Employee v Contractor Status Guide
- Categories & Definitions
- Legal obligations
- Test to be applied
- Labels & Recent cases
- Agency Workers
- Other options
- Practical considerations
- 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
- 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
Quashie v Stringfellows 2012 EAT
Non-renewal is a dismissal
Fitton v City of Edinburgh Council 2008 EAT
Pulse Healthcare Ltd v Carewatch Care Services Ltd 2012 EAT
- 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.