Different Persons in UK Employment Law

The distinction between the notions of ‘employee’, ‘worker’ and ‘self-employed’ persons is not sufficiently clear in the UK employment law. This problem is due to: 1) lack of statutory guidance in differentiating those three terminologies; 2) judicial engineering through the common law and 3) the problems deriving from management practices. Despite this uncertainty, different legal implications are attached to each those categories in terms of the rights and liabilities, in line with Freedland’s contention that it is a fundamental exercise in employment law to identify who is an employee and who is an independent contractor, although some rights have now been extended to the wider category of worker [1] . Brodie disagrees, that most of them still require employment status [2] . Nevertheless, it seems that even until today, employees are subject to more favourable treatment compared to their counterparts -workers and self-employed persons – in terms of obtaining fringe benefits namely unemployment protection, sickness, industrial rights and state pension [3] . Furthermore, the protection afforded by the employment statutes in general only safeguard ‘employees’ from unfair dismissal, and giving redundancy compensation and maternity rights. Although it has been made clear in Quinnen v Hovell [4] that all workers, regardless of their status, are protected by the Sex Discrimination Act 1975 and the Race Relations Act 1976, in practice, this rarely happens on day-to-day basis. This essay will explore the three problems identified earlier have caused uncertainty and unpredictability in the UK employment relations.

Firstly, the difference between ‘employee’, ‘worker’ and ‘self-employed’ category is unclear due to insufficient statutory guidance. There are two interesting examples to support this motion: Section 230(1) of Employment Rights Act 1996 defines an employee as, ‘an individual who has entered into or works under a contract of employment, whilst section 82(1) of the Sex Discrimination Act 1975 refers to an employment under a contract of service or a contract personally to execute any work or labour. It is unfortunate that the ‘contract of employment’ phrase itself is not defined under both the 1996 Act and the 1975 Act, leaving the task to interpret the phrase to the courts. The perceived weaknesses of the statutory floor of employment rights have caused workers to look towards contractual remedies as a more effective form of job protection [5] .

It is also contended that the statutes are not forward-looking enough to embrace the rapid development within employment structure. A research by Painter et al suggests that the peripheral workers, who often subject to exclusion of rights, are the ones in greatest need of protection – more than 20% of the workforce today work part time – 90% of them is women. [6] This is perhaps associated with the child bearing age and caring responsibilities. This shambles have been long criticised by the House of Lords Committee on the European Communities due to the resemblance of economically self-defeating and socially unacceptable as it reinforces gender discrimination between men and women [7] . In addition, there is a growing number of ‘zero hours’ contracts where there are no hours and no work guaranteed. This situation has not certainly captured during the drafting stages of the employment legislations. A research by Cave shows that over a fifth organisation within the UK contracted zero hours workers for flexibility [8] , where 80% of them considered the zero hours workers as ‘employees’ as they are not entitled to refuse to do work [9] . We are awaiting for case law regime to be developed for the zero-hours worker before we can be certain their rights and responsibilities under the law. What is certain at this point though, is that the old statutes will need to be repealed and replaced by a new legislation which encompasses these new developments.

The unsatisfactory protection afforded by the UK government, especially on part-time workers and independent contractors has generated an outcry at the European Union level. The UK employment rights are certainly patchy compared to its European counterpart. For example, the principles of equal treatment in terms of terms and conditions of the employment regardless the employment status are recognised in most national constitutions, for example in the French Code du Truvail, Article L212-4-2. In response to the critics at the EU level, the British government passed the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, where under Regulation 5(4), the part-time workers are entitled to receive the same hourly rate of pay, same entitlement to annual leave and no less favourable treatment in access to training. Nevertheless, until today, there is no an empirical study to gauge the effectiveness of the Regulations and we will have to wait and see whether the Regulations will have any impact on the employment contour.

