Here we list a selection of key cases on disputed employment status, providing a summary of the decision and implications for employers.

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Issue: Worker status in the gig economy.

Facts 

There have been many recent cases on the employment status of those working in the gig economy, this case reached the Supreme Court and is therefore the leading decision on the status of gig economy workers. The case followed the previous differing decisions that Deliveroo riders were self-employed and Uber drivers were workers. (The Uber decision is being appealed in October 2018.) 

The Supreme Court considered the true employment status of a plumber engaged under a ‘self-employed’ contract. After working for some six years the plumber had a heart attack and asked if he could work three instead of five days a week.

The refusal of this request led to unfair dismissal, disability discrimination, failure to make reasonable adjustments and holiday pay claims. For the unfair dismissal claim, he had to show he was an employee. For the remaining claims, he had to show he was a worker. 

Pimlico argued that it was in reality a client or customer engaging the services of a self-employed plumber. Relevant facts included that he was paying tax on a self-employed basis and worked solely for Pimlico. However, he could choose when he worked and which jobs he took. He was also required to provide his own tools and equipment but:

  • the plumber wore a branded uniform, rented a branded van and had to work to company standards;
  • customers made payments to the company rather than to individual plumbers; and
  • there was no right of substitution.

Decision 

The Tribunal found the plumber was entitled to rights as a worker but that he was not an employee. The EAT, Court of Appeal and Supreme Court all confirmed that he was a worker too. This means that Mr Smith’s claims as a worker could proceed. A key factor was that there was no right of substitution. This suggested he had a contract to work personally, rather than pure self-employment. The clear control over him included the requirement to use the company van, wear uniform and to work a minimum number of hours per week which suggested ‘worker’ status. The contract also made references to wages, gross misconduct and dismissal together with a number of restrictive covenants applicable following termination which were inconsistent with genuine self-employment.

The employment tribunal already found that the plumber was not an employee and he did not appeal against this finding. The higher courts focussed only on worker status. 

Implications for employers

The final outcome of this case sets a clear precedent for employment rights within the gig-economy. This judgment does not lay down any new principles of law around worker status, but it is one of the biggest decisions made on workers’ rights. Thousands of workers will now be aware they are entitled to rights including sick and holiday pay.

  • Employers should always specify in an agreement what the status of the individual is. However, even if they label an individual self-employed, they can still be an ‘employee’ or a ‘worker’.
  • Employers should remember that many rights are given not just to employees or the self-employed, but to those who are defined as workers.
  • Employers should consider carefully if anyone they engage as a contractor has claims as a worker.
  • Workers have less employment protection rights than employees, but they are entitled to certain rights which the self-employed do not have, including the national minimum wage, rest breaks and paid annual leave. Workers also benefit from protection against the unlawful deduction of wages and the right not to be treated less favourably if they work part-time.
  • An unlimited right to substitute another worker in a contract suggests there may be genuine self-employment. However, a limited right to substitute a worker, for example, in cases of illness, can be consistent with a contract to work personally and can still lead to a finding of worker status.

The government has commissioned the Taylor Review which made extensive suggestions for reform including legislation to define the boundaries between the self-employed and worker status. Successive governments have previously declined to take this step leaving the matter to the courts.

In the absence of any new legislation, as the gig economy continues to develop existing case law has to evolve to cover new relationships. Cases like this one help provide a coherent body of case law, so that employers can correctly determine the status of their workers from the outset of their relationship. 

A key problem is that each case is so dependent on subtle differences on the unique facts. The Supreme Court judgment, has consequences for others particularly for Uber who have already appealed to the Court of Appeal in their dispute. The flow of litigation around worker status, will continue in the absence of any overarching principles specified in new legislation.

Companies in many sectors for example, construction, will be interested in the decision as they often argue individuals working for them are self-employed contractors rather than employees or workers.

Issue: Worker status for minimum wage and paid holiday.

Facts

This case was brought by three drivers working for a private hire and courier service in London. They were classified by the company as self-employed, who claimed they wanted the minimum wage plus holiday pay rather than the £5 an hour they were earning. 

