Employee Or Independent Contractor? Limited Liability And Private Limited Company Formation

What is the test to determine employee and independent contractor classification?

To analyse whether Walter was an employee or an independent contractor will depend upon the nature of employment relationship. The employee has been considered to hire under a contract of service and an independent contract is hired under a contract for service. It can also be said that the employers are liable for any breach of laws by employee, whereas a worker itself will be liable for the breach of laws in contract for service. While employer will be responsible for the PAYE system in contract of service but in the case study, Walter PAYE has not been deducted by the employer Paula and Peter (Rogers, 2016).

There are number of criteria have been determined by the Courts of employment relationship nature. To check the employment relationship one test is control test, control test had been determined in the case Yewen v. Noakes (1881) 6 QBD 530 by the Irish Courts. In another similar, case Roche v. Kelly (1968) IR 100. In both the cases it was held that if the control is with the employer such as control of timings, clothes and what is require to do and how it should been done. The defendants in this case wanted to build a barn and for that, they have employed the plaintiff. Defendants has provided the construction materials to the plaintiff but did not supervised that how to do the job and not supervised his work. Plaintiff was experienced in building the barn. The element of Control off the employer over the employee has been the main factor to determine the employer and employee relationship has been founded by Supreme Court. In this case, there was no control of defendant over the plaintiff and hence the plaintiff was considered as an independent contractor and not as an employee (Sprague, 2015).

In accordance with the control test, Walter used to do his job in accordance with his time, there was no supervision of the Peter, and Paula on the Walter’s work. It was established in the case of Yewen v. Noakes and Roche v. Kelly case that control is required of the employer on the employee of timings, clothes and what he is doing. Thus, it can be said that Walter is an independent contractor according to this test.

The second test is integration or organisation test that is used to determine the relationship. It was stated in this test that an employee must been integrated with others in an organisations, even though there was no control of the employer about what he does. The Court will also analyse while deciding that whether the employee is a vital part of the organisation or work place.

Walter has not been integrated to others in the workplace accept Peter and Paula. However, he is vital part of an organisation.

The third test called the mixed test is a most important test which has been favoured by the Irish Courts that has been developed by the McKenna K in the case Ready Mixed Concrete v. Minister of Pensions (1968) 2 QB 497. The case states that contract has been held between lorry driver and Plaintiff Company. Lorry driver used to maintain and insured lorry by himself and he was self-employed. However, plaintiff had helped him to finance the purchase of the lorry. He used to wear uniform and his lorry has been painted by the company’s colours. The driving could be delegated by him and for that, he has been paid per mile driven. The issue in this case arose was whether the lorry driver was an employee and whether it is required to have a pension contributions by the company (Occhiuto, 2017).

What does limited liability mean in company law?

In this test, it has been stated that few conditions are required to be fulfilled for establishing a contract of service that are:

• The worker must have an obligation to do the work with his skills and in return, he will get the remuneration or the wages.
• There must be a sufficient degree of control of the employer on worker is required.
• Contract other provisions should not been inconsistent shall being the contract of service.

The Court has stated that while giving the decision financial reality shall also been required to be considered. The Court held that lorry driver was an independent contractor as there was no sufficient control was there on the lorry driver. It has been established in the case Ready Mixed Concrete v. Minister of Pensions one of the condition was not fulfilled and therefore he had been considered as an independent contractor.

In accordance with the third test, Walter provides a good work with his skills and in return, he gets the wages but there was not a sufficient degree of control over the Walter’s work as peter and Paula does not know what he actually does. He does works according to his will and working hours. Therefore, not all conditions of third test have been fulfilled by the Walter to be considered as an employee. In Accordance with the third test, it can be said that he is not an employee but an independent contractor (Cherry and Aloisi, 2016).

It can be analysed with all the three tests that Walter shall not been considered as an employee of the organisation. He is an independent contractor for the company. Walter is therefore been deal with the contract for service and not the contract of service. The employee only can join the trade union. Mr Walter also did not participate in the workplace and joining the sports club is not been regarded as joining the workplace.

Limited liability means that there is limited liability of the owners is limited to the extent they have invested in the company. However, it does not mean that they are not liable for anything, limited liability means the owner can be held liable in some circumstances and not in any circumstances. Corporations are considered as a separate legal person that has different identity from the shareholders and owners. Therefore, there liability is also separate. The person can lose the limited liability in some circumstances that is also called the piercing of the corporate veil (Van De Looverbosch, 2017). The circumstances when the funds been misused, Fraud has been done by the owners or the shareholders, in case of criminal activities by the owner and personal guarantees. In Solomon v. Solomon [1896] UKHL 1 AC 22 case, the case of limited liability of the owners where Mr Solomon was a manufacturer and at the time of liquidation he was held personally liable for the company’s debts. The Court of Appeal stated that company is a myth. But later House of Lord’s held that the company is incorporated under the Companies Act 1862 and company has a separate legal identity under the law. Hence, Mr Solomon will not been held liable for the company’s debts as he has a limited liability in the company. It can be said that the Mr Solomon will not been held liable for the company debts (Lex Vidhi, 2018).

