The Significance of Status

The employment status of an individual is important for determining their treatment, both for taxation purposes, and in respect of any applicable rights under UK employment law.

Broadly speaking, an individual will fall into one of three categories;

  • Employee
  • Worker
  • Self-Employed

The question of whether an individual works under a contract of service (and is therefore an employee or worker) will involve consideration of both the facts and the law. An individual who is self-employed will be operating under a contract for services.

The definition of a worker, the lowest benchmark for employment rights, was considered in the case of Byrne Brothers (Formwork) Limited –v- Baird (and others) [2002]. The Employment Appeal Tribunal recognised three core considerations:

  1. Personal service: Did the individual undertake to provide their services personally? An unfettered right to provide a substitute will be fundamental to demonstrating that an individual was not required to provide their services personally.
  2. Business undertaking: Was the individual carrying on a business undertaking? Relevant factors will include the exclusivity of the arrangement and the degree of control exercised.
  3. Mutuality of obligation: Was there mutuality of obligations between the “employer” and the individual?

If the contractual right to substitute exists, it does not matter that it is not exercised provided it is a genuine right. A contractual term that is not enforced does not fail to form part of the agreement.

An employment tribunal will decide status as a preliminary issue, in order to determine whether it has jurisdiction to hear an individual’s claim. If the individual is deemed to be neither a worker nor an employee then the correct forum for any contractual dispute will be the County Court.

Recently, in Autoclenz Ltd –v- Belcher, the Supreme Court unanimously decided that where the true underlying agreement was not as expressed in the written terms, the Courts and Tribunals should have regard to the true agreement, and not to the inconsistent written terms.

The Court will often have regard to the relative bargaining powers of the parties which is why it is imperative that you understand any documentation that you sign.

Whilst the Employment Tribunal and HMRC will not necessarily come to the same conclusion regarding status, Employment Tribunal’s will often take into consideration how the individual represented his or her tax position. If an individual registers as a Subcontractor under the Construction Industry Scheme, this indicates an intention to provide services on a self-employed basis. In order for an individual to be paid by a Contractor under CIS, they must believe that they are genuinely self-employed to fall within the rules of the Scheme.

It is apparent that the issue as to employment status, save in the most clear of cases, remains a troubled one. Without properly constructed written agreements and systems in place to support and re-enforce their terms individuals who want to be treated as self-employed risk a contrary finding in law.

Request Callback
Fill out the form below and one of our friendly staff will be in touch with you shortly.