Categorising of Employees

LL.B (Wales) – Employment Law – Semester II – Year III by Charis Lapertas Identify the definitions contained in section 230 Employment Rights Act 1996 and explain how statutes categorise those who are employees, workers, or otherwise engaged in the provision of services. The accurate and consistent interpretation of employment status of individuals insufficiently clear and user–unfriendly as it may be, is of supreme importance in order to determine both their access to statutory rights but also to define the contractual arrangements under which such persons work. Although, as mentioned earlier, unclear and user unfriendly, may be, the employment status interpretation helps to determine who is responsible for matters such as liability for tax, national insurance contribution, injuries at the workplace or damages caused to others, what contractual rights the company is entitled in controlling the workers’ activities and what statutory rights as unfair dismissal, redundancy compensation, maternity rights, etc. Hence, working individuals wrongly defined whether innocently, by negligence or deliberately may be excluded from benefits or important rights at work. This statutory definition, broad as it may be, provides the necessary discretion of the judiciary to upgrade the law in view of the social and employment changes in such relationships.[1] Accordingly three broad categories/terms are used to describe the employment status of working people and classify them. According to the s 230 of the Employment Rights Act 1996 working people are classified as (a) employees (b) workers and (c) self-employed. The first type of employment is that of “employee” s 230 (1) who is defined as “an individual who has entered into or works under (or where the employment has ceased worked under) … a contract of employment that is defined as a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.” [2] The question whether a working individual is an employee or not can have serious implications on the rights he is entitled to. Most working people have a contract of employment and are employees or, in the old-fashioned word still very occasionally used by some members of the judiciary until recently, servants. A builder building an extension to a house, a watch maker repairing a watch, or a plumber mending a tap are, however, more likely to be engaged on contracts for services that is, to be independent contractor.[3] The main traditional distinction centres around: (1) a contract of services (employee) and (2) a contract for services (independent contractor).[4] The second type of employment under which an individual (excluding “shopworker” and “betting worker”) may be engaged is that of “worker” as created by Statute. As defined in ERA 1996, s 230 (3) a worker is “an individual who has entered into or works under a contract of employment or any other contract express or implied and (if it is expressed) whether oral or in writing 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 a client or customer of day profession or business undertaking carried on by the individual.” [5] This particular group of working individuals are entitled to some rights such as the right not to suffer unlawful deductions from pay. As mentioned earlier, an employee is someone who has entered or works under an employment contract. Although all employees are workers, an employee has extra employment rights and responsibilities, which don’t apply to workers who aren’t employees. On the other hand, a person is generally classed as a worker if: they have a contract or other agreement to do certain work or services personally for a reward whereby a contract doesn’t have to be written, their reward is for money or a benefit in kind, e.g. the promise of a contract or future work, they only have a limited right to assign the work to someone else (‘subcontract’), they have to appear whether want to or not, their employer has to have work for them to do for the duration of the contract or arrangements made, they aren’t doing the work as part of their own limited company in an arrangement where the ‘employer’ is actually a customer or client. The third type of employment status under which individuals may be classified is that of “self-employed.” Self-employed, are individuals who are in business for themselves. They have no contract of employment with employers, they are their own boss, they may be contractual to provide services over certain time for fee, pay their income tax and national insurance contributions. They have no employment rights, since they decide how much to charge or when and how much holiday to take, they cannot be discriminated against and they are entitled to healthy and safe of working environment on their clients’ premises.[6] Servants, employees, workers, independent contractors, workers on the lump, agency staff, part-time workers, temporary workers, zero-hours contract working, self-employed workers, homeworking, teleworking, etc, the list is endless.It is exactly the nature of labour, the ways working patterns and relationships have developed that has caused difficulties in establishing a clear definition of employment status. This diversity of relations, with atypical forms of working becoming ever more typical,and new forms of business structures with agency work and bi-lateral, trilateral and even quadrilateral relationships coming to the attention of the courts (Evans v Parasol and another[2009] UKEAT 0536/08/2307), has made establishing clear rules even more problematic.