It is a common misconception that you are either, self-employed, employed or unemployed. But the wonderful and mysterious thing that is employment law recognises another category of employment status: the worker.
Employees are the most protected category and self-employed people have virtually no employment rights. Indeed it is a strange quirk of the law that unemployed job applicants have more rights than genuinely self-employed people. They are covered by the Equality Act 2010 and therefore should not be treated less favourably by potential employers during the recruitment process due to a ‘protected characteristic’ such as age, sex, race, sexual orientation or disability.
Workers sit somewhere in between employees and self-employed people and this is space is occupied by individuals whose engagement has some but not all of the characteristics of an employment relationship. A worker is someone who provides their services personally but not to someone who is a client or customer of their profession or business.
Workers are covered by discrimination and whistleblowing legislation but they cannot claim unfair dismissal or a statutory redundancy payment and they are not covered by the ACAS Code of Practice on Disciplinary and Grievances. Workers are also entitled to paid annual leave which can be critical if a business has been engaging someone as self-employed when in fact they are a worker or an employee in law. In this situation the individual could be entitled to backdated holiday pay which can amount to tens of thousands of pounds depending on the length of the engagement. It therefore pays to know the employment status of people in your organisation. Whilst written contractor agreements will not give absolute certainty they will help to define the relationship.
In a previous blog we discussed the recent high profile media coverage of Zero hours contracts and the Government’ s proposals for reform. These can be utilised as a way of giving flexibility to the way in which workers are engaged if the amount of work available is variable. It is, however, important to remember that the person being engaged under the zero hours contact will still be a worker and therefore entitled to some protection under the law. Zero hours contracts should also be regularly reviewed because what can start out as work under a zero hours contract can change into an employment relationship over time if an obligation develops either verbally or through custom and practice for the company to provide work and/or the employee to work regular hours.
Employment status is a mixture of fact and law and therefore whilst the label given to the relationship by the parties will be taken into account it will not on its own decide what status applies to the relationship and therefore what legal rights the individual has. Indeed to make matters more complicated whilst the test for employment status applied by the Tribunals is similar to the one applied by HMRC it is not the same and therefore it is possible to have someone who is self-employed for tax purposes being an employee or a worker under employment law (or vice versa). A summary of the test applied by the Tribunal’s to determine employment status has been included elsewhere on our website.
A new concept was added to the law on employment status last year by the introduction of the concept of an Employee Shareholder. Employee Shareholders are still employees, although they have waived certain employment rights including the right to claim unfair dismissal and the right to a statutory redundancy payment in return for shares in their employer’s business. The concept has not caught on in the way that the Government hoped and there is circumstantial evidence that Employee Shareholder agreements are being used for the tax advantages that they provide rather than because employers actually want to remove rights from their employees.
The concept of a worker in employment law is nothing new but it is something that employers should remember because if the status of the people in your organisation is not correctly defined and understood then you could be storing up trouble for the future which may be very expensive to put right.
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