Minding Your Legal Affairs XXIV: Are you an employee or not?

Employee or Independent Contractor?

We have a culture of informality. This extends to the matter of hiring services where, contrary to legal stipulations and or wisdom, we hire the services of others without defining the relationship.

While all is well in love, as soon as the war starts, question marks are raised about whether the person hired was an employee or a contractor.

The definitions provided in the Employment Act as to employee/employer are not very helpful in determining who exactly is an employee either, and it certainly does not tell us who is (an independent) contractor.

As we often do, we, therefore, leave the determination of our relationships, rights and responsibilities to be made by a court of law, after the fact. The court will look to establish whether there was “a contract of service”, in which case, it will call the person hired an employee, or “a contract for service”, in which case it will call the person hired, a contractor.

In determining the true nature of the contract, and therefore, the relationship, the court will apply the control, integration and economic reality tests.

1. The control test: Has the employer control over the way in which the employee performs his duties?
2. The integration test: Is it that although the employee is so skilled that he cannot be controlled in the performance of his duties, that he was integrated into the employer’s organisation?
3. The multiple test (economic reality): Is the employee working on his own account?

There are other factors the court may consider in making its determination such as:

1. Who provides the tools to perform the services?
2. Who hires and fires assistants for the employee?
3. Must work be performed at a location dictated by the employer?
4. Must the work be performed during certain hours?
5. Can the work be delegated?

Some key reasons why this distinction is so important

1. An employer must deduct and remit contributions for his employees to the National Insurance Scheme;
2. An employer must grant all the protections afforded by the Employment Act to employees, e.g., maternity, sickness, vacation etc;
3. An employer must deduct and remit to the Comptroller of Inland Revenue income tax from employees who meet the threshold;
4. An employer is generally vicariously liable for tortious acts, i.e., civil wrongs, committed by his employees during the course of their employment, but such liability is severely restricted in the case of contractors;
5. The duties and rights implied by law to an employment relationship do not apply to a contract for services relationship. This is important and affects many issues such as intellectual property;
6. An independent contractor may be required to register for and charge VAT on the services supplied; and
7. If the employer becomes bankrupt or insolvent, an employee has preferential rights as a creditor for payment of outstanding salaries etc.; a contractor does not.

Grenada Bar Association