Employment Status

Getting employment status wrong has numerous negative ramifications. It can lead to a substantial tax bill from HMRC, employment tribunal defeats and a damaged reputation to name but a few. For construction companies there are also the additional penalties of the CIS Scheme to consider.

In this fact sheet we will look at the basic law governing employment status.

Unhelpfully, there is no substantive legislative definition of employee. All we are told is that an employee is a person that works under a contract of service. Consequently, it is case law that provides us with guidance.

Case Law:

The seminal case on this issue is Ready Mixed Concrete (South East) Ltd v Minister or Pensions and National Insurance [1968] 2 QB 497. Mackenna J found that certain factors had to be found in order for a contract of service to be established. This has been refined and ratified by subsequent judgments. When we analyse these judgments, we can produce a list of factors that must be considered before you look at other factors:

• What (if any) personal obligations bind the individual?
• What (if any) mutuality of obligations exist between the parties?
• What (if any) level of control is the individual under?

If you are able to show that any one of the above three factors is not present to a sufficient degree, then the individual cannot be an employee. Importantly, where all three factors are present to a sufficient degree it does not automatically mean that the individual is an employee.

Where all three factors are present to a sufficient degree you must go on to consider the other facets of the relationship and assess whether they are consistent or inconsistent with employment status.

Contractual Terms:

Given their importance the three key factors have garnered significant attention. A lot of this attention is focused on the contractual terms agreed because these form the basis of the agreement and obligations between the parties.

With this in mind it is vital that any terms agreed between the parties are well drafted and up to date. These terms need to address the three key factors in order to determine the individual’s employment status.

Employment Law Developments:

Where written terms are in place between the parties then the Supreme Court’s decision Autoclenz Limited v Belcher & Others [2011] UKSC 41 provides guidance on how to assess whether the written terms accurately reflect the expectations and intentions of the parties. If you are reviewing the terms you have agreed with the subcontractors that you engage, you must do so in light of Autoclenz.

The guidance in Autoclenz has been bolstered and extended by the Supreme Court in Uber BV & others v Aslam & others [2021] UKSC 5.  In Uber, the Supreme Court reiterated their stance that the written terms must reflect the intentions and expectations of the parties.  However, the Supreme Court went further and held that while the written terms and conditions will be a factor in determining the status of an individual, tribunals should take a purposive approach when interpreting the legislation.  In particular, tribunals should be mindful of the protections that employment legislation provide and the dependent nature of those that fit the category of worker/ employee and factor that in when determining the status of individuals. 

If you require help or assistance with employment status, contact us now. Feel free to read our worker status fact sheet which complements this fact sheet.

DISCLAIMER – This resource has been produced by Chartergate Legal Services Limited as a general overview of the law. It is no substitute for specific professional advice given on the basis of your own circumstances and should not be relied on as such.