Has the evolution and analysis of employment status in UK Employment Law reached a point where it can be further clarified by statute?

Table of contents

Acknowledgments

1. Introduction
1.1 Why Establish Employment Status?
1.2 In agreement: Taylor, BEIS, The Treasury and HMRC
1.3 The need for clarity

2. The Modern Evolution of Employment Status Law
2.1 Ready Mixed Concrete (“RMC”)
2.2 The importance of Contract
2.3 The Test
2.4 Development of Ready Mixed Concrete

3.The “Irreducible Minimum”
3.1 The Contract itself: on face value
3.2 The Wages Act 1986: “Worker” and “Contract of Service”
3.3 Complexity beyond the Contract

4. The Employment Rights Act 1996 (ERA 1996)
4.1 The “Prize” of Rights
4.2 But who wins?
4.3 Worker Status
4.4 Passing the “higher test”

5. Contract of Service: focus after 1996
5.1 Contracts and reality: words or actions?
5.2 Contract in the “Gig Economy”

6. Personal Service
6.1 Substitution and delegation
6.2 Anomaly in Law

7. Control, substitution and how the work is done
7.1 Day-to-day Control
7.2 The diverse elements of Control

8. Other Factors consistent with a Contract of Service
8.1 Mutuality of Obligation
8.2 Integration
8.3 Independence and the “customer/client” relationship
8.4 Contractual Nuances

9. Conclusion

Bibliography
Primary Sources
UK Cases
EU Cases
UK Statutes & Statutory Instruments
Government Reports
Secondary Sources
Books
Academic Works
Websites & articles sourced online

Acknowledgments

Foremost I must thank my supervisor and erstwhile BPTC Employment Law Tutor, Zuri Djan. I have become aware at numerous stages of this dissertation how much she has guided me, with patience and good humour, towards a much better-defined path. The importance of that definition has become increasingly apparent as the enormity the subject matter came into view: I might have been engulfed, lost even, had it not been for her kind guidance and advice.

I must also thank the team at Nottingham Law School’s Legal Advice Centre, who have kindly welcomed and guided me over the past two years as a FRU Employment Law volunteer. Most particularly, I must express my thanks to my Supervising Solicitor Mathew Game whose patience and guidance has, along with Zuri Djan, maintained and fueled my career interest in Employment Law.

1. Introduction

1.1 Why Establish Employment Status?

Establishing an individual’s employment status is often the foremost requirement of any claim in employment law. Different rights are afforded in statute by different statuses. In seeking any right through an Employment Tribunal (“ET”), the Tribunal must first establish whether an individual’s employment status affords them that right in law.

Employees are entitled to the greatest number, and quality, of rights in UK Employment law. Workers enjoy a more limited number of rights, but often greater flexibility and freedoms than employees. The self-employed carry their own risks, have very few rights provided by those they provide services to, but do enjoy absolute independence. ET’s are available to employees and workers only for the settlement of disputes relating to rights. The self-employed cannot proceed a claim within an ET.

Initially, primary legislation allows for some broad definitions of different worker statuses. However, the dividing lines are often blurred, or even missed, depending on which body is assessing the status and for what reason. Currently, employment status in the UK falls into a tripartite system of Employees, “Workers” and the Self-employed “Independent Contractor”.

Primary (and secondary) legislation have gone same way to defining status, but as is often the case, further clarity has often been provided by Common Law.

1.2 In agreement: Taylor, BEIS, The Treasury and HMRC

The primary purpose of this dissertation is to establish whether Employment Law in the UK is at a point where such a codification, or any form of simplification, can be practically identified to assist the process of determining employment status. The requirement extends beyond an academic exercise in modernisation; against a backdrop of a rapidly evolving economy: there also exists an increasingly pressing need to deliver justice to the working population.

