Deciphering Employment Status

Introduction

The Employment Rights Act 1996 (ERA 1996) is the main legislation that defines the employment status of a person and their employment rights. Other relevant laws are the Working Time Regulations 1998 (WTR 1998) and the National Minimum Wage Act 1998 (NMA 1998).

The rights flow from the definition of an employee or a worker. The status of employment of a person and their rights are determined by the contract of employment. In Steven, Jordan and Harrison Ltd v Macdonald and Evans, Lord Denning stated that an employee works under a contract of service and a self-employed person works under a contract for service. This essay will examine the relevant provisions of the laws and judicial principles concerning the employment status with a view to critically analyse the legal consequences in terms of employment rights conferred on the person under a contract of or for service. For students who are seeking law dissertation help, understanding these legal distinctions is critical in navigating the complexities of employment law.

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Employment status is at the centre of employment law

Based on ERA 1996, Section 230, there are three kinds of work relations. They are the employee, self-employed worker or an independent contractor, and a self-employed person categorised as workers.

Section 230(1) defines an employee as the person who has ‘entered into or works under a contract of employment’. A worker is defined as a person who works under a contract of employment or under other contract, whether express or implied, whereby the person personally performs the work or services for another person to the contract and there is no client-customer relationship. This definition is also found under the WTR 1998, Section 2(1) and the NMA 1998, Section 54(3).

The definition of an employee or the worker under Section 230(1) and 230(3) requiring a contract of employment clearly suggests that all employees are workers, but not all workers are employees. It is subject to whether it is a contract of service or a contract for service. This is not clearly expressed in the Section 230 definitions. The importance of having a clear definition is because it is only the person who is qualified as an employee under the ERA 1996 who can access the full statutory protection. Such a person should have a contract of service Section 230(2) and not a contract for service to qualify for the statutory rights.

  1. Steven, Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101.
  2. Section 230(1) of the Employment Rights Act 1996.
  3. Section 230(3)(a); Steven, Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101.
  4. Section 230(3)(b) of the Employment Rights Act 1996
  5. Section 230(1) of the Employment Rights Act 1996.
  6. Section 230(3)(a) of the Employment Rights Act 1996.
  7. Section 230(3)(b) of the Employment Rights Act 1996.
  8. Section 2(1) of the Working Time Regulations 1998.
  9. Section 54(3) of the National Minimum Wage Act 1998.

Any other person who has a contract for service is qualified as a self-employed worker or an independent contractor. They are either a self-employed person categorised as workers or a self-employed person who is not categorised as a worker. Self-employed workers have fewer workplace rights. Their rights arise from the contract with the person they provide services. They are excluded from sick pay and unemployment benefits that are based on contributions. For example, they are excluded from the National Insurance Contributions (13.8% as per the National Insurance Contributions Act 2011) of the employees’ gross wage payment. A self-employed person is not legally obliged to work for the “employer” when requested.

If one reviews the provisions of the ERA 1996, it could be seen that Part I and Part II rights, including right to statement of initial employment particulars, or right not to suffer unauthorised deductions are applicable to both the employees and workers. Whereas, Part III rights, including right to guaranteed payment for an employee continuously employed for a not less than one month, are available to employees and not the workers. The requirement of continuous employment qualifies a worker to be treated as an employee. This is also applicable to those who work under fixed terms contracts, which has “a contract which has “a defined beginning and a defined end”. They are temporary worker that can access to all right of an employee subject to an appropriate length of service. They become permanent employees if employed for 4 years or more.

  1. Samantha Currie, Migration, Work and Citizenship in the Enlarged European Union (Taylor & Francis 2016), 57.
  2. Ibid, 58.
  3. Ibid
  4. Julie Ham and Sharon Pickering, The Routledge Handbook on Crime and International Migration (2017) 227.
  5. Section 1 of the Employment Rights Act 1996.
  6. Section 13 of the Employment Rights Act 1996.
  7. Section 28(1) of the Employment Rights Act 1996.
  8. Section 29(1) of the Employment Rights Act 1996.
  9. Wiltshire County Council v NATFHE & Guy (1980 IRLR 198).
  10. Norman M. Selwyn and Norman Selwyn, Selwyn's Law of Employment (Oxford University Press 2006) 55.
  11. The Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002.

