Contract of

Employment

Danushka Medawatte-Jayatunge
LL.B (Hons) Colombo, LL.M (Harvard),
James Souverine Gallo Memorial Scholar (Harvard),
Attorney at Law, Lecturer Faculty of Law
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At the end of the lesson, the

students should be able to:
Define the difference between an employee
and a service provider
Examine the nature of the employment
relationship
List the tests applicable for determining
whether an individual is an employee or a
service provider
Describe the role and effect of common law
and statute based law on the employment
relationship.
Describe contract of employments and its
essential elements
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The contract of employment

Just like the law of contracts, the law of
employment is also a part of Civil Law
It is basically concerned with the
relationship between the employer and
the employee
Sometimes there may be a special system
of courts for employment matters.
They are referred to as Labour Tribunals in
Sri Lanka. There can also be arbitrations.
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The parties of an
employment contract

International Law

Why is it important to know whether a

person is an employee or an
independent contractor?

Only an employee has certain rights in

Labour Law. These rights are not given to
an independent contractor. That is why it
is important to know this distinction.
What are the instances in which these
rights are given?
Unfair dismissal
Redundancy
Notice on termination

What are the internal factors

that will affect the contract
of employment?
Collective Agreements
Customs and trades of the business
Trade practices
Memoranda
Notices displayed in the workplace
Sudden changes that take place in the
international market with regard to the
particular changes affecting that market
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Contract of Employment v
Contract for Services
Contract of
Employment
There is a contract
OF employment
There is an
employee who works
under an employer
Works under the
direct orders of the
employer

Contract for
Services
There is a contract FOR
services
There is an
independent contractor
and a hirer of services
The independent
contractor has the
discretion to decide
within the scope of the
employment
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Express Terms

Implied Terms

Letter of Appointment

Court orders

Circulars

Accepted practices in the

work place

Standing orders / Codes

of Practice

Traditions and customs of

trade

Collective Agreements

International practices
which may be applicable.

Relevant Acts of
Parliament

Sources of Terms
Express

Implied

Contained in
contract
Written or Oral
By Statute

By the Court
To give business
efficacy
Custom & usage

What are implied terms?

Trade practices which are too obvious
to be incorporated into a contract.
Necessary implications those
necessary for the smooth functioning
of the contract
The conditions to which the parties
have agreed to by virtue of their
conduct.
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Unenforceable Terms

Illegal terms
Discriminatory terms
Restraint of trade
Terms which exclude liability for
death or injury

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Unlawful discriminations

Gender
Race
Colour
Religion
Sexual orientation
Disability
Socio-economic background
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Direct and indirect

discriminations
Direct Discrimination targeting an
individual
Indirect discrimination
(i)Imposition of unnecessary
requirements that target a given
population
(ii)Imposition of requirements that are
not necessary for the type of
employment.
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What are the Acts and

Statutes that affect the
Contract of Employment?

The Shops and Office Employees Act No 15 of

1954
Maternity Benefits Ordinance No 32 of 1939
Employees Provident Fund Act No 15 of 1958
Employees Trust Fund Act No 46 of 1980
Payment of Gratuity Act No 12 of 1983
The Industrial Disputes Act No 43 of 1950
Trade Union Ordinance No 14 of 1935
Factories Ordinance No 45 of 1942
Workmens Compensation Ordinance No 19
of 1934
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The tests to identify whether an

individual is an employee or a service
providertests that are
There are several

applied to ascertain whether it is a

contract of employment or a contract
for services.

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Control Test
A servant is a person who is a
subject to the command of his
master as to the manner in which he
shall do his job.
Yewens v. Noakes [1880]

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Integration Test
Stevenson & Jordan [1952]
A person under a contract of service
does his work as an integral part of
the business.