The Taylor Review¹ recommends an overhaul of employment status law:

“Government should replace the minimalistic approach to legislation with a clearer outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail.”²

In 2018, by way of response to the Taylor Review, a “Joint Consultation”³ by BEIS, HM Treasury and HMRC also recommended legislative change with regard to employment status,⁴ codification of employment status into primary legislation⁵ and a more precise employment status test.⁶

1.3 The need for clarity

In July 2017, the Supreme Court declared that fees levied on individuals bringing claims before ET’s were unlawful.⁷ Since then, in the year following the ruling, the number of claims received by ET’s increased by 25 percent with the average waiting time between receipt of claim to being heard increasing to 237 days - almost eight months.⁸ In the financial year 2018/19, tribunals accepted 121,075 claims, of which 49,199 were based on working time issues and 21,251 on unfair dismissal,⁹ meaning that at least 58 percent of all claims accepted would require a determination of employment status at the outset.

Facilities in place managing backlogs expediently, also appear to have limited effect: despite their power to dismiss claims beyond their jurisdiction or with little prospect of success, no judge exercised such a “Rule 27”¹⁰ procedure in any of the new cases received by ET’s in 2018-19,¹¹ while statistics for the same period show that only 9%percent of cases were successful at tribunal.¹² Given that incorrect Employment Status is inevitably fatal to claims for rights such as those held in the Employment Rights Act 1996 (“ERA 1996”; for the Right not to be Unfairly Dismissed) and the Working Time Regulations 1998¹³ (“WTR 1998”), one can only speculate why such procedures were not applied, although the lack of facility to assess employment status expediently must be a significant contributory factor.

Much of the ET’s valuable time has been lost during the “lockdown” measures necessitated by the Covid-19 pandemic, while new secondary legislation¹⁴ to assist the incomes of workers and the self-employed was, arguably by necessity, created in haste. This, combined with an increasingly litigious public who suffer no fees for bringing claims, ET’s must expect to see backlogs growing. Most recently, the Law Commission has recommended doubling the limitation for bringing claims to ET’s from three to six months, simply to accommodate the raft of expected new claims following new “lockdown” related employment issues.¹⁵

In analysing the historical complexity of employment status law, the codification recommended by the Taylor Review now extends beyond convenience and practicality to a qualified necessity. The need is more pressing than ever.

2. The Modern Evolution of Employment Status Law

2.1 Ready Mixed Concrete (“RMC”)

RMC is an appropriate starting point. It is¹⁶ the ongoing source of much legal argument, definition applied today, and basis of much of the language used in statutory definitions regarding status. Its origin was factual and financial: Ready Mixed Concrete had been ordered to pay National Insurance Contributions (“NIC’s”) on the monies paid to drivers whom it had contracted. The Minister for Pensions argued that they were employees and not independent contractors, as asserted by RMC. The company argued that they were independent contractors, clearly driven by the enormous financial implications of a finding to the contrary. The question was simple: were the drivers employed, so rendering RMC liable to pay an employer’s NIC for each of them, or were they self-employed and so responsible for payment of their own NIC’s? The difference, the court held, between the two statuses was whether or not the driver was engaged in a “contract of service” (an employee), or a “contract for services” (a self-employed independent contractor). Essentially, this condensed the question of how the drivers were engaged: were they working directly, personally for RMC in service as a whole - note the singular and generic meaning of “service”, or were they providing a series of “services”, each one finite and specific, and each identifiable as a separate action rather than part of an ongoing performance?

2.2 The Importance of Contract

The application of contract law was essential to RMC and continues to be so in employment law. The nature and performance of the contract between the parties is important in dictating whether ultimately an individual is either “employed” in some way, or is not. Where they are not, they are not entitled to the various statutory rights and protections . These rights can carry significant weight for all parties. Hence the correct analysis of whether an individual is engaged by a “contract of service” or a “contract for services” is crucial to the administration of justice: to get it wrong will deny a party their rights.

