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What is Employment Status?




Laura Wellbelove takes us through the various employment statuses in the UK, and delves into the confusion and uncertainty surrounding the law in this area.



The most important question that one should ask when starting a job is, ‘what is my employment status?’. The primary mechanism for determining what employment protections or rights individuals are eligible for is their employment status.[1] This may seem simple enough to discover; an individual begins a new job and poses this question to their employer, who provides an answer. Alternatively, this answer may be expressly stated in a contract of employment. However, the reality is that an individual’s employment status is far more complex to legally determine.

Employment status is divided into three primary categories. An individual could be:

1. An ‘employee’;

2. ‘Self-employed’; or

3. A ‘worker’[2]

Let us start with the simplest category, which does not often cause much confusion in practice.

Employees

An ‘employee’ is defined in Section 230(1) of the Employment Rights Act 1996 (‘ERA’), as ‘an individual who has entered into or works under a contract of employment’.[3]

A ‘contract of employment’ is any contract of service, which can be made orally or in writing, and the contract itself can be express or implied.[4] Walker v Crystal Palace FC was one of the first cases that highlighted the elements of a contract of employment.[5] The Court of Appeal focused on elements such as whether the employer had to pay pension contributions, if the individual was entitled to holiday pay, and the individual’s basic salary and working hours.[6] All of these elements come together to produce a ‘contract of employment’, which is legally required for the finding of ‘employee’ status under Section 1 of the ERA.[7] However, it may not always be obvious whether an individual is an employee or not. The case of Autoclenz v Belcher highlighted that there is much more to employment status than what is provided for in a contract and the label that is given to an individual.[8] The parties must look at the reality of the employment relationship through a multifactorial lens.[9] This approach will be discussed later on, in tandem with the practical tests that have been developed.

Self-employed

Although there are around five million self-employed individuals in the UK (before Covid-19),[10] this is the only employment status which is currently not enshrined in legislation. There is also no clear legal definition of ‘self-employment’, which continues to add to the uncertainty of this area of law.

Joinery, plumbing, and construction are the largest sectors for self-employment.[11] If someone asked you to try and define this category of employment, how would you do this? Without a contemporary legal definition, this is unclear, and it has led to a lack of clarity within this area of law – particularly between workers and self-employed people who are unsure as to which status they belong to.[12] The distinction is particularly important because self-employed status is accompanied by the fewest statutory employment benefits, and can deprive individuals of certain avenues of legal protection, such as a claim for unfair dismissal. This becomes a notable legal conundrum when employers insist on branding workers or employees (legally speaking) as self-employed, in order to reduce the cost on businesses stemming from labour regulations.

Workers

This employment status has attracted significant judicial and academic scrutiny within employment law, and it is one of the key reasons that Matthew Taylor produced his Taylor Review Report in July, 2017.[13]

The ERA in its current form attempts to define a ‘worker’, but it is submitted that this definition makes no real attempt to demarcate between ‘employees’ and ‘workers’. One may read the legislation and discover that Section 230(3) of the ERA puzzlingly defines a ‘worker’ as ‘an individual who works under a contract of employment, or any other contract’.[14] If we break down the diction, a ‘worker’ is defined very broadly, and could encompass almost anyone.

Newer business models have evolved out of the ‘worker’ status – atypical work, casual workers, independent contractors and so on. In a nutshell, all of these are broadly the same, but the current ‘worker’ definition does not reflect the reality of each type of work model. Workers are generally perceived by the courts to be those who have the flexibility of choosing to work when and where they want to, which gives them more control over jobs. The concept of mutuality of obligations is explored more below, but it stems from the case of Carmichael v National Power, which states that if there is less of an obligation for an employer to provide work, and less of an obligation for an individual to accept that work, then an individual is likely to be a ‘worker’.[15] This is the main issue surrounding employment status, as the ‘worker’ definition does not currently cover the elements of control and mutuality. The Government and the judiciary need to attempt to change the law to clarify the definition to ensure it relates to the current working climate.

In the next section, we will delve into what the judiciary has already done to mitigate the confusion surrounding employment status. However, the judiciary’s endeavours are far from problem-free.

