LW251 Employment Law and Practice

Handout

Topic 1: Employment Status 1

Dr Niall O’Connor

GENERAL GUIDANCE FOR HANDOUTS

There is no need to read all of the material contained in the handouts for my parts of
the module. The most important material that you should consult, preferably before
lectures is marked with an ‘*’. You will also receive a separate handout for each
tutorial. The textbooks contain good summaries of the case law and so are a useful
place to start. You will be asked to read some cases in full for the tutorials. For the
assessment, you can consult the further reading on the relevant topic. Research
beyond the reading list is also strongly encouraged. A useful source of material for
employment law commentary is the Industrial Law Journal (ILJ), which can be
accessed via the library website. There are also a number of excellent employment
law commentators on Twitter, and it is recommended that you keep up with the news,
as changes to the nature of the world of work are frequently a topic of debate.
Remember, sources found in the news and social media are useful for informing your
opinions, they are not necessarily appropriate for use in the assessment. I will also
send you any developments or interesting material that I come across via Moodle.
Please note that all of the core reading is available online via the library website, Law
Trove or Moodle. Some of the further reading suggested here is not available online
but can be found in the library. There is no obligation to consult the further reading,
and you will not need it for the assessment, but it may be useful in deepening your
understanding of key topics.

Note that the headings in my PowerPoint slides correspond to the headings used in the
handouts. This should help you to organise your material even where topics are
addressed in lectures in a different order to that found here.

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1. EMPLOYMENT STATUS

For a discussion on the concept of employment status, including the definition of an

‘employee’ consult one of the following:

 David Cabrelli, Employment Law in Context (4th edn, OUP 2020), Chs 3 and 4
(available on Law Trove);

 Zoe Adams and others, Deakin and Morris’ Labour Law (7th edn, Hart 2021),
Ch 2 (not available online);

 ACL Davies, Employment Law (Pearson 2015), Ch 3 (available online via

Talis).

Further reading on this topic can be found in:

 Ewan McGaughey, A Casebook on Labour Law (Hart 2019), Ch 3 (not

available online).

There are four broad categories of employment relationship that we look at in this
module, the employee, the worker, a person with a contract personally to do work and
the self-employed.

1.1. THE EMPLOYEE

Employees are traditionally viewed as being dependent and subordinate, whereas the
self-employed are independent and non-subordinate.

Being classed as an employee has significant advantages as they benefit from the full
range of employee-protective legislation. If you are an employee, it means you have a
contract of employment (also known as a contract of service).

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LEGISLATIVE DEFINITION OF EMPLOYEE STATUS

 S 230(1) ERA 1996:

‘an individual who has entered into or works under (or, where employment has
ceased, worked under) a contract of employment’.

This legislative definition of the employee does not provide us with much
information. We need to turn to the common law indicators as developed by the
courts to determine who is an employee.

COMMON LAW INDICATORS OF EMPLOYEE STATUS

Three ‘tests’ are key to deciding whether or not you are an employee. These are
control, mutuality of obligation and personal service.

Control

Control is the most traditional of the common law tests for employee status. Control
means that the employer decides on the what, when, where and how of the work:

 *Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance [1968] 2 QB 497;

 Yewens v Noakes (1880) 6 QBD 5430 (Sets out the original control test);

 Lane v Shire Roofing [1995] IRLR 493 (The modern restatement of the control
test);

 White v Troutbeck SA [2013] IRLR 286 (The control test is flexible, and the
presence of employer discretion will not undermine it).

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Mutuality of obligation

The next test is mutuality of obligation. One of the functions of the notion of
mutuality of obligation in the employment context is to act as a proxy for
consideration. This is also known as the ‘wage-work bargain’. The employer provides
the wages, and the employee provides the work. This is the first level of mutuality
(exchange).

