SH INDUSTRIAL 1 2023.02.03 Contract of Service vs. Contract For Service ENG

Contract of Service V.
Contract for Service
In contract for service, the servant himself becomes the master. Contracts for service
are made to exchange the knowledge and works for money. In here, a person agrees to
do a service and takes money after that service is provided by him. This is the contract
for service. Therefore the worker in a contract for service can be identified as an
independent contractor.
As contract for service comes under commercial contracts, remedies for the general
contract of law are applied when it is breached. Remedies under labour law do not
apply for a contract for service.
It has become very difficult to understand the difference between contract of service
and contract for service with the complexity of the industrial world. There is a little
difference between those two contracts. To understand that difference, it is required to
understand the nature of the contract that the two parties have entered.
Therefore it is very much important to distinguish those two types of contracts in

labour law. For that purpose, tests to identify a contract of service have been
introduced by courts through judgments. Such as,
01. Nominal Test

02. Control Test
03. Integration Test
04. Economic Reality Test
05. Multiple Test
Now we will discuss those tests briefly as follows,
1. Nominal Test
In the very beginning, the courts simply identified the nature a contract as specified in
the contract. On the face of the contract the court decided if it was a contract of
service or contract for service. But as the industrial society became complex, it
became very difficult to identify the nature of the contract with the expression on the
face of the contract.
[By- Sheran Dewapriya Hettiarachchi]

Young and Woods Ltd v. West
It was held that the true nature of the relationship that the parties entered into cannot
be identified by a mere label. And the relationship that the parties have can be altered
lately.
Ready Mixed Concrete Ltd v. Minister of Pensions and National Insurance
It was held that the relationship between the parties is a legal opinion which can be
decided on the facts.
De Silva v. The Associated Newspapers of Ceylon Ltd
It was held that the court was not bound by the introduction or nominal of the contract
and the true nature between the employer and the employee can be different than the
names that the parties had given in the contract.
2. Control Test
Here, it is considered the manner in which the master controls his servant. Whether
that person is his servant or not can be decided by the manner in which he controls
and commands on that person.
In this test the court considers different facts in order to decide the nature of the two
parties such as the ability of the master to select the servant, assign works to him,
decides his salary and work time and the power to terminate him etc.
If the master has the above power over the servant, such contract can be identified as
contract of service. If the master has less power over the servant that contract is a
contract for service.
Short v. Handerson
The court set out four elements in identifying contract of service as follows,
i. The master has the power in selecting his servant.

ii. The master has the power in determining the wages and other
remuneration of the servant.
iii. The master has the power to control the method on how the work is done.
iv. The master has right and power to suspend or dismiss the service provided
by his worker.
Ceylinco Insurance Co. Ltd v. Commissioner of Labour
An insurance agent was contracted with the company for period of two years. Within
that period he shall not engage himself directly or indirectly in any occupation, work
or business with any other company or individual. The court used control test and held
that he was an employee of the company.
Sri Lanka Insurance Corporation Ltd v. Commissioner of Labour
He was a motor car assessor. His duties were inspections, assessment, investigations
etc and had to be available at short notice. He was not permitted to delegate his works.
It was held that he was an employee of the company.
Jamis Appuhamy v. Shanmugam
Justice Sharvananda held that the control test was very much important when deciding
the true nature of the parties.
However, the master’s power over the servant was gradually faded away due to the
modern technology and the knowledge and skills of the workers.
3. Integration Test
It is considered the integration of the worker to the company and how much his
service is important to the company.
If a worker is employed as part of the business and his work is done as an integral part
of the business, the contract between then is considered as contract of service.
Under a contract for service his work is, although done for the business, is not
integrated into it. He is considered as an independent contractor.

Stevenson, Jordan and Harrison v. Mcdonald and Evans
The court established the integration test in this case. The question is whether or not
the work of an individual is an integral part of the business of the employer. Under a
contract for service a worker is not an integral part of the business but an accessary to
it.
This case was referred in Sri Lankan cases of De Silva v. Associated News Papers of
Ceylon and Perera v. Marikar Bawa Ltd
Perera v. Marikar Bawa Ltd
The appellant was the head Cutter of the company. He was provided with a cubicle
but employed his own workmen and using his own tools. The company passed
tailoring orders to him and he was paid commission. He did not sign the attendance
register and was not entitled to a bonus like other employees. It was held that his work
was an integral part of the business and therefore he was a workman under a contract
of service with the company.
4. Economic Reality Test

Market Investigation Ltd v. Minister of Social Security
Justice Cooke held that in order to distinguish between a contract of service and
contract for service, those two questions shall be asked from the person who provided
the service. Those two questions are,
i. Whether the worker is in business on his own account?

If the answer for this question is ‘yes’, he is not a workman but an
independent contractor.
If the answer for that question is ‘no’, he is, according to this test, a
workman.
ii. Whether the worker takes the ultimate risks of loss or chance of profit?
If the worker takes the risk of loss or chance of profit he is working under a
contract for service. So that he is an independent contractor.

5. Multiple Test
Montreal v. Montreal Locomotive Works
Lord Wright was introduced multiple test in this case. According to him in many cases
question only be settled by examine the various elements of the relationship between
parties.
Due to the complexity of the industrial society, those tests cannot be used individually
to decide the nature of the contract between parties. It is proper to take all the tests
together and use in order to decide the true nature of the relationship of the parties.
In this test, the followings can be used to identify the nature of the relationship.
 Control
 Chance of profit
 Use of tools and equipment
 Risk of loss
By- Sheran Dewapriya Hettiarachchi
Attorney-at-Law,
BA (Sp) Hons(Sociology) J’pura
MA(Political)-Kelaniya
MA (ug)- Colombo

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Contract of Service V.

Contract for Service

Therefore it is very much important to distinguish those two types of contracts in

01. Nominal Test

Now we will discuss those tests briefly as follows,

[By- Sheran Dewapriya Hettiarachchi]

Ready Mixed Concrete Ltd v. Minister of Pensions and National Insurance

De Silva v. The Associated Newspapers of Ceylon Ltd

i. The master has the power in selecting his servant.

Sri Lanka Insurance Corporation Ltd v. Commissioner of Labour

Jamis Appuhamy v. Shanmugam

[By- Sheran Dewapriya Hettiarachchi]

Perera v. Marikar Bawa Ltd

4. Economic Reality Test

i. Whether the worker is in business on his own account?

[By- Sheran Dewapriya Hettiarachchi]

By- Sheran Dewapriya Hettiarachchi

BA (Sp) Hons(Sociology) J’pura

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