An individual’s employment status determines what employment rights they have. There are three layers:
• the genuinely self-employed;
• employees; and
• workers.
Genuinely self-employed sub-contractors have no employment rights.

But if they qualify as ‘workers’ - which means they undertake to personally perform work or services and are not in a client/customer relationship with the ‘employer’ - then they have protection from all types of discrimination, and also some protection under the Working Time Regulations and whistleblowing laws.

Employees have the greatest level of employment rights. As well as having the benefit of discrimination, whistleblowing and working time protection, they also have the right not to be unfairly dismissed, the right to a redundancy payment, the right to a written statement of terms and conditions of employment, protection under TUPE, SSP, maternity pay, and a whole host of other workplace entitlements.

So individuals often argue they are ‘employees’, whilst employers contend they are self-employed. This gives rise to satellite litigation on employment status, where the stakes are whether an individual has the right to bring a claim.

There are several factors that tribunals will take into account in deciding whether someone is an ‘employee’. They are:-

Mutuality of obligation: There must be an obligation on the ‘employer’ to provide work for the individual, and for the individual to do that work when it is given. If the individual does not have to perform the work personally and can send a substitute this indicates that there is not an employee/employer relationship.

Control: The more control exercised over an individual by their ‘employer’, the more likely they are to be found to be an employee. So if the ‘employer’ decides the work to be done, the way it shall be done, the means employed in doing it, the time when it is done and the place where it is done, then that points to an employment relationship.

Integration: The more that an individual is incorporated into the business organisation, for example, by wearing the company uniform and being subject to procedures (e.g. disciplinary, grievance, sickness) the more likely they are to be an employee.

Economic Reality: a straightforward salary in exchange for work points to an employment relationship. But if the individual takes any financial risk, provides their own materials or is registered for VAT, this points towards the individual being self-employed.

Label: often both sides agree that someone shall be self-employed, and so make sure this is what any contract says. This usually involves payment by invoice rather than PAYE, which is typically beneficial to both sides. If everything else is finely balanced, the label agreed by the parties might persuade an employment tribunal that the relationship is one of self-employment. However, if other factors point towards an employment relationship, Tribunals will not allow the agreed label/payment structure to be used to take away employment rights.

Recent examples
The recent case of Weight Watchers (UK) Ltd v HMRC considered whether ‘Leaders’ engaged to conduct Weight Watchers meetings were employees.

The Leaders were engaged by Weight Watchers and had signed contracts describing themselves as ‘independent contractors’ or ‘self-employed’. They were required to pay their own tax and national insurance. They were only paid if they personally conducted their own meetings, and they had to get the agreement of Weight Watchers if they wanted to alter the date, time or place of any meetings. The contract between the Leader and Weight Watchers said that the Leader could send a replacement in their place. However, this was fettered as the Leaders were obliged to provide a suitably qualified replacement and show good reasons why they were not intending to take the meeting.

The Tribunal found that the Leaders were employees of Weight Watchers as (a) they were required to provide their services personally; and (b) Weight Watchers imposed a high degree of control, as the Leaders were required to follow Weight Watchers’ programme and were expected to turn up and conduct the meetings at a certain time and place each week.

Don’t assume you can rely on the contract wording.

This same point was also brought home in the Supreme Court case of Autoclenz Ltd v Belcher.

Generally, if an individual is allowed to send another worker in their place, it means they are very unlikely to qualify as an ‘employee’, and thus are unlikely to have employment rights.

In Autoclenz, 20 car valeters signed contracts describing themselves as self-employed subcontractors. They paid their own tax and had to purchase their own insurance, uniforms and materials (the latter two of which they could do from Autoclenz). Their contracts stated they were under no obligation to attend work, although the tribunal held that, in practice, they were expected to attend work and provide services personally. The tribunal also found that they went into the contracts with their eyes open about being self-employed.

Traditionally, where there is a complete written contract, the courts have always accepted that its terms represented the true agreement, unless there is evidence of a sham, i.e. that the parties intended the written contract to paint a false picture.

In Autoclenz the court held that because of the superior bargaining power of the employer, it was wrong to conclude automatically that the terms in the contract (set, as they were, by the employer) were binding. It held as well as looking at the terms of the contract, the court should also consider the reality of the situation.

It went on to hold that the ‘real’ situation trumped what was written in the contract. The fact that the employer had written a 'substitution clause' into the contracts did not reflect the reality, as everyone expected the valeters to carry out their duties personally. Stepping back and looking at the overall picture, the court concluded that they were employees and had the full set of employment rights (although, as it happened, they were only seeking ‘worker’ rather than ‘employee’ rights).

Stringfellows' Lapdancer
This case shows how difficult it can be to determine someone’s employment status.

Ms Quashie worked as a dancer with Stringfellows until she was dismissed in 2008. She brought a claim for unfair dismissal, however, this claim was not accepted by the Tribunal as they did not accept that Ms Quashie was an employee of Stringfellows.

Whilst the Tribunal accepted that Ms Quashie’s relationship satisfied the requirements of control and personal service, they were not convinced that there was sufficient mutuality of obligation.

Ms Quashie successfully appealed to the EAT, which decided that there was sufficient mutuality of obligation as whilst she was not required to work a set number of nights per week, once she was included on a work rota she was obliged to turn up for work and Stringfellows was obliged to stick with the rota. Also, Stringfellows had a degree of control over Ms Quashie because she was subject to a disciplinary regime of fines if, for example, she did not complete her compulsory dances.

This would have allowed Ms Quashie to continue her unfair dismissal claim. As an employee, Ms Quashie would also have been entitled to additional rights such as sick pay, maternity leave and pay and paid holidays.

However, Stringfellows appealed to the Court of Appeal on the question of whether Ms Quashie was an employee. The Court of Appeal overturned the EAT’s decision and held that Ms Quashie was not an employee. Although Ms Quashie worked under a contract and there was some mutuality of obligation when she was actually working, the Court of Appeal found that she had not been engaged under a contract of employment because the manner in which she had been paid made it clear that Stringfellows had been under no obligation to pay her anything at all. The principle evidence for this conclusion was that Ms Quashie negotiated her own fees with clients and took the economic risk of being out of pocket on a particular night. LJ said the main evidence for this was that she negotiated her own fees with clients.

This case illustrates that the law relating to employment status is complicated. You should undertake a comprehensive audit of your staff and their statuses when considering, for example, their entitlements under the new pensions auto-enrolment scheme which will be rolled out to all employers over the next few years.

For more information please contact our Employment Team on T: 0118 912 0257 

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