[7] A variety of tests were developed by the courts in an effort to determine whether someone is employed or self employed. The numerous tests that have been developed are evidence that it is difficult to categorise working individuals. One of the main reasons for the numerous tests is the speed in which employment changes and, therefore, the courts have to constantly update their methods in order to accommodate the change. Moreover, many forms of employment, facts, arguments, policies, have been traversed by the courts and as a result attempts to revise, refine and upgrade were made in an effort to assist both the courts and the parties in their efforts to determine the employment status of working individuals more effectively and reliably. The main tests developed by the courts can be briefly summarized in chronological order, since the courts had difficulty in categorising working individuals in the constantly changing employment environment as follows.[8] The first test used to determine whether someone was an employee was the control test. It originates in the case of Yemens v Noakes (1881) focused entirely upon the degree of control the employer had over the worker, a large measure of control, i.e. where it could be said that the employer could stipulate not only what was to be done but how it was to be done, indicated a contract of employment, given that the exercise by lesser control would lead to self-employment.[9] Further, complications with this test arose with the increase in skill professions such as doctors, nurses; etc. The control test was taken to its logical conclusion when a court held that nurses were not employees of a hospital when carrying out duties in the operating surgeon and not from the hospital authorities, Hillyer v Governors of St Bartholomew’s Hospital (1909). This rigidity led to criticism in Lindsey County Council v Mary Marshal (1937). As the pace of technological change hastened, it became obviously unrealistic to conceive of the employer having the knowledge to control many of its increasingly highly skilled employees. Consider for example the case of a surgeon, a research chemist, or an airline pilot, whose know-how is far beyond that of their employers. The breakthrough towards a more realistic approach came in a series of cases round 1950’s in which hospitals were held vicariously liable for the acts of surgeons, radiographers and other specialist (for example Cassidy v Ministry of Health (1951)). It would be a mistake, however, to think that this was a change brought about entirely by technological and other forms of advance, (Wedderburn, Lewis and Clark). Very early cases were often concerned with employees who were more skilled than their employers.[10] However, in the middle of the last century, the courts were reluctant to disregard the element of control, and the result was that it became one of a number of factors, although sometimes still the determining one (see Montgomery v Johnson Underwood Ltd, 2001). Thus Lord Thankerton, in Short v J & W. HendersonLtd (1946), looked at whether the putative master had the power of selection of this servant, the right to control the method of doing the work, and the right of suspension and dismissal. Only if these plus other relevant questions, such as form of employment (full-time or part-time), self-employed temporary workers, wages or other remuneration, existence of employment contract, etc, were answered convincingly, would a contract of employment exist. As these notions developed, two general criteria that of integration and that of economic reality came into use.[11] The integration test set out in 1952, where Denning LJ considered that the most critical question was whether the person under consideration was fully integrated into the employer’s organisation, Srevenson Jordan and Harrison Ltd v Macdonald and Evans (1952). A chauffeur, a ship’s master and a reporter on the staff of a newspaper were thus all employed under a contract of service and were, therefore, employees, but a ship’s captain, a taxi driver and a newspaper contributor were hired under a contract for services and were, therefore, independent contractors. He detected that: “one feature which seems to run through the instances is that, under a contract of service a man is employed as part of the business and his work is done as an integral part of the business but under a contract for services his work, although done for the business is not integrated into it but only accessory to it.” In a later case, Bank voor Handel en Scheepvaard NV v Slatford (1953), reversed by the House of Lords (1954), Denning LJ reformulated the question of whether the worker was part and parcel of the employers organisation. The great drawback of this approach lies in its failure to define exactly the meaning of integration and organisation. Indeed, it has been doubted whether Denning intended to lay down such a test more on a desire to retain the control test than on a correct interpretation of the judgement in Stevenson itself.[12] This led to the 1960s. The judiciary recognised that no single test or set of criteria can be decisive and began to identify more sophisticated tests in recognition of the increasing complexity and diversity of an educated, professional workforce. Thus, the adoption of something similar to the American notion of an economic reality composite test clearly illustrated as applied in the most significant case Ready-Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance[1968]. Following a question as to who was responsible for the payment of tax and National Insurance contributions of so-called owner drivers, McKenna J identified the following three questions for a contract of service: (a) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master; (b) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control (implied submission to control) in a sufficient degree to make that other master; and (c) The other provisions of the contract are consistent with its being a contract of service (nothing inconsistent with employment).