Who am I anyway? Categorising Employment Relationships

24 September 2020

Not all work is equal in law. Obligations, rights and duties change depending on the type of work the one partakes in. In this article, Alex talks through some of the basic identifying features of three types of "employment" relationship. Those being the contract of employment, the worker contract and the independent contractor. 

 

Who am I anyway? Categorising Employment Relationships


Employment is undeniably one of, if not the most, significant aspect of modern life. Employment provides so much more than a means of income; it provides a sense of self-identity and belonging. Employment becomes the “pillar” of social and existential interaction for all1. The importance of work to the individual has finally been recognised in law by the courts2

However, while all work is important, some types of work are deemed more worthy of protection than others. To make life even more confusing, one’s employment status cannot merely be determined from a contract one signs, presuming there is one. While the courts are generally unwilling to re-write explicit terms of a contract, the special nature of employment means that on occasion the contract may not provide an accurate picture. In these cases, the Courts may revise the contract to apply what was actually agreed.

This post intends to explain the key identifying features behind three types of work: (1) the employee; (2) the ‘limb b’ worker, and (3) the independent contractor. What this means as a matter of practice will be explored in the following weeks. This distinction forms the foundations for understanding Employment Law.

The contract is not necessarily the King

A contract might state an individual is a certain type of worker. However, labels in the contract are only useful when all other factors give an inconclusive answer3. Employers might misrepresent the status of their workers to try and escape various legal obligations relating to, but not exclusively, pay, holiday and dismissal protection. 

For employment contracts, the only thing that matters is what was agreed. If that is not reflected in the written agreement, then how was the agreement intended to operate at the time of signing? In the case of Autoclenz v Belcher (2011), the employer had forced his workers to sign contracts declaring they were independent contractors. The Court held this was a sham as it was not a representation of the obligations agreed at the time. In practice they were workers. For example, although the contract had stated there was no obligation from the employer to offer work and no obligation on the employees to take the work, that was not the case as a matter of reality. 

As with most areas of Employment Law, the ‘sham doctrine’ is incredibly fact sensitive. The courts consider the inequality between the parties’ relative bargaining positions. For example, in Autoclenz there was great inequality between those looking for work as valet washers and the company employer. The claimants had no choice but to sign the contract in order to work despite the sham in the written terms. However, if the individual requests independent contractor status, perhaps for tax purposes or to retain flexibility, a Court will be unwilling to alter that status4.

Employee

To be a legal “employee” there are three key elements that must be satisfied. In addition to this, a number of other factors must, on balance, point towards an employment relationship. 

First, a contract of employment5. This contract does not need to be in writing6. An apprentice can also be treated as an “employee” in law, so long as there is a relationship whereby one pays another for work. A volunteer can never be an employee7

Second, under this contract, the employer will agree to make a certain number of shifts available to the employee in the future8; the employee has no choice but to work9. This is known as “mutuality of obligations”. Work on a ‘needs-be’ basis, whereby the individual can choose whether or not to work, can never have “employee” status10

For example, in O’Kelly v Trusthouse Forte a restaurant had a list of ‘casual’ waiting staff and would employ them on a day-by-day basis depending on demand. When the claimants came to work there was no guarantee of their services being needed that day. The Court held that the ‘casuals’ could not be qualified as employees. The restaurant had made no promises to make work available for them in the future. In certain circumstances, a series of shifts may be deemed as continuous and working under one contract, but that is a topic for another day

Thirdly, the employer must exercise control over the work done. This does not mean that the employer must micromanage for his workers to be deemed “employees”. Simply, it means that the employer must have the ability to exercise control over how the work is done12. Whether he does or not is irrelevant; he must simply have the ability to. 

Finally, the relationship must be consistent with employment. Does the individual wear the employer’s uniform? Does the employer provide tools? Is the individual subject to the employer’s procedures and policies, including disciplinary procedures? Does the employer deal with the tax and National Insurance contributions? Not all of these factors must be present, but, on balance, there must be an employment relationship. 

Worker

The most common aspect of “employee” status that fails is the second stage: that there is no mutuality of obligations. Should that fail, the individual is not necessarily deemed an independent contractor. If he can prove (1) the existence of a contract for personal service (as shown with an employee), (2) that he is not a volunteer and (3) that he is in a different position from an independent contractor, then he has protection as a “worker”13

The deal must be work for a wage. In contrast to “employee” status, however, there is no obligation on the employer to offer work in the future. Should the worker be unable to take the work opportunity, this does not harm his status. If he can substitute himself for another if he is unwilling, the individual will not be a “worker”14.

Numerous tests have been proposed for part (3) over the years. The most common nowadays is the so-called ‘Factual Matrix’ test15. In this, the Court will look at all the facts to determine whether the worker is in-fact a “client or customer”. Such factors ask what was the “dominant purpose” of the contract; was the worker integrated into the workplace; did he advertise his service to the world or was he exclusive, as well as the above (and below), mentioned factors of being consistent with an “employment” relationship as opposed to one of a result like the independent contractor.

Independent Contractor

Should both of these fail, then the individual may be an independent contractor. Such relationships are typically characterised by a high level of individual control. Money is not given under the direction of an employer, but rather for a specific outcome. For example, you do not ‘employ’ the restaurant staff when you go out to eat. You pay the restaurant for a particular outcome16

These relationships are characterised by a high level of independence. This typically leads to a number of factors including: 

  1. No uniform
  2. No disciplinary policy
  3. They take the economic risk of the venture being unprofitable 
  4. The individual deals with their tax and National Insurance contributions 
  5. There is no or limited power for a third party to control when and how the work is done. 

For matters of discrimination, some independent contractors may be deemed as ‘employed’ under a “contract of to do work personally”. However, that is outside of the scope of this post 

Conclusion

While the distinction is not immediately apparent, it will be in the coming weeks as I write more on employment issues. To understand your rights in law under an employment contract, you must first understand what category you fall into. Of course, this blog post does risk over-simplifying what are fundamentally complex legal concepts. Cases often rely on a complicated factual pattern, so it is always best to seek legal advice.


Endnotes 

InWork European Project. ‘Why Is Work Important?’ InWork European Project. Accessed 15 September 2020

Johnson v Unisys [2001] IRLR 279 

Quashie v Stringfellow Restaurants Ltd [2012] EWCA Civ 1735 

Massey v Crown Life Insurance Company [1978] IRLR 31 

Employment Rights Act 1996 S230(1)

Ibid at S230(2)

Sharpe v Bishop of Worcester [2015 EWCA Civ 399] 

Carmichael v National Power plc [1999] UKHL 47 

Express and Echo Publications Ltd v Ernest Tanton [1999] ICR 693 

Some academics, such as Deakin, will disagree with this. Their argument however will be omitted as it has not been approved in Court.

[1983] ICR 728

White and Anor v Troutbeck [2013] EWCA Civ 1171 at [41]

MacFarlane and another v Glasgow City Council [2001] IRLR 7 

S230(3)(b) ERA 1996

Suhail v Barking, Havering & Redbridge University Hospitals NHS Trust UKEAT/0536/13/RN 

Jivraj v Haswani [2011] UKSC 40 


The contents of this article do not constitute legal advice and are provided for general information purposes only.

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Alex Evans

Alex graduated with a BA Laws from Homerton College, Cambridge. He is currently studying for his LLM in Public Law at UCL whilst also interning at The Legal Stop; during his internship Alex will be writing blog posts explaining topical areas of the law, as well as more opinionated pieces on the state of the law. Outside of working hours you can often find Alex in the gym, in the kitchen or reading up on history.

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