Determining the difference between employees and workers

With employees, workers and the self-employed all receiving different employment rights and protections, determining their status is a key requirement for employers; but it isn’t easy. The majority of people are employed as employees under a contract of service. Workers have fewer rights than employees (see page 121). They can be agency workers or short-term casual workers but will still usually pay tax through PAYE. The self-employed have even fewer guaranteed workplace rights than workers but in each case it will depend on the contract they agree. For many years there was no clear legal definition of a worker. In 2007 the Employment Appeal Tribunal provided a judgment which included tests for tribunals to follow.

Worker or self-employed?

Once it is established there is no contract of service (i.e. an employment contract), which would make the worker an employee, there are three tests to establish if the person is a worker or self-employed:

1  is there a contract to perform work or services?

2  is there an obligation to perform the work or services personally?

3  is the worker performing the work or services in the context of running a business where the other party is a client or customer?

The case James v Redcats provided more detailed discussion of points two and three. The judge said that the obligation to provide the work or services personally was unaffected by an ability to provide a substitute if the worker was ‘unable’ to carry out the work, e.g., if they were ill. However, it would be different if the worker was unwilling to do the work and could choose to use a substitute. To complicate matters, it is not necessary for the worker to have established a business before the contract begins to be viewed as running a business. The judge said the key to this was to consider the dominant feature of the contractual arrangement. For instance, if the dominant feature is personal service, then the contract will lie in the employment field, while if it is a particular objective or outcome then the contract will be in the business arena. The judge also criticised previous decisions which said that a person who only worked occasionally, with gaps between periods of work, could not be a worker because there was no obligation for the employer to provide them with work during the gaps. The correct approach is to consider the person’s status when they are working rather than their status during the gaps. This means that casual and seasonal workers have the status of worker, entitling them to the National Minimum Wage. It is noticeable that the law is gradually moving in the direction of ! giving workers (except the genuinely self-employed) the same rights as employees.

Ending fixed-term contracts early

There are times when an employer may want to end a fixed-term contract early, whether it is a contract of service or a contract for services. This can only be done if there is a clause in the contract that allows for early termination and the required notice is given. If the contract doesn’t contain such a clause then the worker can claim for breach of contract and, if there is sufficient continuity of service, potentially make a claim for unfair dismissal and redundancy.