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Status Anxiety? - Part I

15 February 2017

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

In this series of articles we will attempt to make somewhat clearer the relatively muddy waters of employment status in English law.

Since this is the first article in the series we will provide some background information as to the law on employment status and look at the various statutory definitions.

In subsequent articles we will take a tour through the case law in an attempt to further untangle this knotty issue.

Employee, worker, or self-employed independent contractor?

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 (such as the right to bring a claim in unfair dismissal).

Further, certain rights are available to workers (relating to, for example, working time, minimum wage and “whistleblowing”) which self-employed independent contractors do not enjoy.

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

The plot thickens, since different pieces of legislation contain different definitions of what exactly constitutes an employee and a worker.

And to make matters even more opaque, the case law on the subject has failed to provide a definitive set of criteria against which any of the categories can be defined.

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 results of these reviews may assist governments in offering clarity, but for now the job of lawyers is to make sense of the existing law.

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.

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 work to accept, work), but 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 than that found in the ERA 1996.

Having set out the statutory definitions, next time we will examine some of the leading cases which sought to clarify what, exactly, these definitions mean.

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

By Will De Fazio-Saunders

Read Part II