to know if someone is an employee so that he can enjoy the benefits under the
ERA1996. An employee will have been selected by the employer and will usually work full
time for the employer under degree of supervision or a wage or salary. The employer will
deduct income tax from his pay, the employer will also make social security contributions for
the employee and will provide pension scheme which the employee can join. An employer
under the ERA 1996 must give the employee two month after the beginning of his

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employment, a written particular of the major terms of the contract. It is also important to
distinguish between the employee and the independent contractor as it will bring the effect of
the Inland Revenue principle, employment protection purpose, vicarious liability and the
degree of duty of care. One of the most important reason to determine whether a worker is an
employee or not is that the employee can enjoy the rights and remedies provided under the
Employment Rights Act 1996 and these are not available for independent contractor.

VARIOUS TESTS USED BY COURTS

 Besides the contract of service, there are other tests adapted by the courts to decide if
an individual has the status of an employee. They are: -
 Control tests
 Integration test,
 Multiple factor test
 Mutuality obligation test.

Control test
This test refers to the level of control of employer has over its employees. This control arises
from the division and enforcements of jobs, time and work time. The test is named control test
as it has adopted the definition given by Lordship Bramwell B in Yewens v. Noake1 i.e:-

“an employee is subjected to the orders of his employer as regards how the work ought to be
carried out. The employer ‘s control over the workers is not confined to what has to be carried
out but also in which manner it has to be carried out". In the case of Walker v. Crystal Palace2,
a football player as a skilled person was given more freedom as to how to perform his job but
yet he was under the control of his master as he was under the direction of the football club and
direction of his captain all the times. Also, his method of play, discipline and training were all
controlled under his master and hence he was an employee. There was some weakness in this
test as it had become less effective because in the modern industrial set up there are several
specialists who monopolise a particular skill and the degree of control has become loose. the
degree of control on employee has become lessen and this test was found to be unsuitable.

1
Yewens v. Noake 6 QBD 530
2
Walker v. Crystal Palace Football Club [1910] 1 KB 87

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Integration test
Also known as the organization test where it refers to employees being essential group of the
organization. The question is how far is the employee integrated into the employer’s business.
if the employee is integrated full into the employer’s business then he is an employee or is
under the contract of service. It is clear the at an independent contractor do not become part of
the employer’s business. Lord Denning in the case of Jordon & Harrison v. MacDonald &
Evans3 suggested that an individual is an employee if his work is an integral part of business
even though the employer has no direct control on his employee.

Multiple Factor Test


It is also known as the mixed test refers to entire situation and much wider than the control and
integration test. The courts would look at various factors to determine whether the person is an
employee or not. In the case of Short v Henderson4, four criteria were used to ascertain whether
a worker is an employee or otherwise. They are the power of choice, wages or remuneration,
the right of suspension and dismissal and also right to control. In the case of Morren v Swinton
Pendelbury Borough Council5. The factors looked into by the courts include: -

 Number of working hours


 The normal working hours
 Geographical limitation of work
 The skills and also the perception of the society as regards the worker
 Methods of appointment and termination
 Types of wages
 Mutuality of Obligation Test

This test means both employer and employee are under obligation, for example the employee
is under an obligation to perform work and the employer is under obligation to provide work.
There cannot be a contract of employment if there are no mutual obligations. Once there is an

3
Jordan Harrison Ltd v. MacDonald & Evans [1952] 1 TLR 101
4
Short v. J.&W. Henderson Ltd (1945)79 LI.L.Rep. 271
5
Morren v. Swinton & Pendlebury Borough Council [1965] 1 WLR 576

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obligation by the employee she or he is entitled to pay, holiday pay and sick leave. In the case
of Carmicheal v National Power Plc6, there was no mutuality of obligation on the casual
workers who were power station tour guides. When they were offered work, they were asked
to sign a statement stating that they were offered an offer of employment as casual as required.
The court held that this means they are not employees but are independent contractor owing to
their position as casual as required. They receive payment based on number of hours they work
less deductions for income tax and National Insurance payments.

INDEPENDENT CONTRACTOR
Compared to an employee, these people are employed by means of a contract for services.
There is no control over them or supervision for example garage proprietors, house builders,
dry cleaners etc since they are independent members of the public who use them. If a house
owner pays a person or group of persons to paint his house, the contract between them is a
contract for service. Where a factory manager gets a painter to repaint his factory the contract
is for services rendered and the painter is not considered to be an employee.

5 DIFFERENCES BETWEEN AN EMPLOYEE AND AN INDEPENDENT


CONTRACTOR.
An employee under the ERA 1996 is bound by the contract of service while an independent
worker is bound by a contract for service. Is not an employee as per the Act. The employer has
the responsibility and power to control over his employees whereas for the independent
contractor there is no power of control but the party requiring the services can determine the
date for the work to be done.

For the employee is entitled to the payment of wages and salaries. For the independent
contractor it is the payment of fees or retainer and the need for the contractor to submit payment
invoices for each piece of work completed. If the worker is an employee they are subjected to
the different Acts for example the employer is responsible to contribute to Income tax and
social security benefits. The contractor on the other hand is free and the party offering the
services has responsibility over the work that has been assigned. The other matters are the
responsibility of the original employer.

6
Carmichael and Another v. National Power Plc: HL 24 Jun 1999

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The concept of vicarious liability exists in the relationship between employer and employee
where the employer is liable in tort for the wrong done by the employee while at work. In the
case of Century Insurance Co v Northern Ireland Transport Board7, the driver of a petrol tanker
was engaged in transferring petrol to an underground tank when he lit a cigarette and threw the
match to the floor. A fire was caused and an explosion occurred causing damages. The question
was whether the employer was liable for this and the court held that the employer was liable
for vicarious liability since the driver’s negligence was not independent of the contract of
service but was merely a negligent way of discharging his actual duties under that contract of
service.

The other differences between an employee and an independent contractor are the tools and
facilities to complete the work is provided by the employer whereas for the independent
contractor the tools and facilities are provided in the contractual terms but usually these are
provided by the contractor himself. The ERA 1996 provides that employees has no right to be
unfairly dismissed and before the employee can bring an action against the employer certain
requirements under the Act must be fulfilled. For example, he must be an employee within the
meaning of the Act, he must have been continuously employed for one year, they must present
their complaint of unfair dismissal within three months of the date of dismissal and finally they
must have been dismissed.

CONCLUSION

The tests used to ascertain whether a worker is an employee or independent contractor are
control test, integration tests, multiple test and multiple factor test. Sometimes these tests used
by courts are not very conclusive. The better approach to whether the contract entered into is a
contract of service or contract for service would be to consider the viewpoint of the ordinary
man as regards the contract i.e whether according to the ordinary man’s view there existed a
contract of service. Whether the parties have entered into a contract and all the terms and
conditions were in written form. Without doubt then there would exist a contract and the
relations between the parties has to be seen from the written documents themselves.

7
Century Insurance Co v. NI Road Transport Board [1942] AC 509

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