Arguments for Employment Distinctions within Law

 The issue of employment status is of fundamental importance to the implementation and administration of employment law. The classification of those in employment determines, at an initial level, the application of rights and obligations under legislation concerning employment protection, social security, and taxation.[1] However, as this piece will discuss, a high degree of uncertainty dominates the legal criteria by which individuals performing work are classified. This uncertainty, it will be argued, has created confusion when it comes to identifying what category of employment an individual fits in to.

In agreeance with the source material, this piece will argue that the current distinction between employees, the self-employed and workers is lacking in clarity and needs reform. It will be argued that the court should interpret the distinction between the categories purposively, with a heavy emphasis on the level of dependency the individual has upon the putative employer. For example, the more reliant an individual is on a sole employer for his income, the higher the level of dependency, therefore, this would afford the individual (at least some) protection.

Whilst this essay recognises other types of employment such as atypical workers, those on ‘zero hours’, umbrella and min-max contracts, due to word limit constraints, they will not be discussed. The proposed solution will encapsulate all individuals in a work setting, and further discussion of these other types is unnecessary for the purposes of this piece.

 Historically, individual employment law was based almost entirely upon the common law concept of the contract of employment, attracting little statutory intervention. [2] The inception of the Contracts of Employment Act 1963 was arguably the beginning of a major revision in the field of employment law, for example by introducing new rules on notice periods and the requirement of an employer to give her employees written statements of terms of employment.[3] However, as industries and working practices have changed,[4] alongside the introduction of entitlements and obligations,[5] the aforementioned field has been muddied. 

Employee or self-employed?

 Section 230 (1) of the Employment Rights Act 1996 defines an employee as ‘an individual who has entered into or works under...a contract of employment’.[6] A contract of employment is defined as ‘a contract of service . . . whether express or implied and (if it is express) whether oral or in writing’.[7] The question of what constitutes a contract of employment is left to the courts and tribunals.

However, issues may arise when attempting to differentiate between an employee and a self-employed person. An employee has a contract of service, whereas a self-employed person has a contract for service. Hence, the common law has established a number of tests in order to ascertain whether an individual is undertaking work on the basis of a contract of employment.

The ‘integration test’ asks whether the work of the individual is an integral part of the business or organisation.[8]  The ‘economic reality test’ involves asking whether the individual is not working for his own account.[9] The ‘mutuality of obligation test’ asks whether there is an obligation on the part of the enterprise to provide a minimum or reasonable amount of work to the individual and pay for it and whether there is a corresponding obligation on the individual to undertake a minimum or reasonable amount of work.[10] If the answer to any of these tests is ‘yes’, this is a factor in favour of the individual being an employee.

The original approach to differentiate between the an employee and a self-employed person was to apply the ‘control test’, that being, if an employer could control what the person was doing, and the manner in which it was done, that person was an employee.[11] The control test became insufficient, mainly due to the increased sophistication of industrial processes and greater number of professionals in salaried employment, and the use of a ‘multiple test’ appeared to be favoured by the courts.[12] In other words, the courts will take into account each of the above four tests and a number of other factors and determining on which side the scales eventually settle.[13] Cook J, in Market Investigations neatly summarized the test, saying that the question ultimately is whether the person in question is performing the services as ‘a person in business of his own account.’[14]

Academics such as Hepple have heavily criticised these common law tests, arguing that ‘any attempt to rationalise the coverage of legislation . . .  are bound to collapse if they are built on the corner-stone of the common law.[15] However, subsequent cases appear to have remained consistent with the summary by Cook J. In the case of Stringfellow Restaurants v Quashie [2013],[16] Quashie was responsible for all matters relating to tax, there was no mention of sickness pay, she provided her own outfits and, most crucially, Quashie took upon herself the risk of earning either nothing, or at least an insufficient amount to cover her expenses.  It was held that Quashie was self-employed, she was in business of ‘her own account’.

More recently, in the case of EMS Ltd v HMRC [2014],[17] EMS recovered immobilised motor vehicles from around the country on behalf of insurance companies and engaged Mr Makings (M), to help in this process. The tribunal was asked to decide whether M was self-employed, it held that he was. As in Stringfellow, one of the main factors for that decision was financial risk. M had purchased his van and trailer, did not receive holiday pay and had to arrange his own insurance. 

