Employment status – the importance of getting it right
22 January 2025
When an individual provides services to a business, it is important for all concerned to understand the nature of that relationship. The individual could be one of three things: an employee, a worker or self-employed, and depending on which description applies, the liability for the employer is different.
Why is it important for businesses to get it right?
Our employment law & business immigration team explain the different employment status types and explores the principles applied by the courts to identify employment status correctly in the event of a dispute.
Employed status
The Employment Rights Act broadly defines an employee as someone who works under a contract of employment. What this means in practice relies on tests applied by the courts over time.
Whilst there is no tick box that will tell you whether someone is an employee or worker, a person is more likely to be an employee if:
There is mutuality of obligation. This means that the employer is obliged to provide work to the employee and the employee is under an obligation to accept it.
There is control by the employer over the employee in respect of the way the work is undertaken by the employee. This can include issues such as the place of work, the times when the work is done, the provision of tools or technology to perform the work and even the clothes worn during working hours.
There is no right of substitution. In other words, the employee must perform the work the work they are given, they cannot pass the work to someone else to do on their behalf.
The individual is not providing services to the business as a business, which would make them self-employed.
Worker
A worker, such as a person who works under a zero hours contract, provides services to a business as an individual. This is a middle ground between being an employee and self-employed where the business they provide services to is not a client or customer of the individual, nor is there a full employment relationship where there is, amongst other things, mutuality of obligation. However, in the worker relationship, the employer does have control and there is no right of substitution.
Over recent years there have been a few high-profile cases that provide a helpful narrative to the sticky issue of employees and workers.
Uber
The contractual position between Uber and their drivers was that the drivers were self-employed. Amongst other things, this meant they were not entitled to holiday pay. In court the drivers successfully argued that they were workers and not self-employed because they had no control over the way in which they accepted work.
In addition to the app passengers use to book an Uber, there is a separate app the drivers use. On the app, Uber offers work to drivers, which they can accept or refuse. However, they are given only seconds to accept the job about which they do not know the destination or the fare at the time of acceptance. For this reason, the court found they had no control over the work and therefore could not be self-employed.
As the drivers were then deemed to be workers, they were held to be entitled to holiday pay. The financial impact on Uber amounted to billions of pounds.
Deliveroo
By contrast, Deliveroo drivers have been found to be self-employed, thanks to a detail in their contracts which gives them the right of substitution.
Curiously, Deliveroo drivers undergo a detailed selection and training process which requires them to adhere to certain standards and practices, which sounds like control. However, the contract itself allows the drivers the freedom of deciding whether to accept a delivery, so there is no mutuality of obligation. It also gives them further freedom to abandon a job after acceptance and allocate it to someone else to do, so that they have a right of substitution.
What does this mean for employers?
In summary, when deciding whether someone is an employee, a worker, or self-employed, the courts will start by looking at the contractual arrangement and then consider the day-to-day situation to determine the reality of the relationship. As shown in the Uber case, the financial consequences of getting employment status wrong can be huge.
If you have any questions or queries, please don’t hesitate to get in touch with our expert team.
Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
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