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Economic Reality Test

Market Investigations Ltd v. Minister of Social
Security
Control is not the sole determining factor of
whether an employment contract exists. The
other factors such as who provides the
employment tools, who hires the
aids/assistants, the nature and the extent of
the financial risk undertaken by the individual,
the degree of responsibility undertaken for
investment further determine the nature of
the contract in existence.
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New Four Part Test

Control
Ownership of tools
Chance of profit
Risk of loss

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Other factors that help

determine the status of an
individual

Mutuality of obligations
Contextual approach
Label that is used by the parties

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What are the three conditions that should

exist in a contract of employment?

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Why does the contract of

employment continue to hold
importance?

Casus omissus gap filling function

of instances unregulated by statute
Contractual provisions as a remedy
(i)Breach of contract related provisions
(ii)Arbitrations
(iii)Severability clauses
Reliance of statutory remedies on
contractual provisions.
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Form of the Contract

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Characteristics of the Contract

of Employment
Law v. London Chronicle [1959]

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Offer, Acceptance and

Consideration
An offer is a definite & unequivocal statement
of willingness to be bound on specified terms
without further negotiations
Acceptance is the Unqualified and
Unconditional assent to all the terms of the
Offer.
Consideration is an act or forbearance on the
part of one party to a contract as the price of
the promise made to him by the other party to
the contract.
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Types of Contracts

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Contracts of Indefinite
Hiring
No need to be in writing.
Conduct could suffice to form the
contract
No fixed term for the contract
Notice from the party wishing to
terminate the contract is necessary.

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Restrictive Covenants
Not enforceable unless it is reasonable
Cannot restrict the employee from
using the skills that he/she has
acquired either from previous training
or while engaging in the activities of
the job.
Can prevent the employee from
utilizing secret formulae, recipes of
which the divulging of information
would be detrimental to the employer.
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Duties of the Employer in

relation to the Contract of
Employment

Maintenance of sanitary facilities

Maintenance of safety standards of
equipment
Supply of safe equipment to the employees
Providing training to the employees
Providing occupational safety instructions to
the employees
Abstaining from using employees in
hazardous working conditions.
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Applicability of the Contract

Only the parties to a Contract, (privity)
Acquire Rights & Obligations under it.
Can sue and be sued on it.
Exception: Trust Law allows a beneficiary to enforce a
Trust.

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What are the evidences that can be

used to prove that a contract of
employment exists?
Job advertisement
Letter offering a job
Letter of appointment
Job description
Pay slips
Work registers maintained by the
employer
Contract of employment
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Minimum rights available to an

employee through a contract

Hours of work
Leave
Minimum wage
Equal opportunities / non-discrimination
Maternity rights / benefits
Itemized pay slips
Social security
Safe working environment
Guaranteed payments / redundancy
payments
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BREACH OF CONTRACT.

Breach of Contract occurs where one of the parties to the

agreement fails to comply either completely or satisfactory
with their obligations under it.
Actual Breach

Anticipatory Breach

On the due date for

performance.

Before the due date

for performance.
Treat the contract as
discharged & action for
damages.

Treat the contract as still

valid & complete his side
of the borgam & then sue
for payment
White & Carter Vs. Mc
Gregor

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EQUITABLE REMEDIES.
Specific
Performance

Injunction
Enforce Negative
covenants

Enforce Positive
covenants
They are not granted if,
Damages are an adequate remedy.
The claimant has acted unfairly.
The order would cause undue hardship

The order would require the constant supervision of the

court.
There is undue delay in seeking the remedy.
Warner Bros. Pictures Inc. Vs. Nelson.
Page One Records Vs. Britton.
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How to handle wrongful

dismissal?

Terms of contract
Common law / statutory provisions
Labour Tribunals
Courts
Where there is no just cause for the
termination, both the employer and the
employee are required to give reasonable
notice to the other party.
Employer may give the required pay in lieu of
notice.
Just cause dismissal requires no notice
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What are the circumstances in

which wrongful dismissal
arises?
No just cause
Notice given, but employee claims notice is
inadequate
Constructive dismissal

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Illegality of Contract
No remedy is available for an illegal
contract.
Supervening illegality may affect the
validity of a contract.

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