2.3 The Test

The court in RMC developed the first working version of a “multiple test”, wherein the contract between a person who provides their services and the person who receives them was divided into three key areas of analysis:

i) First, the parties agreed that in the performance of a service, an individual provided their skill and application personally in return for a monetary payment. The court looked at whether a person “A” could substitute another person “B” to do their work and on what grounds they may do so.
ii) Second, the court looked at the degree of control that the party engaging the services had over the functional performance of the contractor, and the time parameters in which it had to be done; thereby deciding upon the task itself and whether it would have to be accepted, or performed at all, was also a significant factor.
iii) Finally, the court identified that it would need to look at the overall picture of all the factors involved, to assess whether the contract was capable of being a contract of service. There would always be significant factors, peculiar to each contract that would be pertinent to a case, and so require greater analysis. Over time, these three broad areas have been better identified and defined and are discussed below. Contracts are often complex: a multitude of factors will contribute to deciding between contracts “of service” and “for services”, beyond the issues of personal service and control.

In applying these tests, the court in RMC held that the drivers were independent contractors: The Minister would have to claim their NIC’s from them individually, mirroring their independent, rather than collective status.

2.4 Development of Ready Mixed Concrete

Again, involving government revenues, RMC was quickly followed by Market Investigations17 which identified that among these “other factors ” lay the question of whether a person was “performing services as a person in business on his own account”. In other words, was the performance of the service by someone acting as a corporate entity, separate from the body receiving the services? Or were they operating as an individual who is part of the corporate body receiving the services? If they were in business on their own account, they would be deemed a self-employed independent contractor; if not, an employee. This case drew on Denning LJ’s “Integration Test” from Stevenson, Jordan and Harrison,18 whereupon the court held that the facts of the extent to which a person fits into - or “is a part of’ the organisation for which they work will have a significant bearing on their relationship to, and status within it. Denning LJ asserted that a person is employed where they are under a contract of service, perform their work as part of an organisation and are widely integrated within it. Alternatively, under a contract for services, the work done for the organisation is not integrated within it.^{17 18}

At its core, the case held that the more a person is integrated within a business, the greater the indication that they will be an employee of that business. It also identified a “trade-off" between skills and control: the greater level and diversity of skills required from a worker, the less important was the level of control on the part of an organisation using that worker’s services in establishing their employment status.

As with RMC, Market Investigations had its roots in the payment of NIC’s and sought to answer which individuals should pay NIC’s as an employee, and which should not. On this occasion, the new “control" test of RMC was applied: because an individual had to perform her duties in a way overwhelmingly stipulated by the claimant, she was held to be an employee. Along with Lord Denning’s “Integration Test", this “Economic Reality" test has become a fundamental part of the “other issues" identified in RMC.

3. The “Irreducible Minimum”

It was not until 1984 that the three point test of RMC was named: In Nethermere St Neots,19 the court held that without any one the principal three - the “irreducible minimum" of, personal service, control and the other factors capable of defining a contract as one capable of being a contract of service, there could be no contract of service.¹⁹

3.1 The contract itself: on face value

In Gunning,²⁰ the court’s scrutiny was on the contents of the contract from outset: applying the “personal service” element of RMC; the court went further to hold that, if the “dominant purpose” of a contract is to execute work personally, an individual will not be held to be self-employed, subject to the outcome of the other tests. However, the issue of what the contract stated, rather than what actually happened under it, appeared to be most influential at this point.

3.2 The Wages Act 1986: The “worker” and “contract of service”

The Wages Act 1986 (“WA 1986”) began to address the need for clarification of status, in particular regarding how individuals are paid. Its introductory text also hints that the broad group of “worker” exists:

“An Act to make fresh provision with respect to the protection of workers in relation to the payment of wages ”.²¹

It went on to offer a definition of “worker”, wherein an individual would be working under a “contract of service” or any other form of contract in which the individual agrees to perform those services personally and that the services are not part of a business undertaking supplied to the other party in their capacity as a client or customer of such an undertaking.²²

While providing a clearer definition of the “worker” and introducing it as a potentially hybrid category in law, WA 1986 was narrow in what it sought to achieve, and who for. It covered only certain groups of people, such as those in retail and employees of the Crown. It repealed the Truck Acts of 1831 - 1940, which had offered protection to a “workman’s” (not “worker’s”) wages and had, for a long time, demarcated “manual” workers from others. Statute now accepted that the nature of the work done was less significant in law than the basis on which it was supplied. The terminology had moved with the times, but its effect was limited.