To draw comparisons between the above two cases, it appears that if an individual provides his own tools/costumes, the scales tip towards him being self-employed. However, this does not fit with the outcome in Byrne Brothers Ltd v Baird [2002].[18] Or perhaps it is the requirement that a financial risk be taken.Again, this does not fit with the outcome in Byrne, wherein self-employed building workers signed a subcontractors agreement, which included a clause stating: the subcontractor accepts that the contractor will incur no liability should it fail to offer an assignment to the subcontractor. Surely this is the taking on of a financial risk, just as in Stringfellow and EMS, yet a different decision was made by the courts. The above quote by Hepple seems to be correct here.

Considering that EMS was a tax case, Stringfellow involved an unfair dismissal claim, and Byrne was a Working Time Directive issue, this piece argues that the decisions reached by the court differs as a result of what statute an individual is relying on. This, results in nothing but confusion,

We can see from the above that the mixing of the tests does not provide clarity, nor does the summary given by Cook J assist us any. The fact is that an individual will rarely know if he is employed or self-employed, therefore, unable to rely on rights or entitlements he, potentially erroneously, believes he has.

The courts appear to be taking a purposive approach, we can see this from Byrne.[19] Wherein Mr Recorder Underhill QC stated: ‘the reason why employees are thought to need such protection [against working excessive hours etc] is that they are in a subordinate and dependent position vis-à-vis their employers: the purpose of the Regulations is to extend protection to workers who are, substantively and economically, in the same position.’[20]

The purposive approach in Byrne has already been applied in a vast amount of other cases,[21] and (although somewhat reluctantly) accepted by the Court of Appeal in Redrow Homes (Yorkshire) Ltd v Wright [2004].[22]

Using a purposive approach, with reference to dependency, would arguably have changed the outcome of Stringfellow. This piece does not agree that the real, on the ground, relationship in Stringfellow was that of self-employment. Quashie was dependent upon Stringfellows and worked under the terms she was given, a ‘like it or lump it’ type situation. The reality is that individuals have very little bargaining power in employment situations and often have no, or little, other option. 

The resurrection of the worker

 The term ‘worker’, although not new to UK law,[23] has appeared to make a resurgence in a new and revised form and is defined in the ERA 1996.[24] A workers is defined as ‘an individual who has entered into or works under... any other contract’.[25]

Comparing the definitions of a worker and an employee in the ERA 1996, we can see that the definition of worker is deliberately wider than that of the employee, arguably to incorporate all employees and then some others. Secondly, it appears to maintain a number of requirements associated with the term ‘employee’, in particular the contractual relationship, the personal nature of the engagement, and the lack of an independent business undertaking.

However, the rights and entitlements between workers and employees are different. Whilst an employee is entitled to all statutory rights, a worker is (inter alia) unable to claim for unfair dismissal, or a statutory redundancy payment. Additionally, although the intention of the parties and any written agreement is persuasive, it is not absolutely determinative of employment status.[26]

When differentiating between an employee and a worker, the courts will apply the aforementioned tests. As we have seen, a failure to satisfy one test does not necessarily mean that there is no contract of employment, the tests are merely a balancing exercise. However, considering cases such as Clark v Oxfordshire Health Authority [1998],[27] James v Redcats (Brands) Ltd [2007],[28] and more recently in Ashton v Revenue and Customs Commissioners [2016],[29] we can see that a lack of mutuality of obligations is fatal when determining a contract of service. This led to certain employers inserting ‘right to refuse clauses’ into contracts to absolve them of responsibility.

Whilst the insertion of a ‘right to refuse work’ clause, as was the case in Autoclenz Ltd v Belcher [2011],[30] will be struck down if the true nature of the relationship does not reflect the written contract, there is nothing stopping an employer avoiding a similar situation. As was pointed out by Peter Gibson LJ in Express and Echo Publications v Tanton [1999][31], where he uses the example: ‘if, under an agreement, there is a provision enabling, but not requiring, the worker to work, and enabling, but not requiring, the person for whom he works to provide that work, the fact that work is from time to time provided would not mean that the contract was a contract of service.’[32]

Therefore, the essential question when examining whether or not an individual is a worker should not only be the true nature of the relationship, but also be to what degree the individual is independent. Not in the sense of making ones own decisions or controlling ones own time, but in the sense of being able to able to spread his risks among a number of different relationships.[33]

Conclusion

We can see from above that categorising an individual is not an easy task. It sometimes involves costly litigation, potentially damaging relations between individuals and their employer/contractee. We have also considered that the distinction is sometimes based upon what statute an individual is trying to rely on, which is impractical, potentially expensive and creates uncertainty for the individual. The law needs reform, and this piece has argued that be done through identifying dependency, whilst approaching cases purposively.

