When is a work contract not a work contract?

Written by: Kirsten Morel Posted: 03/04/2017

workcontractsThe traditional employer/employee model is no longer the norm, but how might the Channel Islands be affected by zero hours and the gig economy? and how is the law changing on broader issues?

Driven by technology and recession, today’s workforce has accelerated away from the traditional concept that employment is a commitment between an employer and an employee. 

It’s no longer always the case that a contract of employment binds two parties together by defining the nature of the work, hours to be worked, remuneration, certain protections (some statutory and others voluntary) and mutual responsibilities. 

Today, the increasing use of zero-hour contracts and the rise of the so-called ‘gig economy’ have, some say, degraded the status of employment and deprived workers of the stability it formerly offered.

Publicity around the abuse of employment practices in the UK – Sports Direct, for example, allegedly acted as an employer but didn’t feel obliged to offer work on a daily basis, expecting staff to accept work when offered – has caused unions and politicians to question whether such abuse also takes place in the Channel Islands.

Political reaction to zero-hours contracts has been somewhat fraught, with a Scrutiny Panel’s finding of widespread abuse in Jersey being rejected by the relevant minister due to there not being “sufficient local evidence”.

From a legal perspective, questions surrounding zero-hour contracts remain, as Wendy Lambert, Partner at Benest Corbett Renouf in Jersey, points out. “There have been some inconsistent [tribunal] decisions, but this might be because every case is different and they always come down to the individual facts,” she explains.

“However, mutuality of obligation is the crux of it. If someone doesn’t want to commit to specific hours, then a zero-hour arrangement can be good, as long as they’re free to accept or decline the hours when offered.”

A similar issue to zero-hour contracts is the gig economy – where people are treated as self-employed subcontractors by a company, which provides them with work on a job-by-job basis. 

The firm that’s perhaps most strongly linked with this arrangement is Uber, the app-driven, unregulated cab company. A recent tribunal decision in the UK found that Uber’s drivers should, in fact, be classified as ‘workers’, a status that affords them greater entitlements under the law – such as paid holiday leave and access to the minimum wage – than would be the case if they were self-employed, though not as many as full employees. 

Islands impact

So does this finding affect the Channel Islands? In direct relation to Uber, no, as the company doesn’t operate in the islands. But could worker status have wider significance for people in a similar situation working for other companies?

“We don’t have this intermediate ‘worker’ status in Jersey,” explains Richard Sheldon, Counsel at Channel Island law firm Appleby. “Arguably this could make us more attractive to start-up tech companies, because a similar case decision could go the other way.”

It could be some time before we see such as decision because there isn’t a lot of evidence, empirical or anecdotal, that the gig economy is growing in the islands.

Lambert says: “I haven’t seen a huge rise in these types of working relationships. There are examples of organisations that refer to people as consultants, particularly in the tech sector, but if they are genuinely self-employed and choose to work their own hours, and choose how to conduct their work, it shouldn’t be problematic.”

At the heart of the issue is the matter of control and exploitation. Some people want to be in charge of their daily work, rather than hand that control to an employer; others fear exploitation by unscrupulous employers.

“Individuals operating under those contracts don’t benefit from all of the same minimum protective measures, which are otherwise afforded to employees,” explains Niall MacDonald, Associate at law firm Walkers. “And employees with zero-hours contracts can be offered no shifts.” 

However, both Jersey and Guernsey courts prefer to uphold contracts between parties, unless specific circumstances apply. “Parties can normally expect to hold each other to the terms of any agreement, by legal proceedings if necessary. However, there are exceptions, including the contract being unlawful or contrary to public policy,” says MacDonald.

Anti-discrimination laws fall into these categories, including Jersey’s new age discrimination law, which came into force in September 2016. Guernsey has yet to introduce a similar statute.

“We’re in a two-year transitional period, during which time employers can have a compulsory retirement age,” explains Lambert. “After that, they can only have one if they have a clear rationale as to why they need it. Reasons could include physical capabilities or succession planning.”

