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

​[2015] EWCA Civ 209
Issue: Agency workers and employee status

The claimant was engaged to do construction work for Carillion Ltd (the end-users) through an employment agency. He alleged that he was blacklisted and received detrimental treatment from Carillion. He claimed detrimental treatment on grounds of trade union activities and activities as a health and safety representative under section 146 of the Trade Union and Labour Relations (Consolidation) Act 1992 and under section 44 of the Employment Rights Act 1996.

To pursue his claims the claimant had to establish that he was an employee. He said that an employment relationship should be implied because he was:

  • interviewed before his appointment
  • engaged on long-term assignments
  • fully integrated into the managerial structure
  • subject to a significant degree of control, and
  • his ‘dismissal’ was decided by Carillion.

The Court of Appeal and Employment Appeal Tribunal agreed with the employment tribunal that no contract should be implied at all. There was no evidence that the contract between the agency and the end user was a ‘sham’, and an employment contract could be implied only if it was necessary (in accordance with the principle in James v London Borough of Greenwich (2008)).

Whether a contract should be inferred with an end-user depended on the test of ‘necessity’. An employment contract will not be inferred if the relationship between the parties can be explained without implying such a contract. The Court of Appeal held that it was not necessary to imply a contract between an agency worker and the end-user. Therefore the claimant could not bring his claims as he was not an employee or worker of the respondents.

In the Court of Appeal it was also argued that that blacklisting is a breach of Articles 8 (Right to respect for private and family life) and 11 (Right to freedom of assembly and association) of the ECHR. This Human Rights Act 1998 appeal was also dismissed, primarily because the acts complained of occurred before the Act came into force. The CA therefore refused to agree a ‘declaration of incompatibility’.

(The UK government intervened and admitted that the blacklisting of trade unionists is a breach of Articles 8 and 11 of the ECHR, but despite this admission argued that the Court should not issue a ‘declaration of incompatibility’)

Implications for employers

  • In October 2014 the Government announced a broader review of worker status and it remains to be seen if this employment status review will extend the scope of protection.
  • In the meantime this case is one of the most recent which reviews the principles concerning the employment status of workers which has been the subject of a series of decisions over the years. The question of the employment status is particularly complex when individuals are engaged through an agency to work for an end-user client.
  • The worker often wants to establish employment rights and alleges that an implied employment contract has arisen between them and the end user.
  • The leading case of James v London Borough of Greenwich emphasised that an employment contract between an agency worker and the end user will only be implied if it is necessary.
  • For example, necessity may arise if there is no express contract between the agency and the end user or if there is evidence of a sham, such as using a purported agency, client relationship to avoid tax liabilities.
  • Where there is a contract which adequately describes the true relationship between the parties, then that contractual position will not lightly be cast aside.
  • Staff on long-term agency arrangements who seek to establish employment status with the end user will not succeed if the written agreement between the parties adequately explains the relationship.
  • Employers should keep contractual relationships with agency workers and self-employed contractors under review.
  • Employers should ensure that any contracts used reflect their intentions in respect of employment status and are clearly expressed to limit the likelihood of an employee relationship arising.

[2012] EWCA Civ 1416; [2013] IRLR 32 (CA)
Issue: Fixed-term employees

The claimant was initially employed with the Department for Work and Pensions under a fixed-term contract of employment as part of a government training scheme. There were then subsequent fixed-term contracts or extensions to the initial contract. After completing the training contract, Mrs Hudson got a job within the Department for Work and Pensions but still on a fixed-term basis.

In April 2010, having apparently accrued four years’ service, as required by the Fixed-Term Workers (Prevention of Less Favourable Treatment) Regulations, Mrs Hudson asked her employer to confirm that she was now a permanent employee. The Department for Work and Pensions, however, denied she was a permanent employee. It relied on the exemption in Regulation 18, which states that any fixed-term employment undertaken as part of a government training or work experience scheme is not counted towards the four-year qualifying period.

