• Employment Highlights - Workers and Employment Status
  • October 31, 2011
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • Introduction

    The question of whether an individual is an employee, a worker or self-employed is crucial when trying to determine their rights. Employees are entitled to the full range of employment rights and protections (as long as they have completed any appropriate length of service requirement). Self-employed contractors have far fewer rights although they may, in certain circumstances, enjoy protection from discrimination. Workers fall between the two. One crucial difference between workers and employees is that workers do not have protection from unfair dismissal or the right to a statutory redundancy payment. However, they enjoy far more rights than the self-employed.

    In this edition of Highlights we will be reviewing key cases on the issue of worker status and also two recent Supreme Court decisions in the cases of Nurdin Jivraj v Sadruddin Hashwani [2011] IRLR 827and Autoclenz v Belcher [2011] IRLR 820 which further illustrate the difficulties encountered when determining employment status. We will conclude by considering the impact of an individual’s status as worker on his legal rights and on his “employer’s” legal obligations.

    Legal background

    Under section 230 of the Employment Rights Act 1996 (ERA), an employee is defined as “an individual who has entered into or works under (or, where employment has ceased, worked under) a contract of employment”. A contract of employment is then defined as “a contract of service or apprenticeship”.

    A worker is defined as “an individual who has entered into or works under (or, where employment has ceased, worked under)

    • a contract of employment, or
    • any other contract...whereby the individual undertakes to do or personally perform 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 any profession or business undertaking carried on by the individual”.

    This definition therefore comprises two elements: firstly, the individual must be under an obligation personally to do work and, secondly, the person for whom the work is done must not be a client or customer of a business being run by the individual. The definition therefore includes employees but excludes a genuinely self-employed contractor working in business on his own account under a contract for services.

    Worker status

    The Employment Appeal Tribunal (EAT) considered the definition of worker in the case of Byrne Brothers v Baird [2002] IRLR 96.

    The claimants in this case were carpenters and a carpenter’s labourer who started work for Byrne Brothers on various dates in 1999. Their written contracts described them as self-employed sub-contractors who worked under a contract for services and who were not entitled to holiday pay, sick pay or pension rights. The contract also contained a limited power of substitution subject to the prior consent of Byrne Brothers. The claimants worked exclusively at the site in Milton Keynes up to Christmas 1999 and then resumed work after the New Year. In accordance with the terms of their written contract they received no payment for their holiday. They then made a claim for holiday pay on the basis that they were workers under the Working Time Regulations 1998 (under which “worker” has the same definition as in the ERA outlined above.)

    The EAT considered the following questions to determine whether the claimants were workers.

    • Personal service: Did the claimants undertake personally to perform work or services for Byrne Brothers? If they were able to appoint a substitute then this would be more consistent with their being self-employed. The EAT concluded that the claimants were required to perform their work personally. The limited power in their contracts to appoint a substitute was not fatal to their being workers.
    • Business undertaking: Was the status of Byrne Brothers by virtue of the contract that of a customer of a business undertaking carried on by each of the claimants? The EAT noted that “carrying on a business undertaking” was capable of having a very wide meaning - in one sense every “self-employed” person carries on a business -  but such a wide meaning could not have been intended under statute. The intention behind the definition of worker was to create an intermediate class of protected worker who is on the one hand not an employee but on the other cannot be regarded as carrying on a business. Protection was required because the worker was in a “subordinate and dependent position vis-à-vis their employers” and therefore needed similar protection to employees with regard to working hours and pay.  The test to determine whether the claimants were carrying on a business and whether the employer was a customer of that business was similar to the test to determine whether a contract was a contract of service or for services. Relevant factors would include the degree of control which the employer had over the worker, the exclusivity of the engagement; the method of payment, which party supplied the equipment used etc. The fact that the HMRC regarded them as self-employed was not conclusive. On the facts it was found that the claimants worked under the close direction of Byrne Brothers and were paid on a time basis rather than by reference to work performed. Therefore on balance they were considered not to be carrying on a business undertaking.
    • Mutuality of obligation: Was there any mutuality of obligation between each of the claimants and Byrne Brothers? The EAT noted that this was a necessary element for the individual to fall within the definition of worker. If the employer has no obligation to provide work and the individual has no obligation to accept that work then this tends towards the individual being self-employed. On the facts the EAT was satisfied that mutuality of obligation existed.  The claimants worked continuously for Byrne Brothers over the entire period with which the case was concerned. In considering these points the EAT noted that the effect of the definition of worker is to lower the “pass mark” so that those who fail to reach the high mark necessary to qualify as employees may still qualify as workers. Therefore, where an individual is, on balance, a self -employed contractor but there are some factors which point towards employment, it may be possible for them to qualify as a worker, even though they do not reach the higher pass mark to qualify as an employee. Taking all of the above into consideration, the EAT agreed with the tribunal’s conclusion that the claimants were workers.

