A person's employment rights depend to a substantial degree on whether or not he or she is an employee. Those who do not have a contract of employment (sometimes referred to as a 'contract of service') or a contract of apprenticeship (see 'Apprentices and trainees' below) are excluded from many important employment rights given by legislation, such as the right to claim unfair dismissal, the right to a redundancy payment and parental rights. They also cannot rely on the significant terms that are implied into all contracts of employment ( Employer's implied obligations ). It is therefore important for employers to be aware of which members of their workforce meet the legal tests for employee status, sumarised below.
It should also be borne in mind, however, that some employment rights given by legislation extend to many workers who are not employees. The legal position of these workers is summarised below.
Over the years, many different courts and tribunals have had to consider the issue of employee status. From their decisions, some guiding principles can be gleaned:
- The more the employer controls the work that the worker does, in terms of how it is done, where it is done and when it is done, the more likely it is that the worker will be viewed as an employee.
- If an employer is under no obligation to provide work and the worker is under no obligation to accept it if it is offered (as may be the case for some casual workers), then there are insufficient mutual obligations to create a contract of employment.
- The label that the employer and the worker apply to their relationship does not dictate its legal status. The fact that an employer categorises a worker as self-employed does not mean that he or she is in fact self-employed.
- The tax status of a worker does not determine his or her employment status. The mere fact that the Inland Revenue has not challenged an individual paying tax on a self-employed basis does not prevent the individual from claiming before an employment tribunal that he or she is an employee (although workers who knowingly manipulate their tax status in this way may find that tribunals are not prepared to enforce their employment contracts, on public policy grounds).
- The economic realities of the relationship are important. If the worker stands the direct risk of losing money if the job is not done well and stands to gain if the job is done efficiently, then he or she may well be self-employed.
- Another way of looking at it is to ask whether, in the light of all the surrounding circumstances, it can realistically be concluded that the worker is in business on his or her own account - that is, genuinely self-employed - rather than merely working to further the employer's business. It may be relevant to examine whether the worker also works for other employers, whether the worker also employs people, and whether the worker supplies his or her own tools and equipment to do the work.
- A contract of employment involves personal obligations between employee and employer. If the relationship is such that the worker is not obliged to do the work himself or herself, but is allowed to supply replacements when he or she is not available, the worker is unlikely to be working under a contract of employment.
In assessing the nature of an employment relationship, no one of these guiding principles gives the answer. They should all be taken into account in painting the overall picture.
Company directors are office holders under company law but they may also, depending on the circumstances, be employees.
Even workers who are genuinely self-employed and in business on their own account will have a contract with the company for which they are working (sometimes referred to as a 'contract for services') that gives them legal rights and defines their obligations. The contract is likely to specify, for example, what work has to be done and by when, what they will be paid and on what conditions, and what notice each side has to give to terminate the contract.
Self-employed people working under contracts that require them to carry out the work personally also have the right not to be discriminated against on the grounds of sex, gender reassignment, married or civil partner status, race, religion, sexual orientation or for reasons related to disability. This includes the right not to be discriminated against in the pay and benefits that they receive.
Several of the employment rights that have been created by legislation over recent years have been extended to many workers who cannot establish that they are employees. Workers qualify for these rights if they contract with an employer to perform personally any work or services, provided that the contract does not make the employer the client or customer of a profession or business undertaking that the workers are running.
As a result, these workers are not only covered by the discrimination legislation, but also have:
Where a company employs a worker who in turn employs another worker who works on the company's premises, then the company shares legal responsibility for ensuring that the sub-contracted worker receives the national minimum wage.
Some companies use temporary workers supplied by an employment agency. These companies have a contract with the agency for the agency to supply the workers and pay the agency a fee for the workers' services. The workers do not usually have a contract of any description with companies where they work. It is possible, however, that a court or tribunal in certain circumstances might imply that the worker is the company’s employee but an employment contract will only be implied between the agency worker and the end user when it is necessary to do so in order to explain the work undertaken by the worker for the end user. Your Association can provide further advice on the issue.