The ERA 1996 has made clear demarcation between an employee, a worker and an agency worker. Section 44 provides for this protection regarding health and safety cases. Sub-section 1 clearly provides the principle of vicarious liability where the employee will be protected for any act or failure to act in connection with preventing or reducing health and safety risk at work authorised by the employer. However, this is not the case with a worker, as provided under sub-section 2, where they will be protected for any steps including steps to protect themselves or other or leaving the premises in connection with an imminent and serious danger. The protection against detriment action of the employee is extended to an act or failure to act on the part of an employee only concerning leave for family and domestic reasons, including pregnancy, childbirth, maternity, parental leave, etc. This right is not available to workers.

Agency workers have most of the rights that an employee has. The Working Time Regulations 1998 and the National Minimum Wages Act 1998 have special provisions for agency workers that provides for applicability of the ERA 1996. Regulation 32 has inserted Section 101A in ERA 1996 regarding unfair dismissal. Regulation 31 has added Section 45A to ERA 1996 (similarly provided under Section 23 of the National Minimum Wages Act 1998) regarding the right against detriments. Regulation 20 of The Agency Workers Regulations 2010 protects them through the principle of vicarious liability that the agency as the employer will be liable for his acts authorised by the agency. This protection is available to an employee too where employers are only liable for action of the employees if the actions are “closely connected” with their employment duties.

The Taylor review, thus, recognises that ‘employment status is the gateway through which an individual must go to access statutory rights’. Its review suggests that the determination of the employment status is not clear, simple and transparent that gives an uncertainty and lesser understanding of rights. However, the review recognised that the three-tier approach to employment status (employee, workers under a contract, and limb (b) workers) is an appropriate mechanism to enable access to people in less formal work relationship with basic protections. Hence, all of them have access to the national minimum wage. Even a part time worker has access to basic right of not to be subjected to any detriment act by the employer in regard to their act of seeking remedy against less favourable treatment. For example, they can compare with whole time employees.

  1. Section 4(1)(a) of the Employment Rights Act 1996.
  2. Section 44(1A) of the Employment Rights Act 1996.
  3. Section 47C(1) and (2) of the Employment Rights Act 1996.
  4. Section 47C(5) of the Employment Rights Act 1996.
  5. WM Morrison Supermarkets plc (Appellant) v Various Claimants (Respondents) [2020] UKSC 12.

There are some main tests used to determine employment status. According to the mixed or multiple test, the three conditions as laid out in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance must be fulfilled for a contract to be a contract of service. Firstly, the person must agree to provide their own work and skill for performing the service for another person. Secondly, the other person must exercise some control over the performance of the service. Thirdly, the terms of the contract must be consistent with the services performed.

In Express and Echo Publications Ltd v Taunton, the Court of Appeal held that where the services are not performed personally, there is no employer-employee relationship as a matter of law. Further, where the employer has a limited right of veto over any substitute, there is no personal service. Where the person providing service can only send a substitute if he is unable to work, there may be a personal service. The principle in this case is also reflected in MacFarlane & (2) Skivington v Glasgow City Council, where the Employment Appeal Tribunal cited the ruling in Ready Mixed Concrete, which states that the freedom to perform the service personally or through another is not consistent with a contract of service, except in case of a limited or occasional power of delegation when it may be consistent.

In Market Investigations Ltd v Minister of Social Security, Cooke J stated that the if a person performs the services, for which he is engaged, in business on his own account, it is a contract for services and the performance is not on his own account, then the contract is of services. This business risk or economic reality test requires to determine whether the person is performing the services with their own equipment; whether he hires their own helpers, the degree of financial risk he take, the degree of management and investment he has, and whether he has and the extent of an opportunity to profit from the management of the performance.

