Do you know the employment status of your workforce?
Many employers would probably answer a confident "yes" to the above question. However, the issue of employment status goes far beyond what is stated in an individual's contract. Just because an individual has signed up to a consultancy agreement with your organisation does not necessarily mean that they are automatically self-employed: there is a risk that they may be workers or even employees of your business.
Different models of working have developed in recent times, complicating the issue of whether an individual has the status of an employee or a worker, or is a self-employed independent contractor. Technological changes in the workplace have resulted in new and different ways of working, most notably in the " gig economy". This terminology can complicate matters: is the individual a "casual worker"? Or do they have a "zero hours contract"? Are they a worker, freelancer, contractor or self-employed? There is much overlap between the various terms used, and an individual can fall into more than one category.
We have previously reported on the struggles of Uber and Deliveroo. Last week, the Supreme Court handed down its judgment in the Pimlico Plumbers case, confirming that the plumber in question was a worker with the rights that follow such status. This is despite the fact that he had signed a contract as a self-employed contractor. These cases have been very fact specific, yet they all highlight the importance of a careful analysis of the detail of the relationship between the parties in any engagement.
The distinction in status is important. Genuinely self-employed individuals are not entitled to employee benefits, whilst employees are entitled to a range of statutory rights and protections. These include the right not to be unfairly dismissed (after two years' services) and the right to a statutory redundancy payment. Workers are entitled to fewer statutory rights than employees, but do have some key legal rights which they share with employees, for example, paid holiday, protection from discrimination, entitlement to the national minimum wage and protection against unlawful deduction from wages.
Employment tribunals will often look at the contract the parties have signed as a starting point, but, will also look beyond the written terms to the realities of the day to day relationship between the parties. There is no single test which tribunals will adopt. They will apply a number of different factors. For example, in Pimlico Plumbers the contract contained a right of substitution -meaning the individual could send a replacement - this is often indicative of a self-employed status. However, when the right was examined by the Tribunal, it became apparent that the only acceptable substitute would be one already approved by Pimlico Plumbers and bound by its obligations. As part of its decision the Court held that if the plumber was genuinely self-employed, he would have enjoyed an unfettered right to substitution.
Often these issues only arise when an organisation comes to terminate an individual's consultancy agreement after a period of time and is then faced with a costly claim for redundancy pay, or even unfair dismissal on the grounds that the individual claims they are in fact an employee. All employers should be taking steps before issues arise to ensure that their engagements are clear, accurate and appropriate for each individual.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