There are however, very good reasons not to include a compulsory retirement age, irrespective of the law. “Most businesses are considering moving away from a retirement age,” says Huw Thomas, Counsel at Channel Island law firm Carey Olsen. “If you look at the tightness of the labour market and the islands’ demographics, there’s already a ‘battle for talent’ which is forcing employers to take a different approach to recruitment and retention.”

In islands with limited talent, there are good reasons to question the idea of a compulsory retirement age because it can be seen as creating a brain drain. “When someone is 65, they don’t suddenly become incapable of doing the job they could do before,” says Richard Sheldon.

Moving on

Whether people choose to retire or are looking for opportunities in pastures new, when an employee leaves, it disrupts the business to a greater or lesser extent. The harm caused can be exacerbated if the leaver uses their inside knowledge to help a competitive business. 

If a former employee tries to take clients or colleagues with them, the chances are that they won’t be breaking the law, so firms have to look to their employment contracts in order to prevent this kind of behaviour.

“There are several types of restrictive covenants that employers might include in their employment contracts,” says Thomas. “They can try to protect commercial information or include non-compete clauses and restrictions on taking colleagues with you. They might also have non-dealing or non-solicitation clauses in relation to clients.”

Non-dealing clauses are similar but wider than non-compete clauses. The former stops the employee from having any dealings with former clients whilst non-compete clauses tend to stop the ex-employee approaching their previous company’s clients.

When properly drafted and in appropriate circumstances, restrictive covenants are usually enforceable, but it’s not without cost.

“They’re difficult and expensive to enforce but many employers – particularly in the financial services industry – regard them as vital tools to protect their business. In practical terms, most employers are pragmatic about enforcement,” says Thomas.

Part of the reason for the high cost of enforcement is that these clauses aren’t enforced by tribunals but in the Royal Court. Interestingly, legal opinion regarding restrictions has changed over time.

“There used to be a presumption that covenants that restricted a person’s ability to work were a restriction of trade, but this has changed,” says MacDonald. “Now, the court takes into account the legitimate interests of the employer, which include secrets and confidential information, as well as the stability of the workforce. They don’t include competition.”

For people approaching the age of retirement, the employment landscape is very different from the one they entered 40 or so years ago. Greater flexibility has costs and benefits for both employees and employers, but for the latter, evolving employment laws mean they have to stay on top of their game – and that’s as important with regard to individual employees as it is for the company as a whole.

At a company-wide level, employers should look at the employee handbook as a constantly developing document. Employment laws change as employment relationships do – making today’s perfect agreement tomorrow’s tribunal evidence.

“Staff contracts, including handbooks, and agreements with contractors should be reviewed regularly, to ensure that their terms keep pace with legislative developments; and reflect the true nature of the arrangement between the parties, especially if it’s evolving too,” says MacDonald.

The concept of employment is definitely changing, but it’s not the case that one side is benefiting more from modern-day employment relationships. Employers and employees need to be aware of their rights and wishes. By knowing what they want to get from the relationship, they can ensure that it’s a smooth and fruitful one.

STAYING UP TO DATE

Few employment relationships remain the same over time. Junior employees enter management, staff leave temporarily to start families, small companies become large ones – it’s the way of the world. This state of change can be difficult for employers and employees,who often both forget to ensure that contracts and job descriptions are updated as circumstances change. Here are a few things both sides should look out for:
? Notice periods need to be looked at whenever someone is promoted. Generally, they will increase with seniority because an employer needs to ensure they aren’t suddenly left with a hole at the top of their organisation. For the employee, longer notice periods give greater confidence that they will be properly recompensed should they be placed on gardening leave.
? Similarly, restrictive covenants should have a time limit attached. A court is less likely to enforce a covenant that lasts for two years or even longer because it will be viewed as a restriction on trade. Richard Sheldon, Counsel at Appleby, suggests that terms of three, six, nine and 12 months can be used, increasing with seniority.
? Employers shouldn’t use pro forma clauses to describe restrictive covenants in the employment contract. To do so could weaken their chances of enforcing restrictions, should that become necessary.
? Employers should tailor employment contracts and employee handbooks to the industry they’re in, making sure they understand how certain restrictions will affect both sides of the relationship and that they revisit the handbook regularly.

 


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