The drivers were charged fixed costs for hiring Addison Lee cars, and their use of the vehicles was restricted and regulated. They had to accept jobs once logged on to Addison Lee's system, and agreed to undertake those jobs personally. The drivers had to comply with a dress code and code of conduct.

Decision

The EAT ruled that the Addison Lee mini cab drivers were also workers, rather than self-employed, and entitled to workers' rights including the national minimum wage and paid holiday. They had been wrongly classed as self-employed. The tribunal had correctly determined that there was mutuality of obligation between the parties when the couriers logged on to the app. The drivers also agreed to undertake jobs personally and Addison Lee also had significant control over the relationship including restricting vehicle use and imposing the company’s branding.

Implications for employers 

The decision affects thousands of allegedly self-employed drivers at Addison Lee, as well as other companies operating in the gig economy. It is estimated that the holiday pay for each worker was in the region of £4,000.

Whilst not all ‘self-employed’ drivers will be entitled to workers' rights, many will be. The government’s Taylor report has suggested renaming those eligible for worker rights as a new category of ‘dependent contractors’ and a further consultation has considered a range of options including legislation to address employment status. Until then organisations should:

  • always address workers status in a clear contract even though this will not be determinative in all cases;
  • ensure that there is a contract which accurately reflects working practices; and
  • remember that in deciding employee status tribunals will consider control, mutuality of obligation, integration and multiple tests until any new legislation emerges.

Issue: Worker status for the purposes of Trade Union recognition

Facts

This case was brought by the IWGB union on behalf of a group of Deliveroo couriers seeking union recognition and workers’ rights. The company riders were seeking statutory benefits including sick pay, national minimum wage and paid holiday.

Deliveroo classes the couriers as self-employed independent contractors rather than workers. If their employment status is in reality worker or employee status then the organisation can be forced to engage in collective bargaining for increased benefits with the union.

Deliveroo argued that the drivers and riders are genuinely self-employed as they can provide a substitute to do their work which was inconsistent with the personal service requirement involved in being a worker or employee.

The contracts said that a driver or rider could provide a substitute, employed directly by the rider, to perform the delivery. There was no obligation to obtain the company’s approval or even to inform the company. Any substitute is allowed as long as he or she had not previously had a contract terminated by the company or engaged in conduct that would have resulted in termination. The couriers have to pay any substitutes and make sure they had the necessary skills and training. 

Interestingly, the case contained a new aspect which is that the couriers’ contracts contain a warranty and indemnity that no-one acting on their behalf can claim the courier is either an employee or a worker. The clause states that if any such legal action is taken the courier must indemnify the company against legal costs and expenses. Such clauses are usually unenforceable penalty clauses.

Decision 

The claim for statutory recognition has been rejected by the Central Arbitration Committee (CAC). Deliveroo was able to demonstrate that the couriers could use substitutes to perform their work and so were not ‘workers’ - one of the essential conditions for union recognition.

The company had adduced evidence to show that some riders did make use of the right to substitute and found that this was a genuine right to substitute which indicated self-employment. The unfettered right of substitution meant that the individuals did not have worker status.

Implications for employers

In determining whether individuals are workers it is irrelevant that the reason the employer had drafted the contract in a particular way is motivated by the desire to avoid giving the individuals worker status of workers. The proper question was what was achieved in reality:

  • Most, decisions in the gig economy indicate that working arrangements will attract ‘worker’ status.
  • All organisations, especially those in the gig economy, need clarity about employment status and the precise contractual basis of their arrangements.
  • If there is no obligation on a person to perform services personally then it is hard for that individual to argue that they are an employee or ‘worker’.
  • If there is a genuine and unrestricted right for substitutes, then the individual is less likely to be a ‘worker’ or an employee.
  • A substitution clause should not be limited only to circumstances where the individual is unable or unwilling to work but there must have complete choice about whether to work or to ask a substitute to replace them.
  • A right of substitution will be more convincing as an indication of self-employed status if it has actually been used and substitutes have undertaken the work.
  • An almost unfettered right of substitution should mean that the contracts are not contracts to perform personally any work or services so that the individuals will not be “workers”. 
  • The area of law remains very finely balanced and an employment tribunal could easily reach a different conclusion in very similar cases. 

