EVERYDAY LAW: Mutuality of obligation
in recent times, a lot of attention has focused on the requirement of mutuality of obligations as a test for determining whether a contract of service exists. “Mutuality of obligation” means that in a contract of employment the employer must be under an obligation to provide work and the employee must be obliged to perform it.
Increasingly, the view has been expressed that “control” and “mutuality of obligation” are part of the irreducible minimum of a contract of employment. Put another way, a contract of employment cannot exist unless there is mutuality of obligation with respect to the work and “control” over the person carrying it out.
The mutuality of obligations test can be traced to the English Court of Appeal decision of O’Kelly and others vs Trusthouse Forte plc (1983). In that case, the claimants worked in the Banqueting Department of the Grosvenor House Hotel. Their hours of work were not fixed. They worked as “regular casuals” which meant that they were assured preference in the allocation of any available work. They were dismissed and filed a claim before an industrial tribunal for unfair dismissal.
The tribunal found that there were aspects of their contract of employment which were consistent with a contract of employment. Other provisions of the contract of employment were found to be not inconsistent with a contract of employment, while others were thought to be inconsistent with a contract of employment.
Some of the factors that were found to be consistent with a contract of employment were:
• “The applicants provided their services in return for remuneration for work actually performed. They did not invest their own capital or stand to gain or lose from the commercial success of the functions organized by the Banqueting Department.
• They performed their work under the direction and control of the respondents.
• When working they were carrying on the business of the respondents.
• Clothing and equipment were provided by the respondents.
• There was holiday pay or an incentive bonus calculated by reference to past service.”
Some of the factors that were found to be inconsistent with a contract of employment were:
• “The applicants were paid for work actually performed and did not receive a regular wage or retainer. The method of calculating entitlement to remuneration is not an essential aspect of the employment relationship.
• There were no regular or assured working hours. It is not a requirement of employment that there should be ‘normally works hours’.
• Casual workers were not provided with written particulars of employment. If it is established that casual workers are employed there is a statutory obligation to furnish written particulars.”
The following factors were found to be inconsistent with a contract of employment:
• “The engagement was terminable without notice on either side.
• The applicants had the right to decide whether or not to accept work, although whether or not it would be in their interest to exercise the right to refuse work is another matter.
• The respondents had no obligation to provide any work.
• During the subsistence of the relationship it was the parties’ view that casual workers were independent contractors engaged under successive contracts for services.
• It is the recognized custom and practice of the industry that causal workers are engaged under a contract for services.”
The tribunal decided that the workers were not employees because they had the right to decide whether or not to accept work and the employers had no obligation to provide it.
The Court of Appeal upheld the decision of the tribunal agreeing that a crucial ingredient, “mutuality of obligation” was missing from the contract.
• Cecil McCarthy is a Queen’s Counsel.