The common law tests

Several common law tests have been developed to aid individuals and businesses to ascertain someone’s employment status. Ready Mixed Concrete was the original case to try and help determine which category an individual belonged to. In this case, it was established that one needed to look at the elements of control in the employment relationship, and whether an individual provided a personal service.[16] Regarding control, the Employment Tribunal (‘ET’) will infer whether an employer has a sufficient degree of control over an individual’s daily working activities.[17] When looking at personal service, the ET will determine if an individual works ‘personally’ when carrying out a job. If an individual can easily substitute a job for someone else without the employer’s consent, then the employee will have an unfettered right of substitution – meaning that the individual is less likely to be an ‘employee’ as they are not required to complete the work ‘personally’.[18]

Further case law has since built on these tests to provide additional layers – you now can consider the mutuality of obligations between an individual and their employer (as discussed above).[19] Other tests include looking at whether an individual is an integral part of the business – the integration or organisation test[20]; or if someone is considered ‘part and parcel’ of a company, then they are more like to be an employee. These individuals are likely to be on staff telephone directories and they may also be required to wear a uniform that represents the employer.[21] Lastly, the ET will examine whether an individual uses firm resources and equipment, and to see if the individual works exclusively for the employer: the economic reality test.[22]

Issues with the common law tests and employment status

Finding clear answers using these tests can be time-consuming. Take the current Uber case for example, which is being heard again in the Supreme Court after three years of proceedings.[23] This case has led to great controversies, whereby the drivers maintained that they were ‘workers’, but Uber argued that all of the drivers were ‘self-employed’ – mainly because they did not want to have to provide the drivers with protections associated with the Working Time Regulations.[24] The Uber case is just one example of how inconsistent judges’ decisions are. Within the ET, these judges have the decision-making power, but this power is tainted by subjective interpretations of the law.[25] This is because one judge may consider an individual to be a worker, and the other may disagree, as they think the individual is in fact self-employed – this is exactly what happened in Uber, which is why the case has continued for years.[26] Indeed, to elaborate, this is because there are so many unique factors at play within the gig-economy. Specific to Uber, judges differed on what the use of the app and the ability to reject or accept jobs meant for the common law tests outlined above. This is why there needs to be an objective standard to follow, to allow for a simpler and quicker system for individuals and businesses to determine employment status. Taylor argues that the judges should be doing less of the work in their decision-making, and the legislation should do more to improve clarity in the law.[27]

This goes back to one of our previous points – if the legislation provided a clearer definition of who a ‘worker’ was, then this could help to prevent several of these issues (though perhaps not all). Taylor also suggested that ‘workers’ be renamed as ‘dependent contractors’, and for there to be more weight given to the control element of the test.[28] However, it is submitted that changing solely the nomenclature of ‘worker’ can give us a false impression of legal progress. It is the substantive legal definition which needs reform. The ‘Good Work Plan’, written in 2018, builds on the Taylor Review,[29] and we are now waiting to see how and when the Government will implement any of its suggestions.


Written by Laura Wellbelove.




 



[1] Matthew Taylor, Good Work: The Taylor Review of Modern Working Practices, 2017, 33


[2] Ibid

[3] Employment Rights Act 1996, s.230(1)

[4] Ibid s.230(2)

[5] Walker v Crystal Palace FC (1990) 1 K.B. 87

[6] Ibid

[7] ERA (n 3) s.1

[8] Autoclenz Ltd v Belcher [2011] UKSC 41

[9] Ibid [10]https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/coronavirusandselfemploymentintheuk/2020-04-24, accessed on 19/07/20

[11] Taylor (n 1) 24

[12] Taylor (n 1) 33

[13] Ibid 6

[14] ERA (n 3) s.230(3)

[15] Carmichael v National Power plc [1999] UKHL 47

[16] Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497

[17] Yewens v Noakes (1880) 6 QBD 530

[18] Express and Echo Publications Ltd v Tanton [1999] IRLR 367

[19] Carmichael v National Power plc [1999] UKHL 47

[20] Stevenson, Jordan Harrison Ltd & McDonald & Evans [1952] 1 TLR 101


[21] Ibid

[22] Ferguson v John Dawson and Partners (Contractors) Ltd [1976] 1 WLR 1213


[23] https://www.ft.com/content/9832548a-d103-4a5b-9127-50d944cea01c, accessed on 20/07/20

[24] Uber BV and others v Aslam and others [2018] EWCA Civ 2748

[25] House of Commons Library, Employment Status, Briefing Paper CBP 8045, 2018, 33

[26] Ibid

[27] Taylor (n 1) 33

[28] Taylor (n 1) 35

[29] HM Government, Good Work Plan, 2018

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