When is an Employee not an Employee in the Cayman Islands?

 In the UK and around the world, a large amount of case law has developed around how to assess whether an individual is an employee or not. Companies such as Uber and Pimlico Plumbers have fought lengthy court battles to avoid declarations that their staff are employees or workers due to tax issues and other statutory benefits that employees and workers are entitled to.

In the Cayman Islands, it is equally important to know whether a business or even an individual has entered into a contract for service or a contract of service. A contract of service would indicate an employee / employer relationship, a contract for service would indicate something else.

The determination of what is and what is not a contract of/for service is very fact specific and the authorities can look behind any written document to see how the services were performed.

Generally, in the Cayman Islands, the Immigration Act requires that an expatriate has an immigration permission to work in the Cayman Islands, i.e. be an employee, of a business or of an individual. If that expatriate has no immigration permission to work as an employee for the individual or the business, then the employer and the employee are breaking the law and can be prosecuted.

In the event that Workforce Opportunities & Residency Cayman (WORC) have a suspicion that an individual or business is in breach of the law, an investigation can take place.

The Department of WORC have the power, if they so wish, to issue an administrative fine to the individual and the business if they believe that a breach of the Immigration Act has occurred.  These fines can be up to five times the cost of an annual work permit fee and as a result these fines can be very punitive.

If a business accepts that they have broken the law and accept an administrative fine they will be placed on the “WORC Offenders Register”, although this Register is not publicly available. The Department has published a policy in regards to the effect of this and it appears that if you find yourself on this Register your applications will be subject to additional scrutiny, may be delayed and administrative fines will be increased in the event of repeated breaches.

An individual who has been working without an immigration permission who accepts an administrative fine, could experience trouble obtaining future work permits or a future Permanent Residence application might be put in jeopardy.

If the offer of a fine is declined, WORC submit the file to the office of the Director of Public Prosecution (“DPP”) to determine whether or not a prosecution should take place.

Recently a business in the Cayman Islands found themselves under investigation for employing a “social media influencer”. This is not the first time that social media influencers have caused issues for businesses in the Cayman Islands. Businesses and influencers have been fined in the past for operating in the Cayman Islands without the appropriate immigration permissions.

What was different in the most recent investigation was that the business had been wise enough to enter into a formal written agreement with the influencer which was far more consistent with a “contract for service” as opposed to a “employment contract”. Equally, the way in which the business and the social media influencer operated was far more consistent with a contract for service than an employment contract.

As part of the investigation, the business was permitted to provide the contract to WORC and also make submissions as to why they had not broken the law. Despite this and the acceptance from WORC that the social media influencer was not “under a contract of employment” an administrative fine was proposed by WORC because they considered that the influencer “should not have been providing services to (your) client nor receiving compensation in any form without the appropriate work authorization”.

The business found themselves in a very difficult position. On the one hand they could accept the administrative fine, which while fairly punitive could be absorbed or on the other hand they could maintain that they had done nothing wrong and risk a prosecution. Not only did the business risk a higher fine, but they also, if the prosecution took place would face the risk of much higher legal fees.

In this case, the business “stuck to their guns”. They maintained they had done nothing wrong and asked for the matter to be transferred to the DPP for a legal ruling. That ruling has come back and there is to be no prosecution.

What can people learn from this?

If there is any doubt as to whether or not the contractual relationship is one which could lead to a finding of a contract of employment, the parties should take immediate legal advice.

It is primarily the responsibility of the business and the expatriates who are entering into a contractual relationship to ensure that the appropriate permissions have been obtained.  A business or an individual should never find themselves in a position that they cannot point to a contractual document of some nature which sets out the nature of the relationship between them and the expatriate.

The contractual document should clearly set out the provisions which enable the reader to conclude that the document is not an employment contract if that is the real intent i.e. no reference to a “salary” or benefits, which would be consistent with an employment relationship.

In the recent matter, the evidence was very strong that the contractual relationship was not one of a contract of service and equally the concession by WORC that the influencer was not working under a “contract of employment” helped strengthen the business’ position. Due to the fact that the business had “protected” themselves by having a written agreement, which accurately described the relationship between the parties, the business could take the “gamble” and ask for the matter to be referred to the DPP with a degree of certainty that no prosecution would take place.

But in the absence of a written document which accurately reflects the position of the parties, the business might not have wished to take the gamble and paid the fine.

While it was disappointing that WORC took the position that an offence pursuant to Section 68(5) of the Immigration (Transition) Act (2022 Revision) (“the Act”) had been made out, it is hoped that they will now have received clarity in regards to the law.

Section 68(5) of the Act is clear and it states:

(5) A person who employs another in contravention of this Act or in contravention of any condition or limitation contained in a permit commits an offence and is liable on summary conviction in respect of a first offence to a fine of twenty thousand dollars and to imprisonment for one year and in respect of a second or subsequent offence to a fine of thirty thousand dollars and to imprisonment for two years.

An employment relationship has to exist between the parties for the offence to be established. In normal circumstances, a contract for service will not fall foul of Section 68(5) of the Act. Care must be taken when drafting a contract for service to ensure it is clear that no employment relationship is created. Merely saying in the document, “this is not a contract of employment” is not enough. Legal advice may well be worth obtaining to avoid the risk of an administrative fine or worse.