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Schools should take care to avoid the potential pitfalls of the law on employment status

28 March 2017

There have been a number of recently reported cases in the Courts relating to the thorny topic of employment status. As many schools appoint sports coaches, music teachers and others on a self-employed basis, it is timely to provide an update on the impact of these recent cases.

As explained in an article prepared by Will De Fazio-Saunders in our Employment team in February 2017, there are – broadly speaking – three categories of employment status:

  • Employee
  • Worker, and;
  • Self-employed (independent contractor)

The distinction between these terms is crucial, since there are certain rights which are available to employees in English law which are not available to workers and the self-employed (such as the right to bring a claim in unfair dismissal). Furthermore, certain rights are available to workers (relating to, for example, working time, minimum wage and “whistleblowing”) which the self-employed do not enjoy.

Since employment status determines the rights which employees or workers enjoy under employment law, it also determines the potential liabilities to which employers are exposed.

Employment law, as interpreted by the Courts, has failed to provide a definitive set of criteria against which employment status may be determined. This is an area of law which is evolving and many of the cases turn of specific facts which may not apply elsewhere.

A number of reviews are currently being carried out into employment status – with a particular focus on the “gig economy” – by the Department for Business, Employment and Industrial Strategy (“BEIS”), the Office for Tax Simplification (“OTS”) and the Work and Pensions Committee. The outcome of these reviews may assist the government in providing greater clarity, but for now the impact of the existing law needs to be interpreted.

Statutory definitions

Under section 230(1) of the Employment Rights Act (“ERA 1996”) an employee is defined as “…an individual who… works under… a contract of employment…”

A contract of employment is defined as “…a contract of service…” which has in case law been distinguished from a “contract for services” where the individual is an independent contractor i.e. self-employed.

If the distinction between employees and independent contractors is relatively clear, the lines of categorisation have been blurred by the introduction of the third status – that of “worker” – which sits somewhat awkwardly between the other two.

A worker is defined under section 230(3) of the ERA 1996 as an individual who works under either a contract of employment or any other contract to do personally any work for another party who is not a client of the individual.

Therefore, whilst all employees are workers, not all workers are employees.

The fundamental requirements for a worker are that the individual performs the work personally, the employer is a business undertaking, and there is mutuality of obligation (for the employer to provide, and the worker to accept work). The Courts will take into consideration a number of other factors.

Finally, a further definition of “worker” exists in the context of discrimination law, which, under section 83(2) Equality Act 2010 (“EA 2010”) protects those who are in or applying for “employment under a contract of employment… or a contract personally to do work”.

This definition, like that in the ERA 1996, also covers employees and workers, but it does not expressly exclude those providing services to a client or customer in the course of practising a profession or running a business, provided there is a contractual obligation to perform the work personally. The EA 2010 definition of “worker” is therefore a wider and more inclusive one than that found in the ERA 1996.

In one recent case that has attracted media attention, namely Pimlico Plumbers & Mullins v Gary Smith, the Court of Appeal upheld the decision of the Employment Appeal Tribunal (EAT) and held that Mr Smith, a plumber engaged by Pimlico Plumbers (PP) was a ‘worker’ and not a self-employed contractor, as asserted by PP. PP engaged Mr Smith as a plumber for approximately five and a half years and terminated the relationship approximately four months after Mr Smith suffered a heart attack. Mr Smith subsequently issued proceedings in the employment tribunal claiming unfair dismissal, wrongful dismissal, entitlement to pay during medical suspension, holiday pay, unlawful deductions from wages and disability discrimination.

Key facts were:

  • Mr Smith wore a PP uniform and drove a PP branded van.
  • The contract between PP and Mr Smith was structured as a self-employed relationship. Mr Smith provided his own tools and equipment. He bore a significant proportion of the commercial risk. For example, if a customer failed to make payment he would not receive payment; liability arising from his services lay with him and he was responsible for arranging liability insurance.
  • Mr Smith was under no obligation to accept work from PP, and it was not obliged to offer him any work. However, there was a separate provision stating that Mr Smith should complete a minimum of 40 hours a week. Mr Smith said that in practice he was able to turn down work.
  • Mr Smith submitted invoices and filed his own tax returns on a self-employed basis.
  • PP would put him in contact with prospective customers and he visited them and quoted for work.
  • There was no express right of substitution in the contractual documentation, consistent with a genuine self-employed arrangement.

Even though both parties operated on the basis that Mr Smith was self-employed, the EAT held that Mr Smith as a ‘worker’ and not genuinely self-employed, primarily because he was expected to provide personal service, even though PP plumbers could swap assignments between themselves and sub-contract some of the more specialist aspects of an assignment.

Where a contractor has an unfettered right to provide a substitute it is much more likely that the individual will be regarded as a self-employed contractor. The degree of autonomy which Mr Smith had pointed against him being an employee.

Two other recent cases, namely relating to drivers engaged by Uber and couriers engaged by Citysprint, both concluded that the individuals were workers and not self-employed. The Courts looked at the reality of the situation rather than the label placed on a relationship.

These cases are a timely reminder of the importance of structuring arrangements with atypical workers in such a way that the scope for unwelcome surprises is as limited as possible. The contractual documentation is very important but equally important is what happens in practice i.e. the reality of the situation. Our experts will be delighted to provide guidance to any school on this issue.

For further advice, please call us on 01483 543210 or alternatively email enquiries@barlowrobbins.com

By Joanna Lada-Walicki