Employment status: why major reform may not be on the horizon

Author: Darren Newman

Darren Newman

Consultant editor Darren Newman questions if the current debate on worker status will result in any fundamental changes.

It seems that "employment status" is shaping up to be the big employment law issue for 2017. Following on from the Aslam and others v Uber BV and others [2017] IRLR 4 ET decision last year, we now have the high-profile (although hardly ground-breaking) case of Pimlico Plumbers Ltd and another v Smith [2017] IRLR 323 CA, in which a plumber was held not to be an employee, but nevertheless to qualify for protection under the Equality Act 2010. A number of news reports struggled with the notion that a plumber who was clearly "self-employed" still seemed to qualify for a number of key employment rights.

The term "self-employed" is problematic in that it really belongs in the sphere of tax rather than employment law. HM Revenue and Customs needs to distinguish between employees and the self-employed because the two are taxed differently - although it now seems likely that this will not remain the case forever.

In employment law cases, however, the question is whether or not the person is entitled to bring the particular claim that the tribunal is being asked to consider - and the test is different depending on the claim being brought. To claim unfair dismissal under the Employment Rights Act 1996, the claimant needs to have been an employee with a contract of employment or apprenticeship. On the other hand, to claim discrimination under the Equality Act 2010, someone needs only to be employed under a contract "personally to do work". Both Acts use the term "employee", but each means something different by it.

For a wide range of other rights - including those under the Working Time Regulations 1998 (SI 1998/1833) and the right to be paid the national minimum wage - the question is whether or not someone is a "worker", which is essentially the same test as for employment under the Equality Act. There is no need for there to be a contract of employment but the individual must have a personal obligation to perform work for the employer and not be in business on his or her own account to the extent that the "employer" can be seen as a client or customer of that business.

Whether or not someone can be designated as "self-employed" is not, therefore, something an employment tribunal needs to decide. The key distinction is not between the employed and the self-employed, but between employees, workers and those who fit into neither category.

This distinction has been part of our employment law system for decades, but it is increasingly being questioned. Why should protection against unfair dismissal, for example, apply only if an individual has a contract of employment? Take the classic test for employment status as set out in Ready Mixed Concrete (South East) Ltd v Ministry of Pensions and National Insurance [1968] 1 All ER 433 HC (itself a case about the payment of national insurance contributions rather than employment rights). One of the key requirements of an employment contract identified in that case is "control". The employer must control not only who does the work but also how the work is done. The more independence an individual has in deciding how and when to do the work given by the employer, the less likely he or she is to be an employee. Ready Mixed Concrete did not invent the control test; it was established by the courts as far back as the 19th century. But in those days the chief consequence of someone being designated as an employee was that the employer might be held liable for compensation if the individual injured him- or herself or others. In those circumstances it is easy to see why the courts wanted to limit liability to cases where the employer had "control" over the employee. But why should that be relevant in deciding whether or not the employer has any obligation to behave reasonably when dispensing with a person's services?

The Government has recently published its Employment status review. This was commissioned by the previous coalition Government and completed in March 2015 (but not made public until February 2017). Originally the idea was to come up with ways of ensuring "clarity" in employment status. In the end, the review made no formal recommendations, but it does set out in some detail the complexity that lies at the heart of trying to distinguish between employees, workers and those who are neither.

Meanwhile, the House of Commons Business Energy and Industrial Strategy Committee is currently conducting an enquiry into the Future world of work, looking specifically at what employment rights should be enjoyed by agency workers, casual workers and the self-employed (including those working in the "gig economy").

That will no doubt feed into the Taylor review into modern workplace practices. This is a wide-ranging independent review into "how employment practices need to change in order to keep pace with modern business models". One specific issue identified in the terms of reference of the review is whether or not "current definitions of employment status need to be updated to reflect new forms of working created by emerging business models, such as on-demand platforms".

The review is intended to be completed by summer 2017 and we can expect a range of recommendations aimed at promoting and encouraging high-quality work and the development of the "employee voice". However, it is hoped that there will be some more concrete short-term recommendations as well. Could one of these be the abolition of the distinction between employees and workers?

It is easy to think that the pressure for change is becoming irresistible. But whatever emerges from the Taylor review - or from the Business Energy and Industrial Strategy Committee - I very much doubt that we are on the cusp of a major reform. The issue of employment status sounds abstract and theoretical, but it is actually a question of how much employment law intrudes into the relationship between businesses and the individuals who work for them, and that is a very politically sensitive issue. Abolishing the distinction between workers and employees will do one of two things, depending on whether the scope of the law is widened or narrowed. Either it will mean that thousands of workers will cease to qualify for the minimum wage and paid annual leave, or it will mean that thousands of members of what has previously been regarded as a highly flexible part of the labour market will qualify for redundancy pay and maternity leave and be able to claim unfair dismissal. It is difficult to see the current Government taking either of those paths.

We might be left with a situation in which everyone acknowledges that the scope of employment law is unsatisfactory, but without any consensus as to what to do about it. That will probably mean sticking with the status quo. However, being proved wrong about this would be a genuine pleasure.

perspective@xperthr.co.uk