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The employment status challenge: Key considerations for employers in UK

20 April 2022
With labour supply a top priority for employers, our employment experts in the United Kingdom consider the importance of the distinction between different employment statuses. 

When engaging the workforce how does the law distinguish between different categories of employment status?

In the UK there are three categories of employment status: an employee, a worker and those who are self-employed.

Employee

An employee is defined in the Employment Rights Act 1996 ("the ERA") as: "an individual who has entered into or works under … a contract of employment". 

The starting place for determining employee status is the contract of employment, however courts and tribunals will look behind the contract and consider the reality of the employment relationship. We have seen decades of case law applying the long-established legal tests of personal service, control, integration into the workforce and mutuality of obligations to help determine an individual's employment status. 

Worker 

A worker is a broader category and is defined under the ERA as: "an individual who has entered into or works under … (a) a contract of employment, or (b) any other contract, whether express or implied …. 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 client or customer of any profession or business undertaking carried on by the individual". 

The definition of worker specifically includes employees. The second part of the definition (known in the UK as limb (b)) has been subject to endless scrutiny over what types of employment relationship should be included. The case law is on-going. 

Self-employed contractor 

If an individual is neither an employee nor worker they are likely to fall into the third category of self-employed contractor. 

What are the different rights and protections for each employment status?

There is a significant distinction in rights and protections between the three different categories of employment status. Broadly:

  • Employees are entitled to much more employment protection than workers or self-employed contractors, including the right to family-related leave, redundancy pay and the right to claim unfair dismissal. Some of these rights require a qualifying period of service before they are available. Employees are also entitled to a written statement of employment particulars and are protected under the whistleblowing legislation and against discrimination. Employees will be automatically transferred in an asset sale under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") (however there is first instance case law extending this protection to workers also). 
  • A worker falls into the middle bracket when it comes to employment rights which are largely limited to national minimum wage, holiday pay, whistleblowing and discrimination protection. Workers are now also entitled to a written statement of employment particulars. 
  • Self-employed contractors on the other hand have very little employment protection. 
  • Employment status also has an impact on the tax treatment of an individual. Those who are not employed can potentially benefit from a more favourable tax regime. 

What are the current themes with regard to employment status?

With the rise of the gig economy employment status has certainly been a top priority for the government with an inquiry into the future world of work and the Taylor Review to consider modern working practices. With a firm commitment to protect workers we will have to wait and see what if any reform takes place with regard to employment status. With the combination of Brexit and the pandemic, it is possible that some items have slipped further down the government's agenda.

There have been a series of recent cases on employment status ranging from bike couriers to plumbers to taxi drivers. The courts and tribunals have (almost) been unanimous in finding worker status in the cases heard to date.The Uber case is perhaps one of the highest profile employment status cases we have seen, with the Supreme Court confirming worker status for a number of taxi drivers last year.

As with many areas of life the world of work has been turned upside down in the last two years. It will be interesting to see as we enter the next chapter of Covid what, if any, impact there will be on employment status. Due purely to necessity employees have experienced unprecedented autonomy during the pandemic and working from home has become the norm where possible and flexibility and trust have been integral to the employment relationship. As we attempt to come out the other side might we see an increase in gig economy type relationships where flexibility is key? If so, it will be more important than ever for clear guidance on what protection this category of individual is entitled to. Alternatively, against a backdrop of an incredibly competitive labour market, will employers be open to a more flexible employment relationship, perhaps giving the employee the best of both worlds – flexibility and security?

Get an insight into the current situation in other jurisdictions from our global legal team.

 

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