Clarifying the employment status of workers
Author: Darren Newman
Consultant editor Darren Newman discusses the Government's review of employment status and explains why a system of making people's employment rights clear at the point of recruitment could be open to abuse.
The Department for Business, Innovation and Skills (BIS) has announced that it is carrying out a review of employment status with a particular focus on the distinction between "employees" and "workers".
Modern employment law has always drawn a distinction between employees who enter into a contract of service and workers who have a contract personally to perform work but who are not regarded as being "in service" to the same extent as employees. In broad terms, employees have the right not to be unfairly dismissed and the right to receive redundancy payments, as well as various other entitlements such as the right to maternity and paternity leave. Workers, while not enjoying these rights, do at least qualify for the national minimum wage, rights under the Working Time Regulations 1998 (SI 1998/1833) and the right not to suffer unlawful deductions from wages. Adding a layer of confusion, the Equality Act 2010 uses the term "employee" but defines the concept more widely so that, in effect, the right not to be discriminated against also applies to workers.
If one had to set out the key practical difference between an employee and a worker it would probably be "control". The essence of a contract of service has always been that the master controls the servant in terms of dictating what work is to be done, how it is to be done and where it is to be done. A worker on the other hand generally has more autonomy. The "employer" engages the worker to provide specific services but does not control his or her day-to-day activities.
That distinction probably made a lot of sense in the 1970s when many of the statutory employment rights were first defined, but is increasingly difficult to justify in the modern workplace. Why should the elusive concept of control be used to divide those who have the right not to be unfairly dismissed and those who do not? There are other distinctions, of course. Even if the necessary degree of control is present, the tribunal must still look at an open-ended range of other factors - such as methods of payment, the provision of equipment and the intention of the parties - in forming a judgment as to whether or not the individual is an employee. It is a very uncertain business and there are large numbers of individuals whose status and therefore rights are unclear.
This uncertainty is something that the review will address. BIS is clearly concerned that many individuals do not know what their rights are until they are determined by an employment tribunal and it hopes to clarify the situation so that both the employer and the individual "are clear at the time of recruitment what rights are available".
Although this sounds like a very good idea, there is a danger. There have always been some employers that have sought to define their employees as self-employed workers, or even as independent businesses in their own right, simply to avoid the inconvenient rights that they would otherwise enjoy. One advantage of the current system is that tribunals are able to make an overall judgment as to the reality of the relationship and are not bound to accept the strict form of the written contract if that does not genuinely reflect the agreement made between the parties. The risk is that, in the interests of clarity, the law may make it easier for employers to define individuals as workers or self-employed.
I can easily imagine a proposal that, at the start of the relationship, the employer is required to give the individual a statement clearly explaining his or her status and the employment rights that he or she will enjoy. If such a statement were definitive, there would be no need for a tribunal hearing to decide whether the individual was an employee or a worker. However, any such provision would be wide open to abuse, with a clear incentive for employers to exclude their workforce from the most important employment rights.
By far the best way to remove uncertainty would be to remove the distinction between workers and employees, so that all employment rights applied to those individuals not running a business of their own who agreed to work for an employer. That reform would cut away whole swathes of complicated case law trying to draw artificial distinctions between workers and employees, and hugely simplify UK employment law.
There is no prospect, of course, of the current Government actually doing anything of the sort. With a general election due in May 2015, this review can only lay the groundwork for the next Government to build on. In any event, the current Government has a policy of "one in, two out", whereby every new regulation must be offset by the removal of an existing regulation with double the cost to business. It is difficult to see how extending employment rights to workers could fit this model without a fundamental reappraisal of what those employment rights are.
In truth, the most important issue is not really status or the fine distinctions between employees, workers and the genuinely self-employed: it is what employment rights should be available. Frankly, the current system feels broken. The introduction of tribunal fees has had a huge impact and, since the Beecroft report suggesting replacing unfair dismissal with a "no fault" dismissal system, the political consensus underlying basic employment rights has felt distinctly fragile. We need to reconsider employment law - looking at everything from dismissal to strike action - with a view to building a new consensus. It is right that BIS should be thinking big thoughts about the scope of employment law. However, the question of employment status should be only one part of a more fundamental review.
