1.

TESTS FOR WORKMAN

Contract of Employment is an agreement between employer and employee,
giving rights and responsibilities to the parties in bargain.
Why this law?
In these contracts, the bargaining power of employee is reduced due to the
unequal power of employer. Eventhough this is a voluntary contract, a
workman will have to accept even unfavorable terms.
The disparity is reduced while the bargaining power is increased through the
intervention of,
- Welfare and socialist characters of the state
- Trade unions
- International labour organisation
Contract of Service v. Contract for Service
‘Contract Of Service’
A ‘contract of service’ is an agreement between an employer and an
employee to initiate a working relationship in an organization by complying
with the specific statutory obligations and clauses of the organization where
the employee is bound by the decisions of the employer and gets all the
benefits that arrive from it.

In general, these service contracts are proof that the employees are under
control and supervision of the employer and they must abide by the rules
and regulations that integrate the business operations.

Eg A is a managing director of a company and B is an assistant technician.

Here B works subordinate to a in the company which clearly shows that B is
in a contract of service with the employer. By virtue of this, the employer is
the person who is authorised to take any decisions about the terms, due
dates, scope, payments and other services of the employee in the
agreement.

‘Contract For Service’

A ‘contract for service’ refers to those agreements where the employer hires
an independent contractor to acquire any particular service that helps them
or any requirement of the company.

They are normally not constrained by the companies rules and policies, The
employer is not in a position to dictate the work but rather by the terms and
conditions set out in the contract.
 Independent contractors are free to decide the time place and deliverables
of a deal and are not directly bound by the authority of the employer as a
post to contract of services. For any business, determining the subtle
differences between the two is of utmost importance to continue and
agreement smoothly.

Suppose, X is visiting lecturer in the department of sociology in a university.

Here, X will not be regarded as an employee because he is service is only
limited to come in and giving lectures until the contract is over. After that it
is less likely that they will be rehired through a renewal of the contract.

Contract of service Contract for service

An agreement between employer & An agreement between employer &

employee. Employee is bounded by the independent contractor. Employer hires
employer to work under the authority an independent contractor to work for a
and supervision of the employer in an specific project in the organization without
organization. any direct supervision from the employer
Employer dictates terms on how to do Master requests what is to be done
The employer has the supremacy to The employer usually doesn’t have much
decide on the work hours and delivery discretion on how the work should be
of work by an employee. performed by an independent contractor.
Employee is covered by labour Not covered by the labour law but by Law
legislations of contracts
Labour departments, Labour courts District courts
The duration of an employment The duration of a contractor agreement
agreement is at the discretion of the relies on the requirement of the employer
employer. and potential of a Contractor.
An employee has the right to additional The independent contractor doesn’t get
benefits in the organization such as the additional benefits of an employee.
health insurance, retirement Entitled to specific performance and
contributions, paid leaves, and injunctions
protection against unfair dismissal
The employer is responsible for The Independent contractor is typically
withholding and paying Employment responsible for their taxes, As they are
taxes. considered Self -employed
Employers liable for torts committed by Independent contractor is responsible for
employees torts committed by himself
Employees are entitled to a monthly The remuneration depends on the kinds of
remuneration whether the business work and specific charges of an
earns profit or not. independent contractor.
Performance of work at the employer’s Performance at the provider’s place with
premises freedom to attain a ‘desired result’
Employee is an integral part of an Independent contractor is temporarily
 organisation engaged for a specific task/ defined
objective.

Tests used by courts to identify a contract of service or for service

1. Control Test (can test non-expert workers)

 The degree of control exercised over a person rendering his services is
also important to decide the relationship between the parties.

 In Collins v Hertfordshire County Council Hilbery,J stated that in a

contract for service the master can order or require what is to be done,
while in the other case of contract of service he can not only order or
require what is to be done but direct how it shall be done.

 This test looks into the ‘rights of contol’ of the employer rather than
‘actual control’.

 In Simmons v. Heath Laundry Co, Fletcher-Moulton L.J observed: “The

greater the amount of direct control exercised over the person rendering
the services by the person contracting for them the stronger the grounds
for holding it to be contract of service”

 Although the degree of control exercised is important to decide the nature

of relationship, it is not appropriate when skill workers are employed E.g.:
a Surgeon. Technological advances, specialization and professionalism
limits the application of this test.
 In such situations, courts cannot depend only on the degree of control to
decide the nature of relationship between the parties.

 In Yewens v. Noakes Bramwell,J. and in the Sri Lankan case Jamis

Appuhamy v. Shanmugam, Sharvanandha, J. stated that a servant is
one who is bound to obey any lawful orders given by the master as to the
manner in which his work shall be done. The master retains the power of
controlling him in his work and may direct not only what he shall do but
how he shall do it. However, the Sri Lankan courts are also of the view
that the control test is not the sole criterion in deciding the relationship.

 If a worker is subject to the command of his master on the manner in

which he shall do his work (what, when, where, how), he is in contract of
service. The employee cannot delegate his work to another or work in any
other place. This cannot test expert workers.

