Employee v Contractor Status Guide

  1. Categories & Definitions
  2. Legal obligations
  3. Test to be applied
  4. Labels & Recent cases
  5. Agency Workers
  6. Other options
  7. Practical considerations
  8. Different employment & tax status

Categories & Definitions

Employee (e.g. s230(1) ERA)

An individual who has entered into or works under a contract of employment ­ expressly agreed (either in writing or orally) or implied by the nature of the relationship.

Worker (e.g. s230(3) ERA)

An individual who works under a contract of employment or a contract to personally provide work or services (excluding contracts to provide services to clients or customers of a businesses undertaking or profession) i.e. independent contractor.

Self-employed (no statutory definition)

An individual who works under a contract for services ­ potentially working for a number of different organisations.

Legal obligations on Employers

  • Not to unfairly dismiss (normally two years’ service)
  • Provide statement of terms of employment
  • Statutory minimum notice
  • Statutory maternity/paternity/adoption pay
  • Statutory redundancy pay
  • Mutual obligation of trust & confidence
  • Transfer of Undertakings (Protection of Employment) ­ potentially workers too
  • Employer vicariously liable for Employees
  • Health & Safety duties

Legal obligations: hiring Workers

When hiring workers you do not have the same obligations as you do towards employees.
Effectively, you have a lesser burden of legal obligations.
N.B. The obligations owed towards workers also apply to employees!

  • Working Time Regulations ­ including paid annual leave; rest breaks; weekly hours cap
  • National Minimum Wage
  • No unauthorised deductions from wages
  • Protected disclosures ­ not to cause detriment
  • Discrimination and/or Less Favourable Treatment (other than in relation to fixed-term working)
  • Pensions Auto-enrolment ­ “jobholders”

Legal obligations: contracting the self-employed

  • Protection from Discrimination in the workplace if employed under a contract of employment, a contract of apprenticeship or a contract personally to do work
  • Occupiers’ Liability
  • Breach of Contract claim ­ in civil courts

Legal obligations specific to Employees

  • Mutual trust & confidence
  • Fidelity (faithfulness)
  • Possibly Fiduciary (upmost good faith)
  • Implied Confidentiality (trade secrets)
  • Auto-assignment of Intellectual Property Rights

Test to be applied

Ready-Mixed Concrete case ­ 1967 High Court

  • Personal service (v. right of substitution)
  • Mutuality of obligation
  • Control (when/where/how)
  • Other factors (e.g. equipment? financial risk? holiday pay? sick pay? how taxed? integrated in to business? nature and length of engagement? benefits? who profits? how to terminate?)

Labels & Recent cases

Can you re-label?

  • Commitment without the obligation?
  • Label given by one or both parties may be irrelevant
  • Label may be a consideration within the test above i.e. the “other factors”
  • Key to ‘Employee v Contractor’ test will be:
  • Contract terms (if contract exists)
  • Overall factual matrix

Recent Cases of Mis-labelling

Autoclenz v Belcher 2011 ­ SC:
Car valeters found to be employees, not self-employed contractors
Hospital Medical Group v Westwood 2012 ­ CA:
GP with part-time role as hair-loss surgeon found to be worker
Bates van Winkelhof v Clyde & Co LLP 2012 ­ EAT:
LLP equity partner (not solely remunerated by profit share) was worker

Agency Workers

  • Employee, worker or self-employed?
  • Of Employment Business or end-user?
  • Rarely the EB because of a lack of control or mutuality of obligation
  • Brook Street v Dacas 2004 ­ CA: raised the prospect of the end-user being the employer
  • Cable & Wireless Plc v Muscat 2006 ­ CA: approved Dacas
  • James v LBG 2008 ­ CA: will only imply such a contract if it is necessary on the facts
  • Personal service companies and Umbrella companies
  • Discrimination laws still apply

Other options

Casual workers
Quashie v Stringfellows ­ 2012 EAT
Fixed-term working
Non-renewal is a dismissal
Secondments
Fitton v City of Edinburgh Council ­ 2008 EAT
Zero-hours
Pulse Healthcare Ltd v Carewatch Care Services Ltd ­ 2012 EAT

Practical considerations

  • Understand the objective; is it flexibility, head-count, protection, tax, “contractor” pressure?
  • Is it necessary to avoid employment status? (two years’ service, loss of control and added agency costs/contractor costs, max UD claim)
  • The 99 week rule?
  • If agency and/or contractor ­ look at contract terms/indemnities
  • Ensure the reality of the relationship is consistent with status

Different employment & tax status

  • Tax status relevant for: Income tax, National Insurance (Employer’s & Employee’s), Corporation Tax, VAT
  • IR35 and Disguised Remuneration
  • Different conclusions possible e.g. Autoclenz case ­ HMRC found self-employed; Supreme Court ­ found workers


This publication is intended for general summary guidance. It is not and should not be considered legal advice. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.