Employment status

The employment status of an individual will determine his or her rights under
employment law. In particular, it will determine the statutory rights which the
individual enjoys, over and above those in the contract. It is therefore im-
portant, whenever someone lays claim to a particular employment right, to
ascertain whether they have acquired the necessary status. The main em-
ployment rights and the status necessary to possess them are set out in the
table below.

Statutory right Employees Workers “in employment” accord-

ing to Equality Act

Unfair dismissal Yes No No

Maternity leave Yes No No

Redundancy payment Yes No No

Written reasons for dismissal Yes No No

Statutory holiday pay Yes Yes No

Right to claim unlawful deduc- Yes Yes No

tions

National minimum wage Yes Yes No

Right for part-time workers not Yes Yes No

to be treated less favourably
than full-time workers

Right not to be dismissed or suf- Yes Yes No

fer a detriment for whistleblow-
ing

Right to be accompanied at a Yes Yes No

disciplinary or grievance meet-
ing

Right not to be discriminated Yes Yes Yes

against because of a character-
istic protected under the Equali-
ty Act

Right to equal pay Yes Yes Yes

Employees

Most of the rights which are contained in the Employment Rights Act 1996
(“ERA") are confined to employees. For example, the right not to be unfairly
dismissed, the right to maternity leave, the right to a redundancy payment
and the right to written reasons for dismissal all depend upon the individual in
question being an employee. Section 230 of the ERA lays down the definition
of an employee as follows:

230(2) In this Act “contract of employment” means a contract of service or

apprenticeship, whether express or implied, and (if it is express) whether oral
or in writing.

As can be seen, this definition is not helpful. In particular, it leans heavily up-
on the concept of a “contract of service”, which is not defined in the statute.
That means that one is reliant upon the decisions of the higher courts in as-
certaining whether someone is an employee or not.

In summary, the case law sets out the following conditions which must be met
in order to establish a contract of employment:
(a) A contract between the "employer" and the "employee".
(b) Mutuality of obligation between the parties.
(c) An obligation on the part of the "employee" to perform the work personally.
(d) Control of the "employee" by the employer.

These four conditions (a) to (d) are all "musts". Once they are satisfied, that
does not conclude the matter, as one must also look at whether there are fac-
tors which are inconsistent with the existence of a contract of employment
(see?? below).

As to (a) the contract, as the statute makes clear, may be express or implied
and, if express, it may be written or oral.

As far as (b) mutuality of obligation is concerned, the "employee" and the

"employer" must be under legal obligations to one another. Usually, these ob-
ligations are upon the employee to work, and on the employer to pay for that
work: Carmichael v National Power plc [2000] IRLR 43 (HL).
As point (c) above indicates, the individual must be obliged to provide the
services himself or herself. Freedom to subcontract (i e get someone else to
do the work) is inconsistent with an employment contract: Express and Echo
Publications v Tanton [1999] IRLR 367 (CA).

As stated in condition (d), it is necessary that the employer should have con-
trol over the employee. This will cover matters such as control over the work
which is done, the hours which are worked, the location and the manner in
which the work is done. It has become increasingly clear from decisions of
the appellate courts that the employer need not actually tell the employee
how to do the job. What is important is that the employer has the right to tell
the employee how to do the job: White v Troutbeck SA [2013] IRLR 286
(EAT).

In addition to the four "musts" contained in (a) to (d), one must also consider
the overall context of the relationship. Taken as a whole, is the contract con-
sistent with a contract of employment? The following factors are among those
which will be taken into account:
(1) Who provides the equipment to do the job? If the “employer” does so, it
makes it more likely that it is a contract of employment.
(2) Does the "employee" take any financial risk? If so, that will be a factor
tending against an employment relationship.
(3) Does the "employee" hire their own helpers? Again, that is a factor tend-
ing against employment.
(4) Are there any restrictions upon working for anyone else? Any such re-
strictions will weigh in favour of an employment relationship.
(5) What are the arrangements in relation to sickness and holidays? Do these
reflect what one would normally expect in an employment relationship.
(6) Is the individual subject to a disciplinary code administered by the "em-
ployer"? If so, this will make it more likely that what is being inspected is a
contract of employment.