Agency workers do have some sort of contract with the agency, although not necessarily a contract of employment. It is the agency that is responsible for ensuring that these workers receive at least the national minimum wage.
Although agency workers are not usually the employees of the company where they work, that company is still under a legal obligation not to discriminate against them on the grounds of their sex, sexual orientation, gender reassignment, married or civil partner status, race, religion, disability or for reasons related to disability. In particular, companies may in some circumstances be legally obliged to make reasonable adjustments for disabled agency workers who are supplied to work for them (adjustments for agency workers ). Agency workers are also protected from retaliation for making protected disclosures under the Public Interest Disclosure Act 1998 ( Protection for 'whistleblowers' ).
Most workers that a company recruits on a temporary, casual or seasonal basis are likely to be its employees, at least for the time that they are working for the company.
Nevertheless, these workers may find it difficult to qualify for those employment rights, such as protection from unfair dismissal, that depend upon building up a particular period of continuous employment ( Calculating qualifying periods ). It is possible that some of these workers will have ongoing contracts of employment with the company that continue to exist even when they are not working, so allowing them to build up their period of continuous employment. And even if these workers have contracts of employment only during their periods in work, they may in some circumstances be able to count the periods between the contracts towards their period of continuous employment (gaps between contracts ).
Some temporary workers are given fixed-term contracts, to last for a specified period such as a week, a month or a year, or until a specified date. Others may have a contract to work until a particular task, such as a construction project, is completed or a particular event occurs. In general, an employee working under this type of contract has the same statutory rights as any other employee. It is also important to note that if a contract of this type comes to an end and the employer decides not to renew it, the employee is viewed as having been dismissed for unfair dismissal and redundancy payment purposes (fixed-term contracts) (redundancy payments). Further, it is unlawful for an employer to discriminate against an employee with this type of contract on the ground of his or her contractual status, unless it has objective justification for doing so (fixed-term contracts).
An employee's legal rights are not affected by being asked, or requesting, to work from home. The more traditional type of homeworkers, who are paid to carry out manual tasks on a piecework basis, may not always be able to establish that they have contracts of employment with the company that uses them. They may nevertheless qualify for the statutory rights that extend to workers who have contracts to carry out work personally (see 'Workers' above). Whether or not they are under an obligation to carry out their work personally, homeworkers are entitled to the national minimum wage (the national minimum wage) and to protection from retaliation for making a 'protected disclosure' under the Public Interest Disclosure Act 1998 ( Protection for 'whistleblowers' ).
Various different types of work relationship may be covered by the terms "trainee" and "apprentice".
Under a traditional contract of apprenticeship, the apprentice agrees to work for the employer for a fixed period, during which the employer is responsible for training the individual to a standard that qualifies him or her to pursue his or her chosen trade. Legislation gives traditional apprentices the same statutory employment rights as employees. The rules on the termination of contracts of apprenticeship are, however, different from those that apply to the termination of employment contracts (termination of apprenticeships). A contract of apprenticeship should be in writing.
In contrast with traditional apprentices, modern apprentices usually work under a tripartite arrangement, under which they obtain their work experience from their employer but a third-party training provider or college provides them with the more theoretical aspects of their training. Depending on the circumstances, a modern apprentice may be working under either a traditional contract of apprenticeship or a contract of employment. If the documentation establishing the relationship uses the terminology of apprenticeship and the employer agrees to provide the worker with an extended period of training to reach a recognised qualification, the contract is likely to be one of apprenticeship, even if it is agreed that most if not all of the theoretical side of the training will be provided by a college or other training provider.
Sometimes new recruits are labelled “trainees”, to indicate that they are in the early stages of doing the job and are still learning their duties. This does not affect their employment rights: “trainees” of this kind are in fact employees.
Individuals working for an organisation on an unpaid basis, in order to acquire work experience rather than to produce productive work for the company, are neither employees nor apprentices. They are, however, protected by the legislation that outlaws disability discrimination.