What Is An Employee?

This question has vexed many an employment practitioner over the years and remains one of the most hotly contested issues of employment law. No wonder, because the employment status of an individual is the very basis on which his employment relationship with you is defined. Getting the classification wrong - which is very easy to do - can have major implications on an employer not only in relation to the individual concerned but also the rest of the workforce.

Employment rights are granted dependent on an individual’s employment status. Employees are entitled to a raft of employment rights: maternity leave, paternity leave, parental leave, the right to request flexible working; rights upon a transfer of an undertaking; minimum periods of notice, statutory redundancy pay, the right to claim unfair dismissal; and the list certainly goes on.

Self employed people are not entitled to these employment rights because the idea goes that they have a greater amount of bargaining power to negotiate the contract under which work to be provided. Discrimination protection does, however, extend to self employed individuals so employers must bear this is mind. Further, just to make the situation a little more difficult, not all self-employment situations will attract this protection.

The third category of ‘worker’ is the most recent category to be formed and is somewhat of a half way house between an employee and a self-employed individual – a ‘worker’ carries traits of both but in employment law it is a completely separate entity.  Its creation came about because of the recognition that employment relationships are fluid and modern times did not lend themselves to the two limited existing categories.  Workers have some employment rights to avail themselves of, but substantially less than an employee. It is worth noting that as far as HMRC are concerned; this third category of ‘worker’ does not exist.

So what tests have been devised over the years to determine the status of an individual?

If an individual is an employee, the employer will exert substantial control over them. This is characterised by the employer having ultimate authority over the work that is done by the individual: the employer will set the times that work should be done, where it is done and how the work is done. The employer will provide the equipment for the work and will also lay down certain procedures that govern the relationship. For example, if an individual wants time off, he must request it according to the employer’s holiday request procedure. If he is sick and cannot attend work, he must report it via the sickness reporting procedures.

If there is a lack of obligation that binds the two parties to the contract, it is unlikely that the relationship will be one of employment. If there is no duty upon the employer to provide work to that particular individual, and there is no corresponding obligation on the individual to accept it when it is offered, this fact is quite often indicative that the individual is not an employee.

Perhaps the most fatal blow to the assertion of an employment relationship is the absence of the requirement for the individual to provide service. If the individual has the right to send a substitute then it is almost impossible for an employment relationship to be in existence.

Recent case law has added further considerations to the issue of employment status, and rather than clarifying matters, has muddied the waters somewhat. In Autoclenz v Belcher, the claimants were engaged as self-employed car valeters, and as such were entitled in their contracts to send a substitute. The contracts also provided that there was no obligation on the employer to provide work nor on the individuals to accept it. However, it was not the wording of the contract that persuaded the tribunal to find that the individuals were in fact employees, but the actual performance of the contract. No substitute was ever in practice provided by any individual, they turned up for work every day and work was always provided. In effect, this had varied the original agreement and the individuals were entitled to see themselves as Autoclenz employees.

It seems the favour has swung well and truly away from the employer in this situation, who must focus much more on the day to day performance of a contract in addition to the drafting of the contract itself.