Academics such as Freedland have suggested that Parliament should redefine who is protected by employment legislation, he points out that ‘free-lancers’, ‘consultants’ and ‘agency temps’ are all left without protection.[34] The solution put forth in this piece would not require parliamentary involvement, the courts would calculate a level of dependency based on the facts of the case and decide how much weight to afford to it. This would avoid arguably morally unfair results in cases such as Stringfellow and make the law much more clear enabling individuals to know their rights and be better advised by lawyers if things go wrong. 

Whilst courts to appear to be taking a more purposive approach to these cases, the direction the law is moving could be changed by the appeal to the Supreme Court in Uber BV v Aslam [2018].[35]

Bibliography

Books

• Cabrelli D, Employment Law (Pearson UK, 2018)
• Deakin S, Morris S, Labour Law (2nd edn, Butterworths 1998)
• Freedland M, The Personal Employment Contract (OUP 2003)
• Local Government Association, Employers’ E-guide No.9 (Employment Relations Unit, 2017)
• Smith I, Baker A, Warnock O, Smith & Wood’s Employment Law (14th edn, OUP 2019)

Cases

• Ashton v Revenue and Customs Commissioners TC05456 [2016] UKFTT 727 (TC), [2017] SWTI 215
• Autoclenz Ltd v Belcher & Ors [2011] UKSC 41
• Byrne Brothers (Formwork) Ltd v Baird and others [2002] ICR 667, [2002] IRLR 96 (EAT)
• Carmichael v National Power plc [2000] IRLR 43 
• Cavil v Barrat Homes Ltd [2003] All ER (D) 06 (Jul)
• Clark v Oxfordshire Health Authority [1998] IRLR 125 (CA)
• EMS (Independent Accident Management Services) Ltd v HMRC [2014] UKFTT 891 (TC)
• Express and Echo Publications Ltd v Tanton [1999] IRLR 367, [1999] ICR 693
• Firthglow Ltd v Descombes and Another [2004] All ER (D) 415 (Mar)
• Flynn v Torith Ltd [2002] EATS/0017/02
• James v Redcats (Brands) Ltd [2007] IRLR 296, [1007] ICR 1006
• Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, [1968] 3 All ER 732
• Nethermere (St. Neots) Ltd v Taverna and Gardiner [1984] IRLR 240 
• Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [1924] 1 KB 762
• Ready Mixed Concrete (South East) Ltd v MPNI [1968] 2 QB 497,[1968] All ER 433
• Redrow Homes (Yorkshire) Ltd v Wright [2004] EWCA Civ 469, [2004] 3 All ER 98
• Stevenson, Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101
• Stringfellow Restaurants v Quashie [2013] IRLR 99, CA
• Uber BV & Ors v Aslam & Ors [2018] EWCA Civ 2748

Statutes

• Contracts of Employment Act 1963
• Employers and Workmen Act 1875
• Employment Rights Act 1996

Journals

• Collins H, ‘Market power, bureaucratic power, and the contract of employment’ (1986) 1 ILJ 15
• Davidov G, ‘The Three Axes of Employment Relationships: A Characterisation of Workers in Need of Protection’ (2002) 52 UTLJ 357 p.386-387
• Deakin S, ‘Does the ‘Personal Employment Contract’ Provide a Basis for the Reunification of Employment Law?’ (2007) ILJ 68
• Freedland M, ‘From the contract of employment to the personal work nexus’ (2006) 35 ILJ 1
• Freedland M, Kountouris N, ‘Towards a comparative theory of the contractual construction of personal work relations in Europe’ (2008) 37 ILJ 5
• Hepple B, ‘Restructuring employment rights’ (1986) 15 ILJ 69, 72
• Langstaff B, ‘Vhanging Times, Changing Relationships at Work . . . Changing Law? (2016) 45 ILJ 131
• Leighton P, Wynn M, ‘Classifying employment relationships – more sliding doors or a better regulatory framework?’ (2011) 40 ILJ 5

Reports

• Burchell B, Deakin S and Honey S, ‘The Employment Status of Individuals in Non-standard Employment’ (DTI, 1999)