Issue: Entitlement to holiday pay as a worker.

Facts

Maggie Dewhurst worked as a cycle courier for two years, being classed by City Sprint as an independent contractor. City Sprint regulated the amount of work available, and told its couriers told what to do, when to do it and how to do it, suggesting a significant degree of control. She had to wear CitySprint uniform, although her contract stated that she was a self-employed contractor.

Relevant factors also included the fact that couriers:

  • jobs were allocated via a centralised tracking system;
  • received payment in arrears on a weekly basis;
  • were not obliged to work but if they did not then they were not  paid;
  • could send substitutes, but in reality, the substitute could really only be another CitySprint courier, rather than someone of the courier’s own choosing;
  • were subject to a rudimentary disciplinary process if they were rude to customers; and 
  • could be removed and replaced.

Decision

The tribunal found that the couriers should be classed as workers and were, therefore, eligible for basic employment rights including holiday pay, sick pay and the national living wage. Ms Dewhurst was in fact integrated into CitySprint’s business. The judge commented that the courier company’s contractual arrangements were contorted and indecipherable and that this was not a commercial venture between two corporate entities.

The Tribunal emphasised some key factors including that the courier was economically and organisationally dependant on the Company, and was working for them rather than for herself. 

Implications for employers

This decision follows the same findings as the Uber case and serves as a further reminder to employers that individuals engaged in the gig economy are often likely to be workers. 

  • Courts and Tribunals will look behind what is in the written terms and examine the reality of the situation when deciding employment status.
  • Some apparently self-employed workers may be integrated into an employers’ business and may have status as employees or workers.
  • Tribunals always consider the extent to which an individual has been integrated into the business, in determining whether they are a worker or truly self-employed.
  • If workers lack autonomy to determine how they perform services and have no chance to dictate how they work, and are not providing services to anyone else they are more likely to be workers and possibly employees.

​[2012] EWCA Civ 1735
Issue: Employment status

A dancer at Stringfellows was dismissed for alleged drug use. She worked on a rota basis and on the nights she worked, she had to perform as directed by the Stringfellows’ management. She received payment from customers who gave the dancers vouchers which they then gave to the club’s cashier at the end of the night. The cashier made deductions, including any fines for being late, and paid the dancer in cash. She often ended up earning nothing once commission, fees and fines had been deducted.

The dancer brought a claim for unfair dismissal, but Stringfellows said she was self-employed and not an employee. Furthermore, they claimed in the alternative that the employment contract was void as the claimant had falsely represented her position to HMRC.

The Employment Appeal Tribunal had held that the dancer was an employee but the Court of Appeal decided she was not. Although she was required to provide her work personally and was controlled by the club via its house rules Stringfellows was not actually bound to pay the dancer anything. She was paid by the customers and therefore took the economic risk of not being paid, which is always a very powerful factor against the contract being a contract of employment. She had accepted in the terms of her contract that she was self-employed, that she paid her own tax and that she did not receive sick pay or holiday pay.

Implications for employers

Employers should always specify in an agreement what the status of the individual is. However, even if they label an individual self-employed, they can still be an ‘employee’.

Employment contracts and agreements with contractors should clearly specify whether the parties regard the agreement as creating an employment relationship, although parties cannot, by agreement, determine the status of their relationship.

An employment tribunal will assess the whole of the evidence, including any contractual documents between the worker and the employer and the conduct of the parties, to determine if the relationship is in reality an employment relationship. Employers should bear the following in mind:

  • There can only be a finding that there is a contract of employment if other essential ingredients for a contract of employment are present between the worker and the employer, including the obligation to personally provide work and the obligation to perform it (mutual obligation).
  • Mutuality of obligation must exist between the employer and employee as part of the test for determining whether an employment contract exists.
  • It will be easier for employers to establish that someone is not an employee where the written contract explicitly states that there is no mutuality of obligation.
  • Employees will have to show that the written contract was intended to misrepresent the true contractual relationship, if they wish to establish employment status where it is expressly stated that there is no mutuality.
  • Employees who are not employees may still be protected as ‘workers’ for some purposes, for example, the National Minimum Wage Regulations and the Working Time Regulations.
  • Where the written arrangements do not genuinely reflect the actual relationship between the parties, an employment tribunal may imply an employment contract by necessity.