3.3 Complexity beyond the Contract

While Lee Ting Sang²³ endorsed Market Investigations, it encouraged further scrutiny into how services were being performed, beyond the legal contract and into an analysis of the more day-to-day, factual elements of the work being done. Furthermore, it was founded in issues of Employer Liability rather than the more obvious areas of Employment Law. It was necessary to look beyond the overt “contract” between the parties to establish what the true nature of their agreement was. A further set of tests, almost a checklist, was devised to establish the “economic reality” of a working relationship. These included establishing:

i) Which party provides and maintains tools and essential equipment.
ii) Whether a person hires subsidiary help.
iii) The extent of financial risk adopted by the parties.
iv) The extent of management and investment into the business.
v) The opportunity for a worker to profit from personal performance.
vi) How they are paid - a fixed sum per job, or a salary.
vii) If they are paid when not at work - e.g. during holiday or sickness.

Lee Ting Sang was timely in its analysis: it accepted and defined beyond Stevenson that certain physical facts will contribute to the establishment of an employment contract: It dared to offer some specific factors for consideration and sought to explore further the “other factors'’" introduced by RMC.

Hall v Lorimer24 replicated the technique, but with a caveat. Again, revenue was at issue: the court needed to establish an individual’s employment status for Tax purposes. Lorimer, a skilled sound engineer, completed up to 150 assignments between numerous different companies each year. He submitted that he was employed by each business for whom he completed work. The court identified significant issues within the case:

i) The brief nature of the numerous assignments.
ii) The total number of the assignments carried out.
iii) The level of independence Lorimer had from each assignor.
iv) The high level of expenditure incurred by Lorimer in bringing on and managing engagements.

Despite Lorimer not providing his own (expensive) sound engineering equipment to any of those engaging him, so failing the first “economic reality” test of Lee Ting Sang, the economic reality of the day-to-day activity was that he was engaged in a contract for his expert services. In so finding, the court acknowledged the see-saw scale of “skills versus control” formulated by Denning LJ in Stevenson, but did not expand upon it.²⁴

While acknowledging the similarities to Lee Ting Sang - notably the issue of an individual’s financial independence from their paymaster, Nolan LJ urged caution in reliance on lists of individual factors, endorsing the earlier words of Mummery J:

“It is not just a question of adding up the relevant factors for and against a particular employment status. Rather what you have to do is make a subjective judgment based on your overall assessment taking account of the different weights which apply to individual factors in the particular case."25

The courts have always been candid in acknowledging the complexity of factors contributing to the existence and nature of a contract of employment. The practice of offering case-specific factual tests had been engaged successfully. However, it is perhaps more a responsive than a particularly pro-active movement: The nature of the working relationship was changing. It was apparent prior to WA 1986 that the classical “employee” and “self-employed person” were just at separate poles of the employment spectrum. The spectrum itself, by definition, is non-binary. Even at this point, there had long been a growing “middle ground” to recognise and cover.

4. The Employment Rights Act 1996 (“ERA 1996”)

Parliament moved to bring statute up-to-date. The importance of the existence and nature of a contract of employment was long-established and significant²⁵ analysis had taken place to further define is key elements. ERA 1996 sought, as far as it could, to set it is critical components in stone and in so doing, clarify the rights afforded to individuals by the nature of their employment. Its purpose was stated simply:

“An Act to consolidate enactments relating to employment rights”.²⁶ ERA 1996, in comparison to WA 1996, was enormous and ground-breaking. While WA 1986’s focus was on the rights of workers with regard to wages, the rights and issues covered in the 15-part, 245-section ERA 1996 were wide- ranging and perhaps yet more valuable to those seeking them. It was clear and precise on the rights it conferred, and it was clear that those rights were available to employees. It attempted to be clear about who was an employee, but ensuing legal activity showed that it was not.

4.1 The “Prize” of Rights

ERA 1996 encapsulated individual rights from the onset of employment through to termination. It benefited employers and employees alike, ensuring that both knew what their rights and duties in relation to each other were.