Secondly, the difference between ‘employee’, ‘worker’ and ‘independent contractor’ is blurred due to judicial reengineering effort over a period of time, yet according to Anderman, a thorough understanding of the characteristics of contracts of employment is a virtual precondition to an understanding of the subject of labour law [10] . The court was at first obsessed with the degree of control on when and how the work is done in the case of Performing Rights Society v Mitchell and Booker [11] . However the obsession has come to an end in Cassidy v Minister of Health [12] since control test is insufficient test in a modern industrial society. As per Clark and Wedderburn, the Victoria judges favoured the command and control test since the concept of control itself has been inherited from the idea of ‘service’ during medieval time [13] . The series of test is followed by the integration test, formulated by Lord Denning in Stevenson, Jordan and Harrison Ltd v Macdonald and Evans [14] which refers to whether the work is an integral part of the project, or merely an accessory to achieve the goal of the project. Nevertheless, this approach is not silent from the academic outcry, where Winder mentioned that the problem of this test was due to the failure of Lord Denning in clarifying the meaning of ‘integration’ for the sake of clarity [15] .

Subsequently, a test called ‘a mutuality of obligation’ was introduced by the Court of Appeal in the case of O’Kelly and Others v Trusthouse Forte Plc [16] , where it was held that in absence of mutuality of obligation imposed on both parties and the intention of the parties which was based on the customs and practices within the industry not to create an employment relationship, the claimants’ argument that they should be considered as a group of employees had been dismissed. The creation of test is subsequently continued by the multiple test, which was put forward by McKenna J in Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance [17] where in determining whether a person is an employee, one ought to ask himself three questions: 1) whether the employee provided services in consideration of wages; 2) whether the employer has control on the employee and 3) whether the terms of the employment contract are inconsistent to be determined as contract of service.

This test has been extended by Cooke J in Market Investigations v Minister of Social Security [18] to determine whether a person should be classified as an employee or an independent contractor, depending on a ‘shopping list’ factor such as whether the person performing services provides his own equipment and helpers, degree of financial risks that he takes, his responsibility for investment and management, and how far he has an opportunity of profiting from the sound management of his task. This set of formula has been approved by Privy Council in Lee v Chung and Shun Chung Construction and Engineering Company Ltd, although the court in the authority of Hall (Inspector of Taxes) v Lorimer [19] stated that these tests should not be gone through mechanically when they revisited Cooke J’s formulation.

The courts have seemed to be more sympathetic where they tend to determine an individual as an employee as a public policy consideration. In Nethermere (St Neots) Ltd v Taverna and Another [20] , the Court of Appeal opined that homeworkers are considered as employees provided that the work is given on an ongoing basis and there was a strong element of control by the employer, and there is a mutuality of obligation due to the length of the relationship. In a similar vein, Dacas v Brook St. Bureau [21] proposed that the client end-user can be the employer of an agency worker, provided mutuality of obligation and control are present, which has been recently approved by the Court of Appeal in Muscat v Cable and Wireless Plc [22] . The policy oriented approach has been loudly applauded by commentators such as McKendrick, whom mention that the courts should be concerned of the welfare of the workers rather than the interest of the profit-making enterprises. [23] It has been observed that this scenario has also happened in the United States, where in the American jurisprudence, the test of economic reality is preferred, as applied by the American Supreme Court case of United States of America v Silk [24] . This approach has been supported by Ruseell who puts forward that by implementing the economic reality test, neither party is able to conceal the true nature of relationship and proposed that this test should be transplanted in the UK Employment Law. [25]

Another problem created by the courts when formulating the rules is that, during the attempt to create a comprehensive guidance pertaining to the ‘employees’, ‘workers’ and ‘independent contractors’, the judges purposely choose to retain their rights to decide those classification on case by case basis. This has been made clear by the Court of Appeal in the case of Young and Wood Ltd v West [26] , where it seems to approve the courts’ wide margin of discretion. This is in line with the contention that the question of employment status is one of law, with a mixture of question of fact for the courts’ determination, as proposed in the case of O’Kelly v Trusthouse Forte Plc [27] . In this context, Pitt has rightly concerned that treating the question as one of facts will mean that different tribunals will arrive at different conclusions even if they are presented with the same question [28] .