 In Ready Mixed Concrete v Minister of Pensions, there were 3

conditions of service,
 1. Employee is obliged to provide his own skill/ work in return of
remuneration
2. Implied or expressed agreement must have sufficient degree of
control by the employer
3. The ownership of the assets, the chance of profit and the risk of
loss in the business of carriage are his and not the company’s

Other provisions of the contract must be consistent with its being a

contract of service

 Beloff v Pessdram/ Y.G Silva v Associated New papers of Ceylon

Ltd, greater skills possessed by the servant limits the right of control.
The inadequacy of the control test led to develop some other tests to decide
the nature of relationship between parties.
2. Integration Test
 Looks into whether a person is integrated (part and parcel) in to the
business.
Eg a doctor is an integrated part who is necessary to run the hospital.
Eg: A counsellor isn’t an integral part, who is necessary to run a work
place.

 “Under a contract of service, a man is employed as part of the business

and his work is done as an integral part of the business; whereas under a
contract for services his work, although done for the business, isn’t
integrated into it but is only accessory to it.” Denning LJ. in Stevenson,
Jordan & Harrison v. MacDonald & Evans.

 Integration test is a useful test when services are rendered to the main
business of the organization under flexible contracts.

3. Economic Reality Test (used to check the investments in the

business by the parties)
 If one party has invested and goes through profits and losses, it becomes
a contract of service.

 In U.S v. Silk, the American Supreme Court introduced the economic

reality test and Reed,J. stated that the courts will find that degrees of
control, opportunities for profit or loss, investment in facilities,
permanency of relation and skill required in the claimed independent
operation are important for decisions.

 In Market Investigations, Ltd v. Minister of Social Security Cooke, J.

cited the U.S v. Silk and stated that according to the American Supreme
Court, the test to be applied was power of control, whether exercised or
 not, over the manner of performing service to the undertaking but
whether the men were employees as a matter of “economic reality.”

 The economic reality test leads to make decision as to whether the

person is in business on his own account or works for another who takes
the ultimate risk of profit and loss.
The courts also introduced a test with combined aspects to decide the nature
of relationship.

4. Multiple Test
 This approach ensures that the objectives of labour legislations are
safeguarded and vulnerable emploees aren’t exploited.
 In Short v Henderson, Ltd, Lord Thankerton recapitulated four indicia of
contract of service as:
(a) the master’s power of selection of his servant;
(b) the payment of wages or other remuneration;
(c) the master’s right to control the method of doing the work, and
(d) the master’s right of suspension or dismissal.
 In Montreal v Montreal Locomotive Works Ltd, Lord Wright opined
that in the more complex condition of modern industry, more complicated
tests have often to be applied. It has been suggested that a fourfold test
would in some cases be more appropriate as (1) control;
(2) ownership of the tools;
(3) chance of profit;
(4) risk of loss

 Cooke, J in Montreal v. Montreal Locomotive Work stated 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.

As the courts cannot depend only on the control test in modern ambiguous
and complex cases, they apply the control test and other appropriate tests
such as integration test, economic reality test and multiple test to decide the
nature of relationship. If such an approach is not adopted, the objectives of
many labour legislation would be defeated and vulnerable employees who do
not have equal bargaining power would be exploited.

 Ready Mixed Concrete Ltd v. Minister of Pensions and National

Insurance, a person had a contract with a company for carriage of
 concrete. He entered into a hire-purchase agreement for a lorry with
another associated hire-purchase company.

 The terms of the contract included,

- The lorry was painted in Ready Mixed Concrete Company’s colours.
- He was to make the lorry available at all times to the company, and
not to use the lorry for any other purpose.
- He did not work for set hours and had no fixed meal break. He was
entitled to employ competent substitute drivers, but if the company
were dissatisfied he had to provide another substitute.
- He had to wear the company’s uniform and carry out all reasonable
orders from the company ‘as if he were an employee of the
company.’
- He had to maintain the lorry and pay all running costs.
- He was free to buy fuel and other requirements subject to
company’s control in the case of major repairs.
- The company gave no instructions about the method of driving and
routes.
- The company made a payment to him according to a rate per mile
for the quantity of his deliveries.
- The parties could determine the contract by notice and the
company had the right to acquire the lorry. The contract had a
declaration that he was an independent contractor.
In this case, the court had to decide whether the contract was a
contract of service or a contract of carriage.
MacKenna, J. stated that a contract of service exists if the following three
conditions are fulfilled:
(i) The servant agrees that in consideration of a wage or other
remuneration he will provide his own work and skill in the
performance of some service for his master.
(ii) He agrees, expressly or impliedly, that in the performance of that
service he will be subject to the other’s control in a sufficient degree
to make that other master.
(iii) The other provisions of the contract are consistent with its being a
contract of service.

 Rev. Father Alexis Benedict of Youth Fisheries Training Project v.

Denzil Perera, a youth development project was established in Beruwela
to train youth in deep sea fishing. After three months training, they
worked as part of the crew of the boats, and later some of them became
skippers of the boats.