At outset, an employee had a right to be receive employment particulars:²⁷ a written record of the principal terms between the parties, within two months of commencement. While some of these documents may not be an “employment contract” they are, in their requirement to be signed by both parties, a contract of sorts which may be enforceable in its own right. Furthermore, it will be an “other factor” for the analysis of status.

Similarly, while employees were held to have limited or no investment in the organisation in which they worked, they should be protected from the adverse effects of market forces or poor management. A right to Redundancy payments was conferred.²⁸ Furthermore, in cases of insolvency, state financial support was available to employees from the National Insurance Fund.²⁹

ERA 1996 held at its core the employee’s fundamental right not to be unfairly dismissed.³⁰ Effectively, employees could not be “hired and fired” at an employer’s whim. Their labour was a commodity to be respected and job security was valued. Employers were encouraged to respect their own decisions to employ a person and ensure, where appropriate, that they had a good and legitimate reason to dismiss them. The importance of such rights cannot be undermined, nor should it go unnoticed, that it is afforded only to employees under ERA 1996: It is not only a “safety net” to be engaged at a point of need. It is an important security to be established at the beginning of a working relationship. If an employer agrees that a person is an employee, then they commit to a level of trust and confidence in that person. For the employee, they proceed knowing that proper conduct and good performance are the principal requirements, and to that end, their role is protected.

[...]

---

¹ Mathew Taylor , Greg Marsh, Diane Nicol, Paul Broadbent, “Good Work: The Taylor Review of Modern Working Practices”, July 2017.

² ibid, p.35

³ Department for Business, Energy & Industrial Strategy, “Employment Status Consultation”, February 2018;

⁴ ibid, chapter 5.3

⁵ ibid, chapter 5.7

⁶ ibid, chapter 6.5

⁷ Unison v The Lord Chancellor 2017 UKSC 51

⁸ https://www.telegraph.co.uk/news/2019/07/28/employment-tribunal-claimants-waiting -18- months-case-heard-due/ accessed 04 May 2020

⁹ https://app.croneri.co.uk/feature-articles/latest-tribunal-statistics-show-top-claims-relate- working-time; accessed 04 May 2020

¹⁰ Employment Tribunals Rules of Procedure (as subsequently amended up to 17th February 2015), Part 27.

¹¹ Elizabeth Howlett, https://www.peoplemanagement.co.uk/news/articles/judges-failing-to- dismiss-claims-as-tribunal-backlog-worsens, 08.02.2020; accessed 03 May 2020

¹² https://app.croneri.co.uk/feature-articles/latest-tribunal-statistics-show-top-claims-relate- working-time; accessed 03 May 2020

¹³ The Working Time Regulations 1998, SI 1998/1833

¹⁴ The Coronavirus Act 2020 sections 71 and 76; The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction 15.04.2020

¹⁵ https://www.lawgazette.co.uk/news/law-commission-calls-for-tribunal-time-limit- extension-/5104061.article, Monidipa Fouzder 29.04.2020

¹⁶ Ready Mixed Concrete (South East) Ltd. v Minister of Pensions & National Insurance 1968 2 QB 497; 1968 1 All ER 433

¹⁷ Market Investigations v Minister of Social Security 1969 2 QB 173

¹⁸ Stevenson, Jordan and Harrison v Macdonald and Evans 1952 1 TLR 101

¹⁹ Nethermere (St Neots) Ltd. v Taverna and Gardiner, 1984 IRLR 240, 1984 ICR 612

²⁰ Mirror Group Newspapers Ltd. v Gunning 1986 IRLR 27

²¹ Wages Act 1986, (Chapter 48).

²² Wages Act 1986, s 8 (1) and s 8(2).

²³ Lee Ting Sang v Chung Chi-Keung 1990 2 AC 374; 1990 IRLR 236: Endorsed Market Investigations 1969

²⁴ Hall (HM Inspector of Taxes) v Lorimer 1994 All ER 250

²⁵ ibid, para 174

²⁶ The Employment Rights Act 1996, Chapter 18, introductory text.

²⁷ The Employment Rights Act 1996 s 1(2)

²⁸ ibid, s 135(1)

²⁹ ibid, s 182

³⁰ ibid, s 94(1)