  1. Section 1(1) of the National Minimum Wage Act 1998.
  2. Section 7 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.
  3. Matthews v Kent & Medway Towns Fire Authority [2006] UKHL 8.
  4. Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968 1 All ER 433.
  5. Ibid
  6. Express and Echo Publications Ltd v Taunton 1999 IRLR 367.
  7. MacFarlane & (2) Skivington v Glasgow City Council EAT/1277/99
  8. Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968 1 All ER 433.
  9. Market Investigations Ltd v Minister of Social Security 1969 2 QB 173.

Employment status impacts the level of protection of rights. For instance, an employee has rights against unfair dismissal. In Stringfellows Restaurants Ltd v Quashie, the claimant, a lap dancer, who was dismissed on allegations that she was taking and supplying drugs, claimed unfair dismissal. Section 94 of the ERA 1996 states that an employee has the right not to be dismissed. The Employment Tribunal rejected her claim stating that she was not an employee (as defined by Section 230 of the ERA 1996) as her work was on a nightly basis and in the intervening stages involving a rota based performance, on holiday and stages in between. However, the Employment Appeal Tribunal held that her work constituted a regular performance of work and thus, there was an employment relationship. The Court of Appeal the cited the three conditions laid down in Ready Mixed and confirmed the ruling of the Employment Tribunal. Irrespective of the presence of control or a work-wage relationship, or the presence or absence of an employment contract, the facts and the nature of the services is the main criteria.

The question is one of fact and substance. The rights of workers (as provided under Section 230(3)(b)) are applicable to those working in the ‘gig’ economy. Thus, in Uber BV v Aslam, the Supreme Court held the Uber drivers as ‘workers’ for the purposes of the National Minimum Wage and paid holidays. In Ferguson v John Dawson & Partners, it was ruled that the label of an employee or an independent contractor may be persuasive, but it cannot be conclusive. The employment tribunal must review the true nature of the employment relationship based on the available evidence. Labelling the service is decisive where other factors are not clear. The determination should be based on the type of work, determination of the time to work, whether self-decided or stated-hours, the hours, the place of work, or control by the defendant over the manner of work by the claimant.

  1. Ibid; James Marson, Business Law (Oxford University Press 2013) 326.
  2. Hugh Collins, K. D. Ewing and Aileen McColgan, Labour Law (Cambridge University Press 2012); Market Investigations Ltd v Minister of Social Security 1969 2 QB 173.
  3. Section 94 of The Employment Rights Act 1996.
  4. Stringfellows Restaurants Ltd v Quashie [2012] EWCA Civ 1735.
  5. Ibid
  6. Massey v Crown life Insurance Co 1978 IRLR 31.
  7. Uber BV v Aslam [2021] UKSC 5.
  8. Ferguson v John Dawson & Partners [1976] 3 All ER 817.
  9. James Marson and Katy Ferris, Business Law Concentrate: Law Revision and Study Guide (Oxford University Press 2019) 101.

The test of ‘Mutuality of obligation’ determines the subordination in a contract by checking whether there is a mutual obligation to provide or accept work. The test considers factors such as the duration of the employment, the regularity of employment or the right to refuse work. The rulings in O’Kelly v Trusthouse Forte, and Carmichael and another v National Power plc, state that there is a reasonable expectation that the employee has to attend work and that they will provide the work. Such expectation is not associated with an independent contractor. If there is a casual or a as required based relationship, there is no employer-employee relationship and hence, no mutuality. The test of mutuality was applied to determining whether an agency worker was an employee in the case of Secretary of State for Business Innovation & Skills v Studders & Ors, where the work relationship was based on payment on assignment, terminable contract without notice, and no day-to-day control over the worker, it was held the absence of mutuality of obligation did not make the worker an employee.

The legal consequence of the employment status is that it impacts the scope and level of rights that a person, whether an employee, worker, or limb (b) worker can access to. For example, an employee has maternity leave and pay, adoption leave and pay, and parental leave and pay and paternity leave and pay. These rights are available to employees. The determination of the employment status depends on the facts of each case, particularly the service and its terms.

