CIPD Manifesto for Work: navigating the employment relationship

By Mike Emmott, CIPD Employee Relations Adviser, @emmott_m, #CIPDmanifesto

 There is a strong case for simplifying the law on employment status. As a recent article in People Management magazine (“What makes an employee?”) pointed out, even lawyers can have serious problems distinguishing between the three categories of employment status: employees, self-employed and “workers”. 

 The distinction between employee and worker is particularly baffling. Workers are essentially individuals who perform work but are neither employed nor self-employed, and may for example be casuals, agency temps or subcontractors. Lewis Silkin conclude in their recent CIPD guide to the law on zero-hours contracts that, of all three main categories of employment status, "worker is the hardest category to identify...because workers tend to exhibit characteristics of both employee and self-employed status". 

 The difference between employee and worker status will significantly affect an individual’s statutory rights. Employees have the full range of rights, including for example maternity pay, redundancy payments and the right to claim unfair dismissal.  Workers’ rights are more limited, but include annual leave, protection against discrimination and the minimum wage.

 Why is employment status a problem? Basically because neither employers nor employees can be certain what rights the individual enjoys. This uncertainty is highlighted by the recent debate about zero-hours workers. Many people assume that zero-hours workers will by definition have only worker status, but that is not the case. Zero-hours workers may in fact be employees – it depends what their employment contract says.

 But the position is more complicated than that. A court or tribunal will ask what is the factual situation, and whether the formal contract accurately reflects the position on the ground.  In order to decide an individual’s employment status, courts will apply a series of legal tests, notably that of “mutuality”. Employees have an obligation to provide personal service and there is said to be mutuality of obligation. However the same is true of workers. Similarly the "control" test doesn't help much either, since it can bring in workers as well as employees.

 To mitigate some of this confusion, we recommended in our recent CIPD Manifesto for Work that the Employment Rights Act 1996 be amended, to entitle all “workers” to written terms and conditions no later than two months into their employment. We believe this will enable staff to be more aware of their employment rights, and help to ensure both parties are more aware of their mutual obligations to each other.

 However, we still have to ask, why is a separate worker status needed? There is no obvious parallel in other European countries. The TUC would like to abolish worker status, so that all economically dependent workers would qualify for the same statutory employment rights. 

 There is however a case for maintaining an intermediate level of employment relationship, such as that of worker, between employment and self-employment.  This would recognise that employers might wish to take on individuals for a period without assuming the full range of obligations of an employer. It would also allow for a degree of “churn” in the labour market, enabling both parties to assess their level of satisfaction with the relationship, and promoting subsequent access to permanent employment. 

 If worker status was only an option for up to two years, for example, this would impose no additional obligation on employers in respect of redundancy payments or unfair dismissal, since each of these rights has a two year service threshold.  However there would be problems for employers in other areas. Because of their often unpredictable working patterns, a critical problem with casuals is measuring length of service. Giving casuals employee status would require employers to address employment rights such as pension auto-enrolment, as well as extra-statutory, contractual rights such as health insurance.   

 When a Labour government last looked at the possibility of reform in this area in 2002, it concluded that extending employment rights to all workers might not significantly reduce uncertainties over status. But any government interested in making the law more transparent, so that employers and workers could be more confident about their rights and obligations, might want to reflect on the inscrutable nature of the existing law on employment status. Increased concerns about insecurity mean that the issue is unlikely to go away.

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