It should be emphasised that points (1) to (6) above are factors to be weighed
in the balance, and none of them is by itself conclusive. What is important is
the answer to the question: taken overall, does this appear to be a contract of
employment?

A court or tribunal will look at the reality of the situation, rather than the way in
which the parties describe their status. It follows that a written contract which
states that it is not a contract of employment will not be conclusive. Neverthe-
less, it will be powerful evidence as to the intention of the parties, and will
probably be conclusive if the factual position is uncertain. Similarly, the tax
status of the "employee" will not be definitive, but in cases of doubt it may
well weigh in the balance to conclude the matter one way or the other. See
Quashie v Stringfellows Restaurants [2013] IRLR 99 (CA).
As to the taxation position, if the individual concerned is an employee, the
employer is obliged to deduct income tax and national insurance contribu-
tions from their wages at source, and make payments under PAYE regula-
tions. An employee will be taxable under schedule E.

Workers

The test for determining who is a worker is derived from statute. Generally,
the definition is similar, no matter which statute or statutory instrument is re-
lied upon to establish the right in question. For example, in the Working Time
Regulations 1998, reg 2(1), the definition reads as follows:

2(1) “worker” means an individual who has entered into or works under (or,
where the employment has ceased, worked under)—
(a) a contract of employment; or
(b) any other contract, whether express or implied and (if it is express)
whether oral or in writing, whereby the individual undertakes to do or perform
personally any work or services for another party to the contract whose status
is not by virtue of the contract that of a client or customer of any profession or
business undertaking carried on by the individual;

It follows that, in order for an individual to be a worker:

(a) there must be a contract;
(b) it must be to carry out work or services personally for another party to the
contract; and
(c) that other party must not be a client or customer of the worker’s business
or undertaking.

There has been some case law on the exception contained in (c): Byrne Bros
(Formwork) Ltd v Baird [2002] IRLR 96 (EAT). In summary, the position is
this:
(a) if the individual is genuinely self employed then he or she will not be a
worker.
(b) If the individual has an arm's-length and independent arrangements with a
third party to be treated as working for themselves, then they will not be a
worker.
(c) If the individual actively markets their services as an independent person
to the world in general, they are unlikely to be a worker.

Factors to consider include the duration of the engagement, how exclusive it

is and whether the “worker” is free to work for others, as well as the method
of payment.
As to the statutory rights enjoyed by a worker, the most important are set out
in the table at the beginning of this chapter.

As far as taxation is concerned, most (but not all) workers will be taxed under
schedule D (schedule E treatment is possible, but not usual). The worker will
usually submit an invoice and charge VAT if they pass the earnings thresh-
old. It will be their responsibility to account to HMRC for tax and national in-
surance contributions. The employer has no obligation to deduct PAYE or
pay national insurance.

Discrimination

In order to be protected from discrimination, an individual must satisfy the test

which is set out in the Equality Act 2010, s 83 (2).

This definition is wider than that which applies to determine whether someone
is an employee or a worker. Anyone who is an employee or a worker, as set
out in the preceding sections, will also qualify for protection under the Equali-
ty Act. However, the definition is broader than that for a worker, because it
does not exclude those who provide work for a customer or client in the
course of a business or profession.

Crucially, applicants for employment are protected from discrimination.

Although the conditions are easier to fulfill than those for employment or
worker status, they must still be met. The individual doing the work must do
so under a contract with the person for whom the work is done. In addition,
the contract must have as its dominant purpose the execution of work or la-
bour: Mirror Group Newspapers Ltd v Gunning [1986] IRLR 27 (CA).