Last but not least, the distinction between the connotations of ‘employees’, ‘workers’ and ‘self-employed’ is blotched due to management and human resource practices over a period of time. This has been admitted by May J in The President of the Methodist Conference v Parfitt [29] that the work which people have been assigned to have become more numerous, more diverse and more sophisticated that no test or sets of tests is apt to separate contracts of service and contracts for services in all cases. Painter and Holmes have rightly questioned that the emphasis has been put too much on the status of the worker, rather than the contract which attracts the rights bestowed by statute [30] . The management practices, or rather can be aptly put as ‘tactics’, according to Rubenstein can open the possibility for employers and their advisers to draft contracts which will negate employment status for certain workers by including a substitution clause in their contracts [31] . This concern has been answered by the court in the case of Byrne Brothers (Framework) v Baird [32] that this approach will not survive if it comes before the court. Nevertheless, the matter will only be enforced by the courts when it is presented before them, and the piecemeal basis of enforcement is best regarded as not holistic.

The other reason which influences management decision is the cost minimisation measure. For example, under the Social Security Contributions and Benefits Act 1992, an employer must pay secondary Class 1 contributions for employed earners and is exempted from deducting Pay-As-You-Earn (PAYE) income tax under schedule E of the same Act, where self-employed earners will pay a different contribution under Class 2. This has certainly led to the consideration of avoiding the unnecessary tax, where the costs can be circumvented if the workers are not labelled as ‘employees’. In a similar situation, the cost cutting measure is seen via health and safety issues. Health and safety measures are more extensive for employees rather than independent contractors under Health and Safety Act 1974, and for this reason, Selwyn observes that the courts tend to lean towards ‘employees’ rather than ‘independent contractor’ when they are presented with health and safety issues as a public policy issue [33] . Last but not least, by avoiding the ‘employees’ label, the employer can avoid the vicarious liability for tortuous act by the management for independent contractors such as in the authority of Hillyer v St. Bartholomew’s Hospital [34] , although in Cassidy v Ministry of Health [35] , the management is not exempted from being the secondary defendant in a dispute subject to certain factors. In this context, Collins suggests that a contract of employment should be deemed to exist, if the worker performs services for another (taking into account that this agreement has been put in writing), unless it falls under two exceptions: 1) it is due to the performance of tasks, coupled with uncertain duration of time and 2) ‘no badges of membership’ of the firm’s organisation apply, such as compliance with the corporate dress code of the company [36] .

Nevertheless, the courts’ attitude has been more approachable over a period of time, for instance via the valuable guidance has been given by the House of Lords in deciding the case of Carmichael and Leese v National Power Plc [37] which concern management practices in the industry. There was disagreement between the Court of Appeal and the House of Lords in Carmichael and Leese. The Court of Appeal opined that the term ‘casual as required’ had the essential element of mutuality obligation and trust between employer and employee. However the House of Lords disagreed and overturned the decision, based on the fact that the claimants were not entitled to a written statement of particulars, meant that they were not considered as employees. Nevertheless, in reconciling the conundrum Lord Chancellor and Lord Hoffmann opined that the disputed parties should firstly look at their contractual documents which contain terms and conditions of employment, and in the event of ambiguity, the parties should refer to the conduct of both parties as evidence. This approach is favoured by Painter and Holmes to combat the slick language of employment contract [38] , although it is certainly a subjective question to determine the conduct of both parties which will inevitably lead them to settle their disagreement before the court. On the other hand, the House of Lords decision had attracted harsh criticisms from the feminist writers, notably Ross, whom mentioned that the Court of Appeal’s approach is seen as more protecting of the women rights within employment [39] . In reality, human resource personnel have always faced with difficulties to convince the management that they cannot simply label the workers as ‘casual staff’ in the attempts to avoid employment rights and obligations imposed on them [40] .

In conclusion, the difference between ‘employees’, ‘workers’ and ‘independent contractors’ has not been made unclear due to the absence of statutory guidance and the nature of the legislations which does not embrace rapid changes within the employment industry. The judges, in their attempts to set up boundaries within these three concepts, have failed miserably due to the introduction of various tests and their desire to retain their discretion to interpret those three concepts in perpetuity. The management should also be blamed for drafting slick employment contracts and implementing cost cutting measures in the course of their business, particularly with reference to tax and health and safety contexts. It is unfortunate for us to continue to expect this uncertainty situation to continue at least in the near future – status quo at best – until the Government decides to address and resolve the conundrums by passing a new legislation.