To incorporate a new company it is required for Paula and Peter to follow certain steps:

• It is required for a private limited to be incorporated that a director shall be the resident in the European Economic Area or must have a bond of Non-Resident. The statement from the Revenue Commission will confirm that company economic activities are concerned with the  Ireland
• The company must have at least one director
• If only one director will proceed than there will be a need of company secretary. However if there are two or more directors they can themselves act as a company secretary
• The number of shares shall been release in the market that will determine the legal ownership of the Corporation
• It is required to have at least one shareholder. They are considered the owner of the company.
• The business address and the registered office of the Company are required while registering the company with the CRO. Address of the registered office has been considered as an official address of a company. The business address is from where the trading has been done.
• Deciding the company name and should be such that it does not make resemblance to any other registered company.
• For ascertaining registered office, company name, details of the secretary and directors and the subscribers’ details of its shares require applying to the concerned RoC in eform A1.
• Now when the name has been decided, the above requirements are fulfilled, and all the incorporation documents have been signed than the incorporation process will start. The company can be incorporated online via Companies Online Registration System (CORE)
• Once your company is registered and the name has been approved. The next step is required to buy the company seal (Form A Company, 2018).

There are certain advantages and disadvantages of the private limited company that are given below:

• Company has a separate legal identity.
• The companies identity is different from its shareholders.
• The company can sue or can be sued that means the company will solely been liable under the breach of any laws.
• Owners liability is limited  to the extent of the shares in the company.
• Company have a perpetual succession that means the company can live forever as it cannot be liquidated or stuck off.
• Company can come into the contracts from its own name.
• The owners or the shareholders are protected from the creditors and banks unless the directors have not provided the personal guarantee.
• The company has access to the broader skill and capital base.
• The insanity, deaths and the insolvency does not affect the company.
• The shares ownership is easily transferred by selling to another party.
• On registering as a private limited company, it will create a good impact on the outsiders.
• The company has separate rights and have a right to buy the properties from its own name
• There are certain benefits that are not taxable
• The assets of the owners have been protected from the liabilities in the private limited company ( El-Sayed, 2014)

In Lee v Lee’s Air Faming [1960] UKPC 33 case, it was held that the plaintiff as an employee of the company and not the owner of the company. The company is an individual legal personality and plaintiff will get the employee benefits.

• The cost of incorporation of private limited company is costly as minimum of £200 to £300.
• On filing of financial statements of every year in the office of Companies Registration , these details has been open to the public scrutiny.
• There are complex registering requirements in registering a private company.
• The private limited company legal requirements are much than other forms of the company.
• It is a complex process to dissolve a company.
• In some circumstance, the directors are held liable for not meeting company debts.
• Company is not easy to maintain and there are so many liabilities will appear on setting up a company.
• The profits distributed to the directors are taxable.
• The financial affairs of a private limited company are public (Van De Looverbosch, 2017).

Littlewoods Mail Order Stores Ltd V. Inland Revenue Commrs [1969] 1 WLR 1241, in this case the doctrine of Solomon v Solomon was laid down. It was stated by the Court that it is required to remove the corporate veil to see the real face behind the incorporation of the company. Therefore, the corporate veil has been removed in this case.

References

Cherry, M.A., and Aloisi, A. (2016) Dependent contractors in the gig economy: A comparative approach. Am. UL Rev., 66, p.635.

El-Sayed, M.A., (2014) Advantages of the incorporation of 2-hydroxyl propyl beta cyclodextrin and calixarene as ionophores in potentiometric ion-selective electrodes for rivastigmine with a kinetic study of its alkaline degradation. Sensors and Actuators B: Chemical, 190, pp.101-110.

Form A Company. (2018) Step by Step Guide to Starting a Business in Ireland. [Online] Form A Company. Available from: https://www.formacompany.ie/en/company-formations/ireland-step-by-step-guide.php [Accessed 28th October 2018]

Lee v Lee’s Air Faming [1960] UKPC 33

Lex Vidhi. (2018) Case Study on a Separate Legal Entity of a Company.  [Online] Lex Vidhi. Available from: https://www.lexvidhi.com/article-details/case-study-on-separate-legal-entity-of-a-company-129.html [Accessed 7/08/2018]

Littlewoods Mail Order Stores Ltd V. Inland Revenue Commrs [1969] 1 WLR 1241

Occhiuto, N., (2017). Investing in independent contract work: The significance of schedule control for taxi drivers. Work and Occupations, 44(3), pp.268-295.

Ready Mixed Concrete v. Minister of Pensions (1968) 2 QB 497

Roche v. Kelly (1968) IR 100

Rogers, B., (2016). Employment rights in the platform economy: Getting back to basics. Harv. L. & Pol’y Rev., 10, p.479.

Solomon v. Solomon [1896] UKHL 1 AC 22

Sprague, R., (2015). Worker (mis) classification in the sharing economy: Trying to fit square pegs into round holes. ABA Journal of Labor & Employment Law, 31(1), pp.53-76.

Van De Looverbosch, M., (2017) Real Seat Theory v. Incorporation Theory: The Belgian Case for Reform. Int’l Company & Comm. L. Rev., 28, p.1.

Yewen v. Noakes (1881) 6 QBD 530