Fabian Demicoli

Employment Status National Order

(Source:
I Review: Department of Industrial and Employment Relations) – In most cases, the differentiation
between the inherent characteristics of a self employed individual plying his
or her trade or profession and those of an employee are readily apparent. Such
a differentiation of status has various consequences, not least being the lack
of regulatory protection to self employed persons which is provided through
employment law to employees.

However, there are some instances when
the boundary, usually sharp and clear, between what constitutes an employment
relationship and what constitutes a self-employed one is nebulous at best. The
phenomenon of bogus self employment has always existed, but there is anecdotal
evidence that the recent improvement in basic working conditions of part timers
may have tempted less scrupulous employers to try to avoid their new legal
obligations.

Up until a few years ago, only a part
timer working more than 20 hours per week was entitled to the pro rata
entitlements due to the equivalent full timer. This has been addressed by the
recent legal amendments which brought about an equivalence in conditions
between a part timer, irrespective of the weekly number of hours worked, and
the equivalent full timer. A minority of employers may have considered that
classifying their existing or prospective employees as self-employed
individuals, and requesting them to register for VAT purposes and having them
issue VAT receipts, could exclude them from their new obligations. This is
abusive. The usual sectors often quoted are the cleaning, health and security
sectors, but it would be unfair to limit one's attention to these sectors and
it would be equally unfair to lump all employers in a particular sector in the
same basket.

Also of concern is the fact that the
avoidance of complying with regulatory requirements, in this case regarding
conditions of employment, can result in cost savings giving an unfair
competitive edge to ‘bad' employers, possibly resulting in loss of contracts
being awarded to more scrupulous employers. This is unacceptable as it could
result in a race to the bottom insofar as conditions of employment are
concerned.

Employment
and Industrial Relations Act

The Act defines an "employee"
as ‘any person who has entered into or works under a contract of service, or
any person who has undertaken personally to execute any work or service for,
and under the immediate direction and control of another person,….' Thus any
person who works under the' immediate direction and control' of another person
is considered to be an employee in terms of the Act. However this can be very
subjective and in itself depends or may be influenced by various factors. There
was also no specific provision in the law to cater for the effects of a
declaration by the court that a relationship is not one of self-employment but
of employment.

Issues where it was felt that there was
such a legal lacuna include those related to commencement of probationary
period, length of notice and quantification of wages due to a person whose
status has been declared to be one of employment.

National
Standard Order (NSO)

In this scenario, it was felt that a
Legal Notice was necessary to address these issues. This set out both the
criteria which would be considered in order to determine the existence of an
employment relationship and what the consequences of such a categorisation
would mean in practice. After discussion with the social partners through the
Employment Relations Board, the result was the Employment Status National
Standard Order, LN 44/2012, which came into force on 31st January 2012.

Main features
of NSO

1. Applicability

a. The LN prevails over any declaration or agreement with
regards to employment status.

b. The LN does not prevail over any other law defining or
regulating specific conditions of employment of employees falling under that
law.

2. Criteria.

The LN sets out eight
criteria which need to be considered in assessing whether a relationship which
is nominally self employed is actually one of employment. If 5 of the criteria
are satisfied, the relationship is to be considered one of employment. The criteria
are that the person concerned:

a. depends on one single person for whom the service is
provided for at least 75% of his income over a period of one year;

b. depends on the person for whom the service is provided to
determine what work is to be done and where and how the assigned work is to be
carried out;

c. performs the work using equipment, tools or materials
provided by the person for whom the service is provided;

d. is subject to a working time schedule or minimum work
periods established by the person for whom the service is provided;

e. cannot sub-contract his work to other individuals to
substitute himself when carrying out work;

f. is integrated in the structure of the production process,
the work organisation or the company's or other organization's hierarchy;

g. performs an activity which is a core element in the
organization and pursuit of the objectives of the person for whom the service
is provided;

h. carries out similar tasks to existing employees, or, in
the case when work is outsourced, he performs tasks similar to those formerly
undertaken by employees.

3. Exemptions

The Director is
empowered to consider requests made by any person to exempt relationships from
being considered as being of employment if there are particular grounds for doing
so long as such a request is made prior to the commencement of such a
relationship. The possibility was also given to seek an exemption within 6
weeks of the date of entry into force of the NSO with regards to relationships
entered into before 31st January 2012.

4. Effects of presumption of employment
relationship

a. contract automatically considered at law to be one of:

i. indefinite duration

ii. Whole time, unless
otherwise specified in writing

iii. date of
engagement to be the date of first initial continuous provision of services

iv. probationary
period to be considered to

1. be over if the
relationship was entered into before the entry into force of the NSO

2. commence on the
date of engagement to provide services if the relationship was entered into
after the entry into force of the NSO

b. Wages –

i. same wages of
comparable employee

ii. if there is no
comparable employee, same remuneration received in return of services rendered
on a self employed basis.

c. Other conditions of employment as those of comparable
employees or, in the absence of comparable employees, as provided by law.

d. Penalty clauses in relationships entered into prior to
31st January 2012 became null and void unless authorised by Director. However
the right is retained for the possibility to initiate civil procedures for
damages which may have been available to either party in relation to events
occurring before 31st January 2012.

e. Information to employees – signed statement or letter of
engagement to be delivered:

i. In case of persons who were to be considered as employees
on date of entry into force as soon as possible but within not more than eight
weeks from 31st January 2012

ii. If a request for
exemption has been refused, within 2 weeks of such a refusal

5. Conversion of contract of employment to contract for
service only allowed if authorised by Director.

6. Public Service and Sector Employment

Employment in the
public service or public sector can only occur if the necessary constitutional
provisions are respected. Thus a person employed in the public service or
sector whose relationship is nominally self employed but who is in reality an
employee because he satisfies 5 or more of the 8 criteria cannot expect to have
his relationship converted into one of employment as this would bypass the
relevant Constitutional safeguards and would be an invitation to commit abuse.
In this respect the NSO provides for a penalty in the form of one week's
compensation for every year or part of in that relationship. This redress is
possible through recourse to the Industrial Tribunal at any time during the
relationship and, only in this particular scenario, up to 4 months after the
relationship is terminated.

7. Redress

An employee may refer
his case to the Industrial Tribunal in cases where there is alleged
infringement of any right conferred by the NSO within 4 months when the
employee became aware of the alleged infringement.

Six months on

Over the past 6 months, the Department
has investigated the status of 453 individuals. Table 1 is a breakdown of the
findings.

As can be seen, almost 60% of the
persons whose status was investigated had a correct status [49% correctly being
considered as self employed and 11 % correctly being considered as employees].
However, the status of 40% of the total individuals whose status was
investigated was incorrectly classified as self employed, although in this
segment, there were 88 persons [19% of total investigated] who had particular
circumstances justifying their exemption (73% of which were in the private
sector and 27% in the public service or sector). Nine other requests for
exemption were refused. Thus after excluding this segment, it transpires that
in 95 cases [21% of cases investigated], there was a false self employment
status.

It is, as yet, too early to say whether
the NSO is having the desired effects in addressing abusive declarations of
self employment in the medium / long term. However the introduction of LN
44/2012 has served to delineate better the margins between self-employment and
employment and thus serve as a clearer guide as to what is acceptable and
unacceptable.

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