- The catch was sold and all collections were handed over to the project.
The applicants, trained fishermen, were paid an equal share of 50% of the
catch at the end of each month. The monthly remuneration to the
 applicants varied according to the catch. The other 50% was to the
project to meet the expenses for maintenance, repairs, renewals, etc.

- The court applied the control test, integration test and economic reality
test and stated that the project exercised control over many aspects of
the venture and bore the financial risk of the venture. The court decided
that they were integral part of the project and were employees of the
appellant as a matter of economic reality.

 Instant Marketing (Pvt) Ltd v. Ranaweera, Labeled as sales agents.

Control over using vehicles. Control over selling products. Control over
manner of sales. Control relating area of sales. Employees.
 Ceylinco insurance Co Ltd v. Commissioner of Labour, the
Company argued that the respondents were insurance agents/sales
representatives to canvass insurance policies, and they were engaged as
independent contractors strictly on a commission basis, and therefore
they were not the employees of the Company.

- The court held that it is crystal clear and is manifest that the respondents
were precluded from engaging in any other venture and from performing
services in a business of their own.

- The court applied the control test, integration test and economic reality
test and held that the respondents were part and parcel of the
organization owned and managed by the Company, and the Company had
control and overriding supervision as to the mode and manner of the
performance of services of the respondents, and decided that the
Respondents were employees of the Company.

 Sri Lanka Insurance Corporation Ltd v. Commissioner of Labour ,

the Corporation included the Respondent in the panel of Motor Car
Assessors in 1964. He was required to undertake inspections,
assessments, investigations and other work of similar nature connected
with insurance claims, in any part of the country and thereafter submit a
report with least possible delay.

- The report had to reach the Motor Claims Department within three days of
the examination of the vehicle. He had to be available at short notice to
receive his work assignments. The letter of appointment did not show that
he had right to delegate to someone else the work assigned to him. He
was paid on piece rate basis a fixed remuneration for each report
submitted, and traveling and subsistence payments as well. He was also
expected to safeguard the interests of the Corporation.
- The court said that the Respondent had a long standing and stable
relationship with the Corporation until his retirement in 2002, and he was
under a duty to act according to the instructions given by the Corporation
and the conditions in the relevant document.
- The court applied the control test and held that the Respondent was not
performing services on his own account and he was selected to perform
services to the Corporation and as such he was a workman under a
contract of service.

 Perera v. Marikar Bawa Ltd, the applicant was a head cutter of a

tailoring company. The company provided a cubicle to him, and he hired
tailors to his work and used his own equipments such as scissors,
measuring equipments, thread etc.
- The cuttings, fittings and alterations had to be attended under his
personal supervision and guidance. The company collected tailoring
orders from the customers and passed them to the applicant. The
company received tailoring charges from the customers, and paid a
commission to the applicant every month from the collection.
- The applicant had to cease any private work during the continuance of
employment with the company and the hours of attendance and work was
the normal working hours in the company. The applicant did not sign the
attendance register, and he was not entitled to a bonus which had been
paid to the other regular employees. The company did not make any
contribution to the Employees’ Provident Fund for him.

- The court stated that the control test is not an appropriate test as the
applicant possessed special skill and experience.
- It applied mainly the integration test and decided that the applicant’s
work was an integral part of the business and part and partial of the
organization, and he did not carry on his business of head cutter as a
business belonging to him, but done by him for the company as a
workman.

 UBER B.V v. Aslam, The UBER drivers were workers of the UBER
Company or self-employed independent contractors? The UBER Company
interviewed and recruited the drivers. The Company withheld the key
information of passengers. The drivers were requested to accept the trips
and not to cancel the trips and the Company logged-off the drivers who
violated these requirements.

- The Company set the default route and the drivers departed from the
route at their own peril. The Company fixed the fare and the drivers
couldn’t demand a higher amount from the passengers.

- The Company controlled the choice of acceptable vehicles & the

performance of their work. The drivers were subjected to performance
 management/ disciplinary procedure according to a rating system
introduced by the Company. The Company accepted the risk of loss in the
business, the Company handled the complaints about the drivers. The
Company had the power to amend the contractual terms of the drivers’
engagement unilaterally.
Contractor - Employer
Thilakaratne Contractors v. Balachandra, Assistant Commissioner of
Labour, all workmen were directly recruited by the Contractor. The
Contractor exercised the supervision and overall control over the workmen
including disciplinary action.
The Contractor assigned the work such as plucking coconuts, removing outer
skins of coconuts and loading coconuts into lorries to each workmen in the
Estate of Kandy Plantations Ltd. The rates of wages and payment of wages to
the workmen were determined by the Contractor.
The Kandy Plantations Ltd made the payments to the Contractor according to
the work performed by the workmen. The workmen had no contact with the
Kandy Plantations Ltd other than they worked in their Estate. The workmen
worked according to the directions of the Contractor. The Contractor
deducted 8% of the EPF contributions from the salaries of the workmen. The
Contractor was required to use his own equipment for the use of the
workmen.