Employment Status Dispute Analysis

QUESTION 1

Dan operated a business providing statistical analysis in the financial services sector. Eve and Fred have both worked for Dan for three years. They were both described as self-employed and both pay tax as self-employed persons. Dan provided all of their specialist computer equipment and software. Eve was required to work solely on the projects Dan provided, and she had to attend Dan’s premises every day from 9 am until 5 pm. Fred, on the other hand, usually worked at home and was allowed to work on other projects. Fred could even arrange for his work for Dan to be done by someone else if he was too busy to do it personally. As a result, of the downturn in the financial services sector Dan has told Eve and Fred that there will be no more work for them and that they will not receive any further payment or compensation from him for their loss of work.

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Answer:

Employee Rights Act 1996 Section 230 defines employee and protects the rights of the employees in cases of being terminated by the employer. Description of an individual as self-employed in itself is not enough to determine the status of the individual as self-employed as different factors may play into the individual being determined to have the status of employee. As per the control test, the individual can be determined to have the status of an employee if control is exercised by the employer to guide and control the employee’s actions and the time and place for the actions (Ready Mixed Concrete (Southeast Ltd) v Minister of Pensions and National Insurance). There need not be direct supervision for the employer to exercise control (Montgomery v Johnson Underwood Ltd), or even day to day control by the employer (White and Todd v Troutback SA). However, if individual is working on his own account and has some business interest in the work, then he can be described as self-employed (Autoclenz v Belcher). The courts also use the integration test to determine employee status, wherein if the worker markets his services that allows him to be hired by others rather than being an integral part of the business would mean that he is not an employee (Cotswold Developments Construction Ltd v Williams). With respect to Eve, the control test is applicable to determine the status of employee as she was required to work solely on the projects Dan provided, and to attend Dan’s premises every day from 9 am until 5 pm. With respect to Fred, the integration test is applicable to say that he is not an employee because he can work on other projects or get someone else to do his work for Dan. He can be said to be working on his own account. Therefore, Eve gets the protection of ERA 1996 but Fred does not.

QUESTION 2

Consideration is an act or promise given in exchange for a promise, meaning that both the parties to the contract must promise something to each other in exchange of something. Consideration is in nature of quid pro quo and it reflects on the intention of the parties to create legally binding relations (Edmonds v Lawson).

Explain the following statements regarding consideration:

(i) Consideration must be sufficient but does not have to be adequate.

The size of the consideration is immaterial to determine its validity and therefore, it does not matter that the consideration be adequate as long as it is sufficient. This was held in Sturlyn v Albany, where the court held that any act performed at the behest of the other party is consideration even if it is small. Consideration should however be sufficient as held in Stilk v Myrick, where the court held that there cannot be sufficient consideration for a promise if it only consists of performing an existing contractual obligation.

(ii) Past consideration is not good consideration.

The principle is that past consideration is not a good consideration (Roscolla v Thomas) and that for it to be valid consideration must be given at the time of the contract or at some time after the contract. Past consideration becomes valid in cases where the promisee did something at the request of the promisor and where such act was for the benefit of the promisor (Lampleigh v Braithwaite). In Williams v Roffey Bros & Nicholls, the court allowed past consideration where it consisted of a promise to perform a pre-existing duty.

QUESTION 3

In Public Limited Companies, it is inevitable that Agency Relationships will arise. Indeed, it is argued that without these relationships, the system of checks and balances would be severely weakened. Critically analyse the agency relationships that exist in public limited companies and outline and critically appraise the methods that can be utilised in order to overcome potential problems in these relationships.

In public limited companies, agency relationships can relate to the relationship between Shareholders and Management because the shareholders are the owners of the company and the directors are the managers of the company. Shareholder is the principal and the directors are the agents. Agency relationships also arise between shareholders and creditors because the latter have contributed to the debt capital but are not involved in the management of the company whereas the shareholders are so involved. The creditor is the principal in the relationship and the shareholder is the agent. The need for checks and balances between these relationships comes from the fact that those who are involved in management may be involved in irregularities; directors can be involved in such irregularities and affect the interests of the shareholders and similarly shareholders can be involved in mismanagement affecting the interests of the creditors. Corporate governance has been developed to manage the problems that may arise from these relationships. Corporate governance creates structures for aligning shareholders’ interests with those of the managers of the company. Directors also have certain fiduciary and statutory duties that work to protect the interests of the shareholders. In case of insolvency of companies, the interests of the creditors are protected under Companies Act 2006. In Re Lehman Brothers International (Europe) (in Administration) v CRC Credit Fund Ltd, the Supreme Court protected the interests of the creditors to hold that the pool of money collected by the fund was held in trusr for the benefit of all identifiable creditors.

QUESTION 4

Critically discuss the contrasting views on whether the Sarbanes Oxley Act has been successful in addressing the need for the Act. Use examples to support your views.

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The Sarbanes Oxley Act 2002 is the first legislation that protects employees of publicly traded companies by giving them a nationwide right of action against retribution if they have reported fraud against the company. Therefore, the purpose of the law was to improve the public companies’ corporate governance and reduce fraud for which it provides protection to whistle blowers. It was thought that the existing protections to the whistle blowers had significant gaps which were addressed by the Sarbanes Oxley Act. Views on how successful the law has been are contested. Some scholars have criticised the law for its restrictive impact on the listing by smaller international companies in the stock exchanges in the United States. It is also argued that the law has failed to help achieve high auditing standards. On the other hand, the law has been praised for its impact on uncovering of frauds and scandals. A recent example of the success of the law can be seen in the uncovering of the fraud by Value Line, amounting to $24 million over 20 years. The fraud was uncovered following a whistle blower complaint. Therefore, it is clear that while the law may have some internal weaknesses, is also is important to strengthening the whistle blowers’ protection and this has a positive impact on the improvement of the corporate governance mechanisms in public companies.

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