[2012] EWCA Civ 1005
Issue: Employment status

A senior partner of a GP surgery was approached by the Hospital Medical Group Ltd (HMG), which has clinics throughout Europe. HMG engaged doctors to perform procedures for it, including in this case hair restoration.

The doctor entered into a contract for services which referred to him as a self-employed independent contractor. He was:

  • required to pay all tax and national insurance as a self-employed person
  • responsible for his own professional indemnity insurance
  • not entitled to sick pay
  • not entitled to holiday pay
  • not obliged to work a set number of hours or times, and
  • did not have to accept any assignments given to him by HMG.

When the contract ended he claimed for unlawful deductions from wages and holiday pay. An employment tribunal and subsequently the appeal courts had to decide if he was an employee or a worker for the purposes of the Employment Rights Act 1996 (ERA).

The Court of Appeal held that he was a ‘worker’ as defined under ERA, section 230(3)(b). He had agreed to provide his services as a hair restoration doctor exclusively to HMG. HMG was not just a purchaser of the doctor’s medical skills, but it had specifically recruited him to carry out procedures on its behalf and referred to him in its marketing as ‘one of our surgeons’. He was clearly an integral part of the undertaking.

Implications for employers

The distinction between a self-employed person, an employee and a worker is often very subtle and there are genuinely grey areas in appreciating the differences.
 
The tests for employers to consider if an employee is a worker are complex. The tests include whether the individual undertakes to provide the work personally? Is there is mutuality of obligation between the parties? Is the individual is providing a business service to the company and is the company is a customer or client of that business. Employers should:
  • Remember that referring to an employee in a contract as self-employed is not a guarantee that they are not in reality an employee or at least a worker. Tribunals always consider the reality of the relationship, including the extent to which an individual has been integrated into the business, in determining whether they are a worker or truly self-employed.
  • Look carefully to see if their consultancy agreements etc reflect the reality of the relationship. The factors which would indicate that an individual is self-employed rather than a worker or an employee would be if the individual for example:
    • provides work to other clients or customers
    • has the freedom to determine how and when to work
    • can provide a substitute to carry out work
    • is paid when not working for the company, and
    • is not involved in any company procedures, such as appraisals.
    • Employers should also be aware that some ‘self-employed’ workers they use may be integrated into their business and may have status as employees or workers.

​UKEAT/0075/12
Issue: Employment status

A mini-cab driver entered into a written contract with a taxi service. The contract included the following terms:

  • He was not an employee.
  • He was responsible for paying his own tax and National Insurance contributions and if registered for VAT, had to account for VAT to HMRC.
  • He could work as and when he liked and go off duty whenever it suited him.
  • There was no obligation to provide work at all. In reality he worked seven days a week and generally worked several hours each day for the company.

He left after a disagreement and brought a claim for wrongful dismissal in the employment tribunal. Although he could have brought a contractual claim in the civil courts, in order to bring the claim in an employment tribunal his employment status had to be decided.

The Employment Appeal Tribunal decided the claimant was not an employee, as there was no mutuality of obligation between the parties. He was probably employed during a particular shift, but there was insufficient mutuality of obligation between shifts to imply an umbrella employment contract. This meant that there was no jurisdiction to hear his claim. To imply such a contract in the gaps between jobs he had to show a minimum amount of work.

Implications for employers

The written agreement between a potential employer and employee is extremely important.

However, the written terms of a contract are not determinative of the relationship and it is always necessary to consider how the relationship works in practice.

