A self-employed contractor does not benefit from statutory employment rights and protections so they cannot claim unfair dismissal, nor the right to a redundancy payment. A self-employed person cannot claim, for example, statutory minimum levels of notice pay or paid leave. If a person is truly self-employed, they will not have the right to make a Tribunal claim for discrimination or whistleblowing detrimental treatment.
Employees – employed to work under a written or oral contract of employment – enjoy the highest levels of statutory protection on termination. Employees can claim unfair dismissal and a statutory redundancy payment if continuously employed for 2 or more years, have their employment protected on a TUPE transfer, benefit from family rights and health and safety protections, and have terms implied by law into their contracts that regulate the relationship between the employee and employer (for example the implied term of mutual trust and confidence).
The question of whether there is an employment contract between the employer and the employee is a mixed question of fact and law. For example, if the written employment contract includes an express term that excludes employee status, yet there are sufficient levels of contractual control exerted by the employer over the employee, and sufficient levels of contractual mutuality of obligation between the parties, then the Tribunal may determine that a particular person is an employee, despite the express contract terms providing otherwise, see Carmichael v National Power Plc  1 WLR 2042.
Workers – who are principally defined under section 230(3) of the Employment Rights Act 1996 as individuals who have entered into or work under (a) a contract of employment or (b) any other contract whereby the individual undertakes to do personally any work for another party to the contract and whose status is not that of a client or customer of any profession or business undertaking carried on by the individual (known as a “limb b” worker).
Workers enjoy certain statutory rights and protections such as those provided for under the Working Time Regulations 1996 and the Minimum Wage Act 1998, and protection from discrimination at work under the Equality Act 2010 and whistleblowing detrimental treatment under the Employment Rights Act 1996.
Of note, from 6 April 2020 all workers commencing after 6 April 2020 must be provided with a written statement of terms under the Employment Rights (Miscellaneous Amendments) Regulations 2019 (SI 2019/731).
Determination of employment status
As in the Carmichael case for employees, a Tribunal will approach the determination of worker status in a purposive way and may depart from the express contract terms if they do not reflect what happens in practice. For example, if the dominant feature of the contract is for an individual to provide personal service, then a Tribunal is likely to find worker status, despite an express contract term to the contrary.
An unfettered or unrestricted right to send a substitute will be unlikely to amount to a contractual requirement to provide personal service, so that in these circumstances a worker arrangement is much less likely to be determined by the Tribunal. A conditional right to provide a substitute may or may not be inconsistent with personal performance, it will depend on the precise contractual terms and the degree to which the right is limited or occasional. For example, a conditional right to substitute when a person cannot do the work is consistent with personal service, see Pimlico Plumbers Ltd v Smith  EWCA Civ 51.
The Tribunal can determine the true agreement between the parties and is not restricted by the express terms of the written contract. The Tribunal will look at whether the express contractual provisions reflect the actual legal obligations of the parties and may conclude that they do not. It is not necessary to show that the written agreement is a sham or intended to misrepresent, it is enough that the written terms do not accurately reflect the true legal obligations between the parties in order for a Tribunal to depart from the written terms, see Autoclenz Ltd -v- Belcher and others  IRLR 820 (SC) and Uber BV v Aslam  EWCA Civ 2748.
Why employment status is important for everyone – employers and employees/workers
For the employer, it is important to correctly classify each person that is engaged to provide work or services to the business. If a person is engaged to provide work or services personally under a contract, so that they cannot send a substitute, it is very possible that the “limb b” worker definition would be satisfied, classifying that person as a worker and not a self-employed contractor. This situation brings with it potential claims for unpaid annual leave and wrongful dismissal, as well as claims for discrimination at work and whistleblowing detrimental treatment that provide for claims of compensation that are not subject to the statutory cap and the allow for the potential award of unlimited compensation.
It is in all parties’ interests to agree contracts – of employment or for engagements – that reflect accurately the status of the employee that is employed, the worker that works, or the self-employed contractor that is engaged, by the business. Providing a written contract that clearly identifies the correct employment status will save all parties money over the long term, ensuring employees and workers receive the correct pay and employers are aware of and can plan for the risks of potential claims (in the case of discrimination and whistleblowing detriments claims the compensation is not capped).
For the employee, it is important that their employment status is made apparent because this will determine the level of their statutory protection from unfair dismissal or their redundancy rights and what terms are implied into their contract of employment.
For the worker, it is important they are aware of their worker status because that will determine their rights and protections such as statutory minimum paid leave and rest breaks. Those who hold worker status can make claims for discrimination in the workplace or whistleblowing detrimental treatment.
James Collier is a Senior Associate in Hanne & Co’s Employment Law team.