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[1]  Simon F. Deakin and Gillian S. Morris, Labour Law (2nd edn, Butterworths 1998) Chapter 3

[2] Ian Smith, Aaron Baker and Owen Warnock, Smith & Wood’s Employment Law (14th edn, OUP 2019) p.4

[3] Contracts of Employment Act 1963

[4] For example, the inception of ‘gig economy workers’

[5] For example, the entitlement of 5.6 weeks paid holiday per year under the Working Time Regulations 1998

[6] Employment Rights Act 1996, s.230 (1)

[7] Employment Rights Act 1996, s.230 (2)

[8] Stevenson, Jordan and Harrison Ltd v Macdonald and Evans [1952] 1 TLR 101 (hereinafter: ‘Stevenson’)

[9] Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, [1968] 3 All ER 732 (hereinafter: ‘Market Investigations’)

[10] Carmichael and Leese v National Power plc [2000] IRLR 43 (hereinafter: ‘Carmichael’); David Cabrelli, Employment Law (Pearson UK, 2018)

[11] Performing Right Society Ltd v Mitchell and Booker (Palais de Danse) Ltd [1924] 1 KB 762; Ready Mixed Concrete (South East) Ltd v MPNI [1968] 2 QB 497,[1968] All ER 433 (hereinafter: ‘Ready Mixed Concrete’)

[12] Ready Mixed Concrete (South East) Ltd v MPNI [1968] 2 QB 497,[1968] All ER 433

[13] Ian Smith, Aaron Baker and Owen Warnock, Smith & Wood’s Employment Law (14th edn, OUP 2019) p.42

[14] Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, [1968] 3 All ER 732 at 738

[15] Bob Hepple, ‘Restructuring Employment Rights’ (1986) 15 ILJ 69, 72

[16] Stringfellow Restaurants v Quashie [2013] IRLR 99, CA (hereinafter: ‘Stringfellow’)

[17] EMS (Independent Accident Management Services) Ltd v HMRC [2014] UKFTT 891 (TC)

[18] Byrne Brothers (Formwork) Ltd v Baird and others [2002] ICR 667, [2002] IRLR 96 (EAT) (hereinafter: ‘Byrne Brothers’)

[19] Byrne Brothers (Formwork) Ltd v Baird [2002] ICR 667, [2002] IRLR 96 (EAT)

[20] Byrne Brothers (Formwork) Ltd v Baird [2002] ICR 667, [2002] IRLR 96 (EAT) Para. 2 (4)

[21] Flynn v Torith Ltd [2002] EATS/0017/02; Cavil v Barrat Homes Ltd [2003] All ER (D) 06 (Jul); Firthglow Ltd v Descombes and Another [2004] All ER (D) 415 (Mar)

[22] Redrow Homes (Yorkshire) Ltd v Wright [2004] EWCA Civ 469, [2004] 3 All ER 98 Paras. 21-2 (hereinafter: ‘Redrow’)

[23] For example, it was historically mentioned in the Employers and Workmen Act 1875, s.10

[24] Employment Rights Act 1996, s.230 (3)

[25] Employment Rights Act 1996, s.230 (3) (b)

[26] Nethermere (St. Neots) Ltd v Taverna and Gardiner [1984] IRLR 240; Local Government Association, Employers’ E-guide No.9 (Employment Relations Unit, 2017)

[27] Clark v Oxfordshire Health Authority [1998] IRLR 125 (CA) (hereinafter: ‘Clark’)

[28] James v Redcats (Brands) Ltd [2007] IRLR 296, [1007] ICR 1006 (hereinafter: ‘James’)

[29]Ashton v Revenue and Customs Commissioners TC05456 [2016] UKFTT 727 (TC), [2017] SWTI 215

[30]Autoclenz Ltd v Belcher & Ors [2011] UKSC 41(hereinafter: ‘Autoclenz’)

[31] Express and Echo Publications Ltd v Tanton [1999] IRLR 367, [1999] ICR 693

[32] Mark Freedland, ‘The Personal Employment Contract’ (OUP 2003) 9

[33] Guy Davidov, ‘The Three Axes of Employment Relationships: A Characterisation of Workers in Need of Protection’ (2002) 52 UTLJ 357 p.386-387

[34] Mark Freedland, ‘The Personal Employment Contract’ (OUP 2003)

[35] Uber BV & Ors v Aslam & Ors [2018] EWCA Civ 2748