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Why the Government’s employment status review should be welcomed

17 Oct 2014

The Government announced on 6 October 2014 that it will conduct a wide-ranging review to help “clarify and potentially strengthen the employment status of up to a million British workers”.

Here are three very recent cases which demonstrate why the review is needed. Plastering Contractors Stanmore Ltd v Holden UKEAT/0074/14 Mr Holden and PCS ended up in a dispute over whether he was a worker or a self-employed contractor. He had agreed with PCS that he would become a sub-contractor, and had then only carried out work for them if and when they offered it to him.

When the relationship broke down he claimed that he was not a sub-contractor after all. He was a worker with holiday rights. The tribunal and Employment Appeal Tribunal both agreed with Mr Holden, focussing heavily on the fact that he had not actively marketed his services to the world. The fact that Mr Holden and PCS had agreed otherwise during the engagement was irrelevant.

Windle v Arada and another UKEAT/0339/13

Dr Windle and Mr Arada were self-employed court interpreters who sometimes provided services on behalf of HMCTS. In order to pursue their discrimination claims against HMCTS, they needed to show that they were in employment under either a contract of employment, a contract of apprenticeship, or a contract personally to do work (this being the main category of persons protected by the Equality Act 2010).

An employment tribunal agreed with HMCTS that self-employed professionals like Dr Windle and Mr Arada could not also be in employment in the Equality Act sense. The EAT overturned that decision on appeal, finding that Dr Windle and Mr Arada satisfied the test. They had worked in a subordinate position to HMCTS and not marketed their services to the world. An outcome that no doubt surprised HMCTS. HMRC v Jones and others (t/a Holmescales Riding Centre) UKEAT/0458/13 The Jones’ family business (Holmescales) employed stables trainees in respect of whom it had been advised it did not have to pay National Minimum Wage because they worked in the Jones’ household (known as the family home exemption).

One of the trainees complained. An employment tribunal found that the Jones’ had got it wrong. The trainees were working under contracts of apprenticeship, and so should have been paid the (lower) apprenticeship NMW rate. On appeal, the EAT reached a different conclusion. The Jones’ had still got it wrong, but the trainees were in fact fully fledged employees, and so an even higher rate of NMW was due.

Comment

The law of employment status is complex, multi-faceted, and constantly evolving. The dividing lines between the three main status types (employee, worker and self-employed contractor) are often fiendishly difficult to identify in practice. This creates uncertainty for both business and individuals, which in turn increases the risk of costly litigation.

These three recent cases demonstrate the impact the uncertainty has in practice. They also show that reliance on what was agreed between the parties is very often futile.

The evolution of cases on the issue of self-employment shows a diversion of approach between the employment tribunals and HMRC. The trend in tribunals is towards the market to the world test referred to in Holden and Windle; whereas HMRC is increasingly focussed on the control exerted over the individual by the business.  There are many other factors taken in to account by both the tribunals and HMRC when considering status, but the relative weight and importance that will be afforded to them is very hard to predict.

The market to the world test is attractive for its simplicity and the ease with which it can be identified without the need for legal knowledge or expertise. However, it is unattractive for the business engaging the individual, being an issue over which it will necessarily have little or no control.  The Jones’ case reminds us that disputes over status are not just relevant to tax and employment relations. They also govern minimum rates of pay and, more recently, eligibility under pensions auto-enrolment.

The stated intention of the Government’s upcoming review is to provide much needed simplification and clarity in this area. That will be a difficult task, and any material change is likely to require a significant amount of new legislation. No doubt some businesses will fear that a simplified more rounded approach will give large swathes of the workforce greater rights where it is neither appropriate nor necessary. That might just be a price worth paying to reduce the uncertainty and the frequent costly litigation it creates.

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