  • In deciding employee status tribunals will still consider control, mutuality of obligation, integration and multiple tests.
  • However, the court may be reluctant to over-ride the express terms of a written agreement only because the worker provides services regularly.
  • The mere fact a relationship has continued for some time will not in itself establish employee status.
  • A contract of employment may be implied even though there is no express contract, either written or oral between the parties. However, the inference must be a necessary one where the contract operates in a way which is only consistent with an implied contract.
  • Employers should always address workers status in a clear contract even though this will not be determinative in all cases.

Issue: Employment status

Twenty car valeteers signed contracts which described them as self-employed contractors. The valeteers paid their own tax and had to purchase their own insurance and also buy their, own uniforms and cleaning materials from the company. However, they were also required to do the work personally, even though the company had written a substitution clause into their contracts and were under an obligation to attend work. The valets argued that they were employees and brought claims for their holiday pay and national minimum wage.

The issue was whether the courts could disregard what was written in the contracts if it considered the reality to be different. The Employment Appeal Tribunal held that a court can only do this if the contract is a sham. The Supreme Court disagreed and ruled that the valeteers were employees. The most important thing in an employment relationship was what happened in reality and not the written agreement.

Implications for employers

  • Employment Tribunals will not readily interfere with what employers have agreed with employees or contractors.
  • A contract of employment will only be implied against employers if it is necessary to do so and the arrangements under which the employee is working are only explicable by there being such a contract.
  • A tribunal will assess the whole of the evidence, including any contractual documents between the worker and the employer and the conduct of the parties to determine if the relationship is in reality an employment relationship.
  • An employer will only be vulnerable to a finding that there is a contract of employment if other essential ingredients for a contract of employment are present between the worker and the employer, including the obligation to personally provide work and the obligation to perform it (mutual obligation).
  • Employment contracts and agreements with contractors should clearly specify whether the parties regard the agreement as creating an employment relationship.
  • It will be easier for employers to establish that someone is not an employee where the written contract explicitly states that there is no mutuality of obligation.
  • Employees will have to show that the written contract was intended to misrepresent the true contractual relationship if they wish to establish employment status where it is expressly stated that there is no mutuality.
  • Employees who are not employees may still be protected as 'workers' for the purposes of the National Minimum Wage Regulations and the Working Time Regulations 1998.

​[2010] IRLR 1024
Issue: Employment status – substitution

The claimant was a dentist who had entered into a contract with a company to provide dental services. The company supplied the equipment and support staff, introduced patients to the claimant and required him to work set hours. There was a clause in the contract which allowed the claimant to let a locum use his facilities if he was not going to use them for a continuous period longer than five days (excluding annual leave). In this situation he would also be responsible for paying the locum.

In deciding whether the claimant was a ‘worker’ or an employee (for the purposes of an unlawful deduction from wages claim) the Employment Appeal Tribunal held that the ‘unfettered right’ to appoint a substitute meant that the ‘personal service element’ of the relationship between the claimant and the company was missing. He therefore did not satisfy the test of ‘worker’.

Implications for employers

Employers should plan very carefully when constituting their workforce as to whether they intend to engage employees or independent contractors.

If employers wish to avoid the protection given to employees, then the relationship must operate in a way which is genuinely that of engaging an independent contractor.

  • Employers must ensure that there is a contract which accurately reflects the working practices.
  • Any attempts by an employer to 'dress' what is in reality an employment relationship as something else will fail, as the law looks at the reality of the relationship.
  • The key elements of a genuine independent contractor relationship are that the person is in control of their work (and not the employer) and that the working person takes any element of financial risk.
  • A company which allows a genuine and unrestricted right for substitutes to be used may have a good argument that the person engaged is not a ‘worker’ or an employee as far as the law is concerned.
  • A substitution clause should not be limited to circumstances where the working person is unable or unwilling to perform the services.
  • There must be a complete discretion whether to provide the services personally or to ask a substitute to provide them.
  • A right of substitution will be more convincing as an indication of self-employed status if it has actually been used and substitutes have undertaken the work.
  • If there is no obligation on a person to perform services personally then it is hard for the person to argue that they are an employee or ‘worker’.

Please note: While every care has been taken in compiling these notes, CIPD cannot be held responsible for any errors or omissions. These notes are not intended to be a substitute for specific legal advice.

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