What makes someone an employee?

There have been several legal cases over the last 6 months which have grappled with the issue of whether a person who works for an organisation is an employee or worker in order to establish what associated employment rights they have. Topically referred to as the “gig economy” the concept of employing casual workers or contractors to perform work is not a new one and Employment Tribunals and HMRC alike have frequently, over the years, had to decide whether a person falls into the category of an employee or self-employed.  The introduction of legislation such as the Working Time Regulations and National Minimum Wage Regulations has resulted in a new category of “worker” who also has some employment rights, but not all.

Contractors working under the IR35 regime must now satisfy HMRC that they are entitled to do so by completing an online questionnaire to confirm employment status. The questions asked are those that would be asked by a Judge who is faced with determining this question.  A decisive factor appears to be that the contractor has the right to appoint a substitute to perform the work under the contract.

The legal basis upon which a court or tribunal decides whether an individual is an employee, a worker or self-employed is not straightforward. There is not a “one size fits all” approach or neat checklist to complete to reach a definitive answer.  Instead, the issue has been determined by case law going back many years to the leading case of Ready Mixed Concrete (South East) Limited v The Minister of Pensions and National Insurance (1968).  This case determined that the key tests for the existence of a contract of employment are that:

• There is an agreement in existence under which a person is required to perform work personally for another individual or organisation.
• There is control of the individual by the other individual or organisation.
• The relationship is consistent with a contract of employment (‘other factors’).

The “other factors” are things such as whether there is a written contract between the parties and what it says, is the organisation obliged to provide work and the individual to accept it, does the individual provide his own tools and materials, who pays the individual’s tax and whether the individual is paid holiday pay and sick pay. The courts will look at the “bigger picture” to determine whether an individual is an employee.  So, if the outside world looked at a person who drives a company branded vehicle, wears a company uniform, has business cards for that company and introduces himself as from that company it would easily presume that that person is an employee of the company in question.  The courts will take a similar view.

In the recent Employment Tribunal case where Uber drivers argued that they were employees and should have employment rights, it was concluded that whilst they had sufficient autonomy and flexibility to not be classed employees, the Uber organisation controlled their work and movements to the extent that they were also not self-employed. It was held that they were workers and will therefore have the right to claim holiday pay, National Minimum Wage and discrimination.  Uber is appealing this decision but there are several other cases in the court system at the moment deciding the same issues for workers in the gig economy.  CitySprint cycle couriers have also been held to be workers and cases concerning Deliveroo riders and couriers for Amazon Flex and Hermes are also expected to be heard.  Deliveroo’s contracts with their riders have been subject to scrutiny as they contain a warranty by the rider that they will not make any legal claim that they are an employee or worker and an indemnity to cover Deliveroo’s legal costs if they do.

Such is the concern about the gig economy that the government has launched a consultation into the “future world of work” in which workers’ rights are considered. Whether legislation will ultimately be introduced which gives some clarification upon what is classed as an employee, worker or self-employed person remains to be seen but until then, organisations would be wise to review their working relationships with any consultants, contractors or self-employed workers to ensure they are not at risk.

If you have any queries regarding the issues raised in this article, or want to know more about IR35,please contact Jayne Holliday at jholliday@thursfields.co.uk