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Unit VI · Employment and industrial relations law
7 min readConcept sheetEmployee vs independent contractor is a frequent 2- or 10-mark question

Contract of employment, independent contractors and types of employment

An employee works under a contract of service; an independent contractor works under a contract for services. Labour laws protect employees, so the difference matters.

EmployeeContract of service: works under the employer's control
Independent contractorContract for services: controls how the job is done
Modern testMultiple test (Ready Mixed Concrete v Minister of Pensions, 1968)
Why it mattersEPF, ETF, gratuity, leave and termination protection apply to employees

Contract of service and contract for services

A contract of employment is a contract of service: the employee agrees to work for the employer in return for wages, under the employer's direction. An independent contractor works under a contract for services: he agrees to produce a result and decides how to do it, using his own tools and taking his own business risk. A cashier on a supermarket's payroll is an employee; a painter hired to repaint the supermarket is an independent contractor. The difference matters because most labour laws protect employees (or 'workmen'), not independent contractors, and because an employer is vicariously liable for wrongs its employees commit in the course of their work.

Tests used by the courts

TestQuestion askedNote
Control testDoes the employer control what is done and how it is done?The oldest test; weak for skilled staff such as doctors or engineers
Integration (organisation) testIs the worker part of the organisation, or only working for it from outside?An employee is built into the business; a contractor is an outsider
Multiple (economic reality) testLooking at everything: control, pay, who owns the tools, who takes the risk of profit or lossReady Mixed Concrete v Minister of Pensions; the test used today

Types of employment

TypeMeaning
PermanentEmployment with no fixed end date, after confirmation
ProbationaryA trial period before confirmation; the employee is confirmed if performance is satisfactory
CasualIrregular work, often paid by the day, as and when needed
TemporaryEmployment for a temporary need, such as covering for staff on leave
Fixed-term (contract)Ends on a stated date or when a stated task is done
SeasonalWork for a season, such as harvest time
Part-timeFewer hours than full-time staff
Apprentice or traineeLearning a trade or skill under training
Outsourced (agency) workerSupplied by a manpower agency that is the legal employer

Common law duties

Employer's dutiesPay the agreed wages on time; provide a safe workplace and system of work; indemnify the employee for expenses properly incurred; not order unlawful acts; observe the statutory terms of employment.
Employee's dutiesObey lawful and reasonable orders; work with reasonable care and skill; serve in good faith (no secret profits, no misuse of confidential information, no competing); give personal service.

Labour Tribunals look at the reality of the work, not just the label on the letter of appointment. A clear written letter of appointment stating the job, pay, hours and leave prevents many disputes.

In Sri Lankan business

A supermarket cashier on the payroll is an employee under a contract of service and is covered by EPF, ETF, gratuity and leave rules. A contractor hired to repaint the store works under a contract for services and is not. Many Sri Lankan firms also use manpower agency workers, whose legal employer is the agency.

Exam angle

Short answer: “Distinguish an employee from an independent contractor.” An employee works under a contract of service, under the employer's control; an independent contractor works under a contract for services and controls how the work is done.

Structured question: “Explain the types of employment.” Permanent, probationary, casual, temporary, fixed-term, seasonal, part-time, apprentice and agency work: meaning and an example of each.

Essay: “Explain the tests used to distinguish a contract of service from a contract for services, and why the distinction matters.” Define both; explain the control, integration and multiple tests (Ready Mixed Concrete); then show why it matters: labour laws, EPF and ETF, gratuity, termination protection, vicarious liability; close.

Remember it

Employee = contract OF service (Obey Fully). Contractor = contract FOR services (Finished Output Required). Tests: C-I-M: Control, Integration, Multiple.