Employee, worker or self-employed
[ch 2: pages 34-35]The main statutory test is found in section 230, Employment Rights Act (ERA 96). This test defines an “employee” as anyone who works under a contract of employment, whether or not it is written down.
A “worker” is anyone else with a contract to perform work personally for the other contracting party, as long as that other party is not a “client or customer of any profession or business undertaking carried on by the individual”.
In other words, all employees are workers, but not all workers are employees. The key to whether someone is an “employee” is whether they have a contract of employment. Where there is no contract of employment but there is a legal obligation to perform work personally, that person will be a “worker”. The only exception is someone who is in business on their own account providing goods or services to their own customers or clients in a genuinely arms-length relationship. That person will be “self-employed”.
The borderline between each category is unclear. This lack of clarity is largely the result of employment status being decided by courts and tribunals on a “case-by-case” basis, applying a series of tests, with the outcome depending on the specific facts of each case.
Before deciding whether there is an employment contract in any particular case, a judge will test the facts of the case against three main factors:
• mutuality of obligation (that is, an obligation to do some work in return for payment (usually wages));
• personal service (an obligation to work personally, that is, no right to send someone else to do your work instead of you);
• control (the extent to which someone else decides when and how you do your work).
These tests derive from the case of Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497.
If all three of the above characteristics are present, the employment tribunal will then look at all the relevant facts and decide whether they are consistent with an employment contract. If yes, the person will be an employee. If not, they will be a worker. For example, someone who takes on all the financial risks of the transaction or is required to supply and pay for all their own equipment is unlikely to be an employee, but they may be a worker (see, for example, Pimlico Plumbers Limited v Smith [2018] UKSC 29). Other relevant factors might include how the person charges for their work, and whether they are free to work for others.
When deciding questions of employment status, an employment tribunal must not simply accept the written contract documentation at face value. Instead it must examine all the facts to discover the reality of the parties’ relationship, adopting a “worldly wise” approach, bearing in mind the employer’s superior bargaining power and its ability to control the content of the documentation, usually presented to workers on a take-it-or-leave-it basis (Autoclenz v Belcher [2011] UKSC 41). The tribunal’s job is to work out what the parties must have intended to agree. It is not to remake the agreement, however unfair or unequal its terms (Consistent Group Ltd v Kalwak and others [2008] EWCA Civ 430).
Many of the rights that are available to people with “worker” status, for example, the right to paid holidays under the Working Time Directive, are based on EU law. EU law requires tribunals to take a broad approach when interpreting the term “worker”, focusing on the extent to which a person is truly independent of the organisation to which they provide their services (Allonby v Accrington & Rossendale College, [2004] ICR 1328). The more someone is integrated into and controlled by that organisation, providing services to that its customers, the more likely they are to be a worker (Hospital Medical Group Limited v Westwood [2012] EWCA Civ 1005).