Why does status matter?

Under the current law, there are three categories that an individual may fall into when they provide their services in the job market: employee, worker or a self-employed independent contractor. This status is important for both the employer and the individual to be aware of, because the status of a person carrying out work determines what rights and obligations they have under employment law.

For example:

• Employees have obligations that are implied into a contract e.g. the mutual duty between employer and employee to maintain a relationship of trust and confidence between them
• Only employees have the right not to be unfairly dismissed and the right to receive a statutory redundancy payment
• Only employees are covered by the ACAS Code of Practice on Disciplinary and Grievance Procedures
• Only employees will automatically transfer to any purchaser of their employer’s business under the Transfer of Undertakings Regulations (TUPE).
• The tax treatment of a person providing services depends on their status as determined by HMRC.
• An employer is vicariously liable for acts done by an employee in the course of their employment.

Employee status

It is fair to say that most of us will have been one of these during the course of our working life and this is probably the category most people are most familiar with. The definition of an employee can be found under section 230(1) Employment Rights Act 1996:

An individual who has entered into or works under (or where the employment has ceased, worked under) a contract of employment.

To have employee status:

• The individual must generally be obliged to do the work personally (rather than being able to send a substitute to do the work in their place).
• The employer needs to be obliged to provide the work and the employee is obliged to accept the work.
• The employer needs to have some control over the way the employee carries out the work.

Of workers, employees and the self-employed, employees have the most rights available to them under employment law legislation.

Self-employed status

This status surprisingly is not defined in statute, but it is where an individual carries on a business in their own right, working under a contract for services.

Worker status

This status is a hybrid and was created to reflect the view that some individuals, whilst they may not be full-blown employees, are deserving of some protection under employment law. ‘Worker’ includes the employed, but also includes a wider section of people who do not satisfy the definition of ‘employee’, but are also not self-employed either.

Some of the elements required to satisfy the statutory definition of worker are:

• Existence of a contract between the person doing the work and the person or organisation they do the work for.
• An obligation to do the work personally, other than in limited circumstances.
• The other party is not the customer or client of any business, undertaking or profession carried on by the individual.

Unlike those who are self-employed, a worker who is not an employee is still entitled to some employment rights, including: the National Minimum Wage, protection against unlawful deductions from wages, holiday pay, statutory minimum length of rest breaks, 48 hour average maximum working week (unless they choose to opt out of this limit), protection against unlawful discrimination, protection from detriment for whistleblowing and the right not to be treated less favourably if they work part-time.

What about the “gig economy”?

With economic uncertainty, many organisations are adapting to unpredictable peaks and troughs in work levels and are therefore putting in place more flexible working arrangements. However, over recent years there have been many cases where the employment tribunals and courts have had to determine whether these individuals are workers, employees or are self-employed.

What is clear from the case law is that just because you call a fork a spoon, it does not stop it being a fork. Therefore, just because an individual is called a “contractor”, if the relationship is synonymous with that of a worker or employee, then the courts and tribunals will consider them as such. It’s the reality of the relationship that is key, not the label the parties have put on it and to avoid legal complications later down the line, a business needs to know its responsibilities depending on the status of the people who work for it.