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Establishing Employment Status

25.06.2013

The question of whether an individual is an employee comes up time and again in the employment tribunal and it is not easy to answer. There are lots of factors which indicate employment and some that don’t, and it is impossible to list a clear set of defining criteria against which an individual’s status can be definitively determined.

The employment status of an individual is important for a number of reasons, in particular some legal rights only apply to employees, including the right to bring a claim for unfair dismissal. In a recent case, the Supreme Court found that a Methodist minister was not an employee, overturning Court of Appeal and Employment Appeal decisions that she was an employee.

The three key characteristics of employment are mutual obligations, personal service and control. This basically means that the company is obliged to provide the individual with regular work and the individual is under an obligation to make themselves available to do the work and to provide their services personally. The company controls what the individual does, how and when they do it and the individual is expected to conform to certain standards, for example dress, expected of others within the same workplace. If the company is not obliged to offer work on a regular basis and the individual has no obligation to accept work then this points to self-employment, particularly if the individual controls how they do the work.

There are other elements indicating employment status such as exclusivity, where the individual is not free to work elsewhere without permission. Pay and benefits are also significant, if the individual is paid a fixed amount on a regular date irrespective of completion of a specific task. They may receive benefits such as a pension or medical insurance. Integration into the company is relevant, for example a company e-mail address or business card.

A power of substitution in the contract implies self-employment although the situation is less clear where the company has the power to veto the choice of substitute. The tax position can be an indication, but the fact that an individual is paid without deductions is not conclusive evidence that the individual is self-employed and the courts will look at all of the factors in the round.

We are often instructed to draft contracts ensuring that an individual is self-employed. Whilst the contract is an important starting point when identifying status, if the reality is different then regardless of the position on paper, the individual may still be an employee.

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