  1. Ferguson v John Dawson & Partners [1976] 3 All ER 817.
  2. U. Muehlberger, Dependent Self-Employment: Workers on the Border Between Employment and Self-Employment (Palgrave Macmillan UK 2007) 39.
  3. O’Kelly v Trusthouse Forte 1983 ICR 728.
  4. Carmichael and another v National Power plc IRLB 632 2000 H
  5. James Marson, Beginning Employment Law (Taylor & Francis 2014) 56.
  6. Secretary of State for Business Innovation & Skills v Studders & Ors UKEAT/0571/10/DM.
  7. Section 72 of the Employment Rights Act 1996; Section 13 of the Maternity and Parental Leave etc. Regulations 1999.
  8. Section 75A of the Employment Rights Act 1996.
  9. Section 76 of the Employment Rights Act 1996; Section 13 of the Maternity and Parental Leave etc. Regulations 1999.
  10. Section 80A of the Employment Rights Act 1996.

The legal provisions and principles discussed demonstrate that determining the employment status, whether it be an employee, a worker, or a self-employed is necessary to access statutory rights. The determination of the employment status is subject to the substance and not the form. This is to ensure that the parties in a work relationship cannot change the legal status of the worker by merely attaching a particular label.

Conclusion

The ERA 1996 differentiates between an employee and a worker. However, the very definition of an employee is not clear leading to judicial need to distinguish and identify the rights of an employee, a worker, or a self-employed person. The courts review the form and substance of the contract to determine whether the contract is a contract of service or contract for service or whether a person is an employee or an independent contractor or self-employed.

This essay concludes by confirming the Taylor review report that identifying and recognising the employment status gives access to statutory rights.

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Bibliography

Legislation

The Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002

The Employment Rights Act 1996

The Maternity and Parental Leave etc. Regulations 1999

The National Minimum Wage Act 1998.

The Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000

The Working Time Regulations 1998

Cases

Carmichael and another v National Power plc IRLB 632 2000 H

Express and Echo Publications Ltd v Taunton 1999 IRLR 367

Ferguson v John Dawson & Partners [1976] 3 All ER 817.

MacFarlane & (2) Skivington v Glasgow City Council EAT/1277/99

Market Investigations Ltd v Minister of Social Security 1969 2 QB 173.

Matthews v Kent & Medway Towns Fire Authority [2006] UKHL 8.

Massey v Crown life Insurance Co 1978 IRLR 31.

O’Kelly v Trusthouse Forte 1983 ICR 728

Ready Mixed Concrete (South East ) Ltd v Minister of Pensions and National Insurance 1968 1 All ER 43

Secretary of State for Business Innovation & Skills v Studders & Ors UKEAT/0571/10/DM

Steven, Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101.

Stringfellows Restaurants Ltd v Quashie [2012] EWCA Civ 1735.

Uber BV v Aslam [2021] UKSC 5

Wiltshire County Council v NATFHE & Guy (1980 IRLR 198).

WM Morrison Supermarkets plc (Appellant) v Various Claimants (Respondents) [2020] UKSC 12

Books

Collins H, K. D. Ewing and Aileen McColgan, Labour Law (Cambridge University Press 2012);

Currie S, Migration, Work and Citizenship in the Enlarged European Union (Taylor & Francis 2016),

Ham J and Sharon Pickering, The Routledge Handbook on Crime and International Migration (2017)

Marson and Katy Ferris, Business Law Concentrate: Law Revision and Study Guide (Oxford University Press 2019)

Marson J, Business Law (Oxford University Press 2013)

Marson J, Beginning Employment Law (Taylor & Francis 2014)

Muehlberger U, Dependent Self-Employment: Workers on the Border Between Employment and Self-Employment (Palgrave Macmillan UK 2007)

Selwyn NM and Norman Selwyn, Selwyn's Law of Employment (Oxford University Press 2006)


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