Eventually the matter reached the Court of Appeal, which decided that the employee could not have the declaration she sought. Time worked under a training scheme does not count towards establishing the four year period. If a fixed-term employee accrued four years’ service during their apprenticeship and qualified as a permanent employee this might act as a disincentive to employers to provide training and work experience opportunities.

Implications for employers

  • Employers will know that normally under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 anyone employed under a succession of fixed-term contracts will become a permanent employee after four years unless employment on a fixed term contract is objectively justified.
  • There is an exception for employees on a training or work-experience scheme arranged by the government or funded by the European Community.
  • Therefore, time worked under a training scheme does not count towards the four years that a fixed-term employee needs to become permanent.
  • Employers with fixed-term employees on training schemes will have four years after the end of their apprenticeship before they qualify as a permanent employee.

​[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’.
  • 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.
  • An employer will be vulnerable to a finding that there is a contract of employment only 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.
  • 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.
  • 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.
  • The employee in this case could make a claim for unfair dismissal as she had one year’s continuity of employment, but recent employment law changes now mean that for employees starting work on or after 6 April 2012, the unfair dismissal qualifying period has increased from one year to two years.

[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

  • Employers should remember that many rights under the employment legislation 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. However a number of rights cover workers as well as employees. For example, rights relating to working time and holidays, the national minimum wage, protection for part time workers and deductions from wages.
  • 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.
  • Employers should 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’.

​[2010] IRLR 451
Issue: Agency workers – duty of personal service

The claimant was an agency worker who was assigned to work in a prison laundry on a temporary agency basis. After a few months the assignment was terminated by the prison. The claimant brought unfair dismissal, sex, race and religious discrimination claims against the prison and the agency. The employment tribunal dismissed the claims, finding that the claimant had no direct contract with the prison, was paid by the agency and that all parties could terminate the assignment at any time without notice. There was a contract for services between the claimant and the agency. The claimant was not an employee of the prison as there was no mutuality of obligation between them and therefore no contract of employment and no unfair dismissal claim. He was also not an employee of the agency, so a discrimination claim as a ‘contract worker’ would fail. The employment tribunal went on to find that the claimant was not protected by the Race Relations Act 1976 Section 7, as this requires an agency worker to have a contract with the end-user (the prison) to provide services to them personally.

The CA upholding the EAT decision, agreed that the claimant would not succeed against the prison or the agency. The claimant was also not in employment for the purposes of discrimination law. The only way that an agency worker could be protected from discrimination from an end-user was to show that it was ‘necessary’ for the Court to imply a contract for services with that end user. Where, as in this case, the contract between the claimant and the agency was clear, the courts are unlikely to do so.

Implications for employers

  • It has been an established for some time that when considering the triangular relationships between agency, worker and end-user, the tribunals and courts will rarely imply an employment contract between the worker and end-user - see James v Greenwich Borough Council.
  • Some agency workers will be able to bring discrimination claims on the basis of their legal relationship with the employment agency.
  • Employers must keep an eye on the use of all agency workers if they wish to avoid those workers enjoying the benefits of employee status.
  • Employers who use agency workers should always address workers status in a clear contract with the agency and ensure that effective contracts are in place between the agency and the worker.
  • Employers are less likely to find themselves the employers of all of their agency workers as the recent decisions show a reluctance to imply a contract between an agency worker and an end-user unless it is necessary to do so.
  • A contract of employment will still 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 contract of employment will not always arise with agency workers, but the risks ought to be assessed and managed.
  • A tribunal will assess the whole of the evidence including any contractual documents between the worker and the agency, between the agency and the end user and the conduct of the parties to determine if the relationship has become an employment one.
  • All organisations using agency workers on a long term basis are at risk of acquiring responsibilities towards them as with other employees.
  • 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 end user, including the obligation to personally provide work and the obligation to perform it (mutual obligation).

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.

Explore our related content

A problem occurred while rendering this section
Object reference not set to an instance of an object.
Top