At a deeper level, mutuality of obligation involves mutual undertakings that the

employee will be available to work, and that the employer will provide work. This is
the second level of mutuality (reciprocity). You agree to be available for work and the
employer agrees to provide you with work on an ongoing or continuous basis:

 O’Kelly v Trusthouse Forte plc [1984] QB 90 (Intermittent work means no

mutuality, which means no contract of employment);

 Carmichael v National Power plc [2000] IRLR 43 (With intermittent work

there is a contract of employment but only when the employee is actually
working);

 *Stringfellows Restaurants Ltd v Quashie [2013] IRLR 99 (Absence of an

umbrella contract between shifts, nightclub had no obligation to offer work
nor did the dancer have an obligation to take it, so no mutuality);

 Clark v Oxfordshire Health Authority [1998] IRLR 125 (Mutuality causes

problems for zero-hour workers);

 Einat Albin, ‘The Case of Quashie: Between the Legalisation of Sex Work
and the Precariousness of Personal Service Work’ (2013) 42 Industrial Law
Journal 180.

Personal service

The final test, personal service, means that the employees must provide the work
themselves i.e. you cannot find a substitute to do the work for you:

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  *Express and Echo Publications v Tanton [1999] IRLR 367 (Sets out the
proper approach for a tribunal to determine employment status, including the
test for personal service);

 McFarlane v Glasgow City Council [2001] IRLR 7 (Note the distinction

between being ‘unable’ and ‘unwilling’ to work);

 *Autoclenz Ltd v Belcher [2011] ICR 1157 (Personal service and sham
transactions, the tribunal will look beyond the contract);

THE MULTIFACTOR APPROACH

The courts will now also look at a number of factors when assessing employee status
including the method of payment and the level of integration within the company:

 Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National
Insurance [1968] 2 QB 497.

SHAM SELF-EMPLOYMENT

It was initially difficult to convince a court that a term found in the contract was a
‘sham’. The claimant had to show that both parties had intended to create a ‘false
picture’ of their relationship:

 Snook v London and West Riding Investments Ltd  [1967] 2 QB 786.

The courts are now increasingly on the lookout for cases of sham self-employment
and will not necessarily be swayed by the label the parties themselves chose to use:

 *Autoclenz Ltd v Belcher [2011] ICR 1157;

 *Anne Davies, ‘Sensible Thinking about Sham Transactions’ (2009) 38

Industrial Law Journal 318;

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  *Alan Bogg, ‘Sham Self-Employment in the Supreme Court’ (2012) 41
Industrial Law Journal 328.

CONTINUITY OF EMPLOYMENT

The concept is defined at ss 210 and 211 of the ERA 1996. In order to benefit from
many employment rights, notably unfair dismissal, you must have worked for a
certain period.

THE EMPLOYEE SHAREHOLDER

This is a person who, whilst otherwise an employee, agrees to contract out of certain
statutory employment rights in return for shares.

Do you think we should be able to ‘sell’ our employment rights in this manner?

 Jeremias Prassl, ‘Employee Shareholder “Status”: Dismantling the Contract of

Employment’ (2013) 42 Industrial Law Journal 307.

1.2. THE WORKER

We now know that the original distinction was between the employee (who had a
contract of employment) and the self-employed. We also saw that in order to be
classed as an employee, you have to meet a number of common law tests such as
control, personal service and mutuality of obligation. We now see how the protection
granted by employment law has been extended beyond employees to a new category
of person known as the ‘worker’. The worker concept is designed to protect those
who do not fit into the traditional employee/self-employed divide. Such workers are
also known as flexible or ‘atypical’ workers.

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  Simon Deakin, ‘The Changing Concept of the Employer in Labour Law’
(2001) 30 Industrial Law Journal 72.

 Sandra Fredman, ‘Labour Law in Flux: The Changing Composition of the

Workforce’ (1997) 26 Industrial Law Journal 337.

 *Patricia Leighton and Michael Wynn, ‘Classifying Employment

Relationships – More Sliding Doors or a Better Regulatory Framework?’
(2011) 40 Industrial Law Journal 5.

 *Brian Langstaff, ‘Changing Times, Changing Relationships at Work…

Changing Law?’ (2016) Industrial Law Journal 131.

LEGISLATIVE DEFINITION OF THE WORKER

As with the employee concept, the worker concept is now defined in legislation. The
legislative definition of the worker can be found in s 230(3) ERA 1996:

‘an individual who has entered into or works under (or, where the employment
has ceased, worked under) - (a) a contract of employment, or (b) any other
contract, whether express or implied and (if it is express) whether oral or
in writing, whereby the individual undertakes to do or perform
personally any work or services for another party to the contract whose
status is not by virtue of the contract that of a client or customer of any
profession or business carried on by the individual’.

