According to the 2015 Urban Labour Force Survey Report released by the Uganda Bureau of Statistics, 51.1% of the population of people in Kampala City are employed, however there is a common difficulty for them to identify the nature of contract under which they are employed. Employment basically means a contractual relationship that is created between an employer and employee where the employer furnishes a consideration of remuneration (salary) in exchange for the employee’s services.
The relationship between an employer and employee is contractual in nature either by written or oral contract. Notably, there are two types of employment contracts namely the “contract of services” and “contract for services”, which both entitle the parties to different obligations, duties and rights. It is therefore very important to draw the distinction between the two contracts so as to understand what rights, duties and obligations accrue to the two contracts. The difference between the two contracts can only be spotted from their distinct characteristics.
The tests developed include the following;
1. The control test
The test provides that “the greater the extent to which a person is under the direction and control of another person, the more likely he is to be an employee”. The control described in the test is that which requires the employee to consult the employee on what, how, where, why and when work should be done. It suggests that where the employee is subjected to the control of the employer, there exists a contract of services and that where the employee is independent it is a contract for services.
The test is however criticized for its failure to cater for the modern day employment that has become more technical and required skilled employees who are capable of operating without the control of the employer. Take for example a business man (employer) who owns a hospital will enter into a contract of services with doctors (employees) who will carry on their work without necessarily consulting the employer on how they should do the work. The test implies that the doctors would be acting under a contract for services which isn’t the case today.
2. The integration (Organisational )test
The integration test asked whether the worker’s work is an integral part of the business, if so, the worker is an employee under a contract of service. If the worker’s work is merely accessory to the business, then the worker is an independent contractor. This test cures the gap that is created by the Control test by providing that the work done by the employee must be an integral part of the business without being under the direct control of their employer. Using the hospital example as earlier discussed, the integral test would find that the doctor was an employee under a contract of services because the nature of work he does is an integral part of the hospital business done by the business man (employer).
3. The Multiple test/ Economic reality test
The test simply provided for three questions, did the employee agree to provide his work in consideration of a wage or remuneration? Did he agree either expressly or impliedly to be subject to the other’s control to a sufficient degree to make the other master? Are the other provisions of the contract consistent with it being a contract of service. The test takes into account both the control and integration test so as to draw the conclusion that the contract is a contract of service or contract for services. Whereas question one will be answered in the affirmative for both contracts, question two and three will be answered in the negative for persons working under a contract for services.
As noted earlier the two types of contracts carry different rights, obligations, and duties for example; in a contract of services an employee is entitled to a periodical wage or remuneration while in a contract for services the employee is paid for a particular task that is assigned. Secondly employees under contract of services are entitled to benefits such as social security, protection under the Employment Act, 2006, insurance, workman’s compensation for injuries incurred in the course of doing work, terminal benefits etc.
Knowing the type of contract you hold in employment will help you to understand what your rights are.
“The contents of this article have been prepared for information purposes only and should not be construed as legal advice”. For legal advice please consult a lawyer.
For more information and consultation with regard to employment contracts contact us at http://www.cramanya.com
Andrew C. Bell: Nutshells, Employment Law 3rd Edition
Keith Abbott, Norman Pendlebury, Kevin Wardman: Business Law 8th Edition