The issue of ‘status’ is once again in the news, as it has been for the last few years, due to the recent Supreme Court decision in Pimlico Plumbers. Hot on its heels followed a tribunal decision involving Hermes, the courier company, in which more than 30 drivers sought recognition as workers. Before that cases involving companies such as Deliveroo, Addison Lee and CitySprint, have looked at essentially the same issue. With the rise of the gig economy, worker status is perhaps the hottest topic in employment relations and human resources right now.
The question of status is a complex one, but essentially queries whether the person providing services to your business is genuinely self-employed, or instead an employee, or somewhere between the two, the confusingly named ‘worker’.
The Employment Rights Act defines employees as those working under a contract of employment. Workers by contrast are defined as those who (a) undertake to provide a personal service; and (b) whose relationship with the business is not akin to a client / customer relationship. It is very important that both of these elements are met. Self-employed contractors, on the other hand, have no statutory definition. They are simply working people who do not fall into either the employee or worker category.
How does it affect my business?
Self-employed contractors have pretty much no rights other than those set out in their contracts – usually, a per-job payment structure and an acceptance of all risk that goes with their work. An employee, at the other end of the spectrum, enjoys far more protection – most notably, unfair dismissal rights. Workers sit somewhere in the middle, with limited rights such as protection from discrimination and whistleblowing rights, national minimum wage and holiday pay but do not have any more general dismissal protection.
Status also has major tax implications. Not only will it affect whether staff need to be paid via PAYE, and whether employer’s National Insurance contributions are due, but it may affect whether the business is required to charge its clients and customers VAT. Getting this wrong can have major adverse implications, resulting in historic charges for unpaid tax, together with the various interest, penalties and charges that HMRC is entitled to charge in such circumstances. Some gig economy businesses, for example, could be looking at tax back payments of tens of millions if they lose the battles they are waging in the courts over status.
What’s in a name, or even a contract?
Not a lot, is the simple answer. The courts have been clear time and time again, at every level from the Employment Tribunal to the Supreme Court, that what matters is the reality of the commercial relationship, not what is written into the contract. So businesses can draw up agreements describing staff as self-employed, and even including clauses in which the individual ‘accepts’ contractor status, all they like. If the reality is that they are a worker, the court will make that finding regardless of what the documents say – and even regardless of what the parties intended.
(Genuine) personal service
The first question is ‘will the individual do this work themselves, or can they substitute themselves for someone else?’
A lot of businesses, quite understandably, do not want their staff to effectively subcontract their work to a third party. It can be damaging to the business and the brand, and means you have to sacrifice a considerable degree of control over who carries out your commercial activities.
However, maintaining this sort of control will be seen as an indicator that your staff member is a worker, or even an employee, and not self-employed. To subvert this, many employers implement limited substitution clauses, for example allowing staff to pass their jobs on to other staff members within the business. This was the case in the recent Pimlico Plumbers dispute: Mr Smith was allowed to pass his jobs on to other Pimlico plumbers, but not externally.
The Supreme Court (and each of the four courts and tribunals that looked at the case before then) were not convinced. They accepted that there was a right to substitute, but the fetters on it meant that it was not enough to say that there was no contract for personal service. The Supreme Court even mooted a new “dominant purpose” test, asking the question of whether the dominant purpose of the contract was to engage the specific individual. Put simply, this suggests that some substitution will not sidestep personal service if the overall objective is that the specific individual provides the service.
The nature of the relationship
Even where there is a contract for personal service, you will not necessarily have a worker. The worker needs to show that the relationship between them and the business is not akin to a commercial client / customer relationship. It is this limb of the test that stops your wedding photographer or window cleaner becoming a pseudo-employee.
Over the years, the courts have refined this test into something akin to asking ‘how integrated is this person in the business?’ We can glean from the case law a series of factors we might want to consider. These include:
- Are they subject to disciplinary rules?
- Do they have set hours?
- Are they part of the management structure?
- Do they have to wear a uniform?
- Do they have to follow a set pattern when carrying out their tasks?
- Are they bound by post-termination restrictions?
If the answer to most of these questions is yes, then you will have a worker on your hands. If it is no, then they may be self-employed. A good way to think about it is to ask yourself how someone who is unquestionably self-employed might work. For example, do you tell your window cleaner how to clean the windows? Do you make him or her wear a uniform to work? Do you conduct appraisals? The answer in each case is (obviously) no. If you are applying a different standard to your workforce, however, you have to expect a different result.
It would be nice to have some hard and fast rules as to what makes a worker, employee and contractor. But the sad reality is that is not the case, and nor does it look like it will be the case in future. For now, it is a question of taking a step back, analysing each situation on its facts, and being realistic (and honest) with yourself as to what your workforce really is.