You can see that employees are also workers, but workers are not employees. From
the legislation, it can also be seen that there are two requirements to be a worker (also
known as a ‘limb b’ worker). You must perform the work personally and for
someone who is not your client or customer i.e. you must not be running your own
business.

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Personal service

Two tests have been developed by the courts for a worker to show personal service.
These are the dominant purpose test and the integration test. Neither of these tests
is now determinative and the courts will take a holistic view of the relationship to
determine whether you have personal service:

 James v Redcats (Brands) Ltd [2007] IRLR 296 and Byrne Brothers
(Formwork) Ltd v Bairdand [2002] ICR 667 (Sets out dominant purpose test);

 Cotswold Developments Construction Ltd v Williams [2006] IRLR 181 (Sets

out the integration test);

 Hospital Medical Group Ltd v Westwood [2013] ICR 415;

 Bates van Winkelhof v Clyde & Co LLP [2014] 1 WLR 2047 (Shows that
neither test is determinative, agreeing with the approach in Hospital Medical).

Just as with the ‘employee’, substitution clauses can be used to interrupt worker
status. This practice has been particularly prevalent in the context of the gig economy.

For someone who is not your client or customer

This test distinguishes between those who are running their own business and who are
therefore self-employed and those who are dependent on the business of another
person and are therefore workers.

In addition to the legislative tests, the courts have also set out additional common law
indicators of worker status.

COMMON LAW INDICATORS OF WORKER STATUS

Initially, there were two common law indicators of worker status namely
subordination and mutuality of obligation

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Subordination

‘Subordination’ as a common law indicator of worker status was abandoned by the

Supreme Court in:

 Bates van Winkelhof v Clyde & Co LLP [2014] 1 WLR 2047.

One common law test remains, that is mutuality of obligation.

Mutuality of obligation

The worker only needs to show the first level of mutuality, i.e. the wage-work
bargain, which means that the worker provides work, and the employer provides
wages. This makes the mutuality test easier to meet for a worker than it is for an
employee.

 Cotswold Developments v Williams [2006] IRLR 181.

 Byrne Brothers (Formwork) Ltd v Baird [2002] ICR 667.

 Nicola Countouris, ‘Uses and Misuses of “Mutuality of Obligations” and the

Autonomy of Labour Law’ in Alan Bogg and others (eds), The Autonomy of
Labour Law (Hart 2015) 187 (not available online).

ALTERNATIVE APPROACHES TO PROTECTING ATYPICAL WORKERS

In some cases, legislation has intervened to protect certain classes of atypical worker,
but questions surrounding employment status may well dilute this protection.

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  Directive 97/81/EC on the protection of part time workers as
implemented in the UK by the Part-time Workers (Prevention of Less
Favourable Treatment Regulations) 2000.

 Directive 2008/104/EC on the protection of temporary and agency

workers as implemented in the UK by the Agency Workers
Regulations 2010.

 Directive 99/70/EC on fixed term work as implemented in the UK by

the Fixed Term Employees (Prevention of Less Favourable Treatment)
Regulations (2002).

1.3. DISTINGUISHING THE WORKER FROM THE EMPLOYEE

The tests for employee and worker status are now becoming very similar. This is
because the courts have adopted and applied common law tests for employee status to
the worker concept. This defeats the idea of creating the worker concept to be more
protective by covering a wider class of people. The courts are increasingly aware of
this problem:

 *Bates van Winkelhof v Clyde & Co LLP [2014] 1 WLR 2047 (The worker
and employee are two completely distinct concepts).

1.4. DISTINGUISHING THE WORKER FROM THE SELF-EMPLOYED

This is a much more significant issue as the self-employed receive no employment

law protection. In practice, the ‘employer’ will try to show that the person working for
them is actually self-employed rather than a worker:

 *Pimlico Plumbers v Smith [2018] IRLR 872 (Supreme Court found that the
plumber was a worker due to the level of control and personal service).

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