[13] On the facts, his Lordship decided that the workers were independent contractors, most particularly because the third test (c) was not satisfied since most of the terms pointed to a contract of service. Moreover, in Hall v Lorimer [1994], LJ Nolan says that “it implies a test of economic dependence, in the sense that employee status is the result of the extent to which the individual is dependent or independent of a particular paymaster for the financial exploitation of his talent.”[14] However, in practice, it may not always be possible to identify the genuine self-employed. Some self-employed may have a relationship of economic dependence on an employer.[15] With the advent of the flexible workforce, courts have faced new problems in deciding the nature of the relationship between parties where the worker (e.g. workers, homeworkers and some catering workers) regularly although not continuously performs certain tasks for the employer.The difficulty is that while the work is done regularly, and there is an expectation that it will continue to be offered to and performed by the same people in the future, there is no binding legal obligation either on the employer to offer it or on the workers to perform it in the future. This has led to much judicial discussion of whether mutuality of obligation is a necessary factor for the existence of an employment contract.[16] The issue arose directly, however, in O’kelly v Trusthouse Forte [1983], where the industrial tribunal held that there was no legal mutual obligation, although the economic power of the employer and corresponding weakness of the workers meant that in practice the workers were obliged to accept work when it was offered. Largely because of this, they held that the workers were not employees, a decision upheld eventually by the Court of Appeal.[17] It is necessary that mutuality of obligation exist in order for a contract of service to arise. This fundamental point was stressed by the Court of Appeal in Clark v Oxfordshire Health Authority [1998]. It was held that the nurse was was not an employee because there was no mutuality of obligation since she could refuse work as she wished. In the case of Carmichael v National Power plc [2000] Lord Irvine LC said it was necessary to consider not only the documents but also the way in which the relationship had worked in practice in deciding that, outside the period of actual work, there was no irreducible minimum of obligation on the part of the two parties so that no relationship of employment was created.[18] The experience of using the tests examined above has shown the courts that it is not possible to focus on one particular aspect of the working relationship and to use that to determine whether or not there is an employment relationship. On that basis, the most commonly used test in the courts today is the multiple test. In using the multiple test the courts look at every aspect of the relationship as described, and use them to determine the nature of that relationship. This is best illustrated in the case of Ready-Mixed Concrete v Minister of Pensions (1968) which was analysed above.[19] Accordingly, the Court of Appeal has stated that any decision on employee status does not involve a mechanical checking off of factors. An overall view must be taken of the facts and circumstances (including whether or not the individual makes his or her own arrangements for tax and social security contributions). This overall view would involve weighing the significance of particular factors and considering, if appropriate, the intentions of the parties of their behaviour. No factor is seen as sufficient in itself. Nevertheless, control, the payment of wages and mutuality of obligation are seen as essential in Hall (Inspector of Taxes) v Lorimer (1994).[20] Most employers expect that both employees and workers will personally undertake the work offered. The implication is that if there is no personal service then the person may be self-employed. However, in case law, there have been specific rulings which suggest that the issue is not clear-cut. In Express & Echo Publications v Tanton [1999] the Court of Appeal ruled that: “an irreducible minimum for their being a contract of employment is personal service; and that a provision in a contract allowing the substitution of a suitable person was fatal to him acquiring status as an employee.” Further, continuity of service is significant in three related respects, (a) considering a person’s status as an employee; (b) access to statutory rights, which may be service-related and (c) qualifying for employment benefits under a contract of employment (e.g. enhanced holiday entitlements, sick pay, access to flexible benefits).[21] From the above it can be argued that the employment relationship is contractual and two types of employment status have traditionally existed, that of the employee and that of the self-employed. However, the rise of the a-typical worker has led to the emergence of a third “worker” category. This has created an additional tier which has made some workers more equal than others. Key issues for the employment relationship are determining who is an employee and who is a worker. A number of problems with both definitions of the categories and the current tests applied in case law have identified the need of reform to bring greater clarity and ensure consistency.  

[1] [2] [3] Honeyball, S. (2012) Employment Law, 12th edition, Oxford University Press [4] Lecture handouts [5] Ibid 2 [6] [7] Ibid 4 [8] Ibid 4 [9] Ibid 4 [10] Ibid 3 at pg. 24-25 [11] Ibid 3 at pg. 25 [12] Bowers, J, 2002, Bowers on Employment Law, 6th edition, Oxford University Press, at pg. 15 [13] Ibid 3 at pg. 26 [14] Ibid 4 [15] Ibid 4 [16] Pitt, G, 1992, Employment Law, 1st edition, Sweet & Maxwell, at pg. 48 [17] Ibid 16 at pg. 49-50 [18] Ibid 12 at pg. 23 [19] [20] Ibid 4 [21] Ibid 4

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