    In the later case of Bacica v Muir [2006] IRLR 35, the EAT emphasised that worker status cannot be determined by personal service alone. Many sole-traders perform their services personally but will not qualify as workers if they provide their services as part of a business. The question as to whether there is a business undertaking outlined in Byrne Brothers is therefore also key.

    In the subsequent case of Clarkson v Pensher Security Doors Ltd UKEAT/0107/09, the EAT gave further guidance on how to determine whether an individual is carrying on a business undertaking and therefore whether he is a worker or a self-employed contractor. In this case the EAT upheld the tribunal’s decision that Mr Clarkson was not a worker but carried on a business undertaking of which Pensher was a customer. The tribunal found that Mr Clarkson undertook the work personally and there was mutuality of obligation between him and Pensher. However, notwithstanding these points and even though Mr Clarkson worked consistently for Pensher for two years and Pensher provided most of the equipment used and any required materials, the tribunal was entitled to find that Mr Clarkson was offering a service to a customer as a business undertaking. Relevant to their decision was that Mr Clarkson came and went as he wished, was not involved in company procedures such as appraisals, was not paid when he did not work and had specialist skills which gave him a stronger bargaining position in the market place unlike the labourers in Byrne Brothers.

    The Autoclenz case

    The decision of the Supreme Court in the recent case of Autoclenz re-emphaised that what is stated in the written contract will not necessarily determine the individual’s employment status. In this case, the Supreme Court upheld the Court of Appeal’s decision that car valeters, whose contracts described them as self-employed and contained a substitution clause, were in reality employees. When determining an individual’s status, tribunals may disregard terms in a written agreement which do not reflect the genuine agreement of the parties. The focus of the tribunal’s deliberations should be on the “actual legal obligations of the parties” not on what may be written in the contract.

    The Jivraj case

    In the recent Supreme Court case of Jivraj, there was a great deal of discussion about the distinction between employees, workers and the self-employed which highlights the difficulties encountered when determining employment status.
    In the case, the Supreme Court overturned the Court of Appeal’s ruling that arbitrators are employees for the purposes of anti-discrimination legislation. The Court concluded that arbitrators are in the category of independent providers of services who are not in a position of subordination with the parties who receive the services and therefore cannot be said to be employed by them.

    Why status is important

    In circumstances where an individual does not pass the test to qualify as an employee, the question of whether he is nevertheless a worker is significant because whilst a worker does not enjoy the full range of employment protection rights of an employee, he enjoys more rights than a self-employed contractor.

    The rights on termination of employment set out in the ERA to claim unfair dismissal or a statutory redundancy payment only apply to employees. However, workers do have rights:

    • under the Working Time Regulations 1998 (for example, to paid holiday, rest breaks and in respect of the maximum working week);
    • under the National Minimum Wages Act 1998 to be paid at least the national minimum wage;
    • as a part-time worker under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 not to be treated less favourably than a comparable full-time worker;
    • under section 10 of the Employment Relations Act 1999 to be accompanied at disciplinary or grievance hearings;
    • under Part IVA of the ERA to protection for making protected disclosures;
    • under the Data Protection Act 1998;
    • under the Equality Act 2010 not to be treated less favourably on grounds of age, disability, gender reassignment, marriage or civil partnership, race, religion or belief, sex or sexual orientation.

    It is therefore important for employers to be aware of the employment status of those who work for them so that they can comply with their various legal obligations. As can be seen from the cases discussed, it is not safe to rely on the description of those workers in any written contract if the contract does not accurately reflect the true nature of the relationship. The substance of the contractual relationship is key.