Simplicity still eludes employment status cases
At a time when the Employment Status Indicator (ESI) is being talked about again for IR35, it is perhaps prudent to examine two Employment Appeal Tribunal cases in which Employment Status (ES) was considered, writes Roger Sinclair, legal consultant at egos.
Before exploring the cases, I caution even those freelancers with a penchant for complicated and conflicting facts that they may want to leave such prudence to others. ES is a maze-like area which, for its many twists, turns and technicalities, is analogous to cricket. Each is full of 'ins and outs' and its players all too easily get caught out.
Two EAT cases serve as a reminder
The two cases to recently go before the EAT remind us that an individual providing services performed personally might, for purposes other than tax, be
- an employee (who will generally also be a worker) , working under a contract of service - if there is a contract of employment – that is, a contract for the performance of services,
- with mutual obligations relating to the performance of that work personally, and to payment for that work
- with submission by the individual to a sufficient degree of control by the engager to make the engager 'master' and the individual 'servant'
- with any other contractual terms being consistent with the relationship of employment - noting that: ‘Freedom to do a job either by one’s own hands or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be’
- a worker (not an employee), working under a contract for services;
- worker status is defined by statute or regulation (generally, EU-inspired legislation)
- the precise wording of the definition may change slightly, according to the particular statute / regulation – one might be a worker for the purposes of one statute / regulation, but not for the purposes of another
- neither an employee, nor a worker, but providing services under a contract for services – as an independent contractor, self-employed for all purposes, and in business on his own account.
The first of the two cases is: Plastering Contractors Stanmore Ltd (‘PCS’) v Holden 2014 EAT.
What this case is about: Worker or Self-Employed?
Here, the question arose under the Working Time Regulations 1998 (‘WTR’), in which a worker is defined as either an employee, or an individual who works under any other contract (express or implied, oral or written), whereby ‘the individual undertakes to do or perform the work personally any work or services for any other party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual’.
Holden, having sought and found other work on a full-time basis elsewhere after becoming increasingly fed up with being given less and less work by PCS, wanted back-holiday pay from PCS – which the WTR would give him, if he could show himself to have been a worker. PCS argued that he had been an independent contractor, not a worker.
Holden had worked for PCS for many years, unloading pallets and doing general site work. He was a self-employed contractor with a CIS card.
From 1997 until 2001 Holden was an employee of PCS; he was then persuaded to accept £200 to become a CIS labour-only subcontractor (!). The agreement under which he worked after that time was oral only. He had accounts prepared, and whilst he did a little work for others, he did not advertise his services to the world, and worked almost exclusively for PCS. He never provided a substitute, and had become integrated into the workforce.
The fact that there was no express right to substitute, and that any implied right of substitution there might have been was never exercised, was considered by the court to justify finding that any right to substitute there might have been was sufficiently limited, so as not to prevent the contract being one for the performance of work personally.
The facts that Holden had become integrated into PCS’ workforce, and that he did not actively market his services to the world, justified the court in finding that this was not a situation where the status of PCS was, by virtue of the contract, that of a customer of a business carried on by Holden.
The conclusion therefore was that, whilst Holden was not an employee, he was a worker, and as a result he was entitled to holiday pay. Hooray for him!
The second of the two cases is: Windle & Arada v Secretary of State for Justice 2014 EAT.
What the case is about: Worker or Self-Employed?
Verdict: Maybe (-the case was remitted for reconsideration)
This time, the relevant legislation was the Equality Act 2010.
Both Windle and Arada provided services to the Courts and Tribunals service (HMCTS) as interpreters.
The question was whether they were ‘employees’ within the meaning of s83(2) Equality Act 2010 – which confusingly defines employment as ‘ employment under a contract of employment … or a contract personally to do work’ – so, not only employees (in the classic sense of those working under a contract of employment), but also ‘workers’ would be included. However, the express exclusion from this definition as we saw in WTR (for circumstances where the other party to the contract was a client or customer of a profession or business carried on by the individual) does not appear in the Equality Act.
I say ‘it does not appear’, above, but the way I read this case is that the EAT decided to interpret it as though that wording (or something similar) was there anyway, by implication and that they were justified in interpreting in that way because the legislation was EU-inspired, and so the court was required to interpret it in a way consistent with the underlying directives that the legislation had been designed to implement.
The tribunal whose decision was under appeal had, the EAT said, taken into account an irrelevant factor, in that they decided that lack of mutuality of obligation between assignments meant the individuals could not fall within the second ‘worker’ part of the definition, which applied to ‘a contract personally to do work’.
The EAT ‘remitted’ the case (i.e. sent it back to the Employment Tribunal, with instructions to get it right this time!), and said that the questions of
- whether the services were provided in a position of subordination,
- whether the individuals were integrated into the Courts and Tribunals organisation, and
- whether the individuals provided those services to the Courts and Tribunals organisation as a client or customer as part of independent business undertakings
....were all relevant to the question of whether or not the contract was a ‘contract personally to do work’ – despite the fact that those issues did not expressly appear in the relevant statutory definition - and in answering those questions, the EAT said it was appropriate for the Employment Tribunal to look ‘purposively’ at the protection against discrimination which Windle and Arada sought to invoke.
Some might say that a legal framework which allows for persons to be ‘employed’ whilst not being employees, or to perform work personally (but without always having to perform it personally); yet without it being clear whether or not they are performing the work as ‘workers’, and under contracts for the performance of services which are contracts for services but not contracts of service, and where mutuality of obligation is really important but has two different meanings, is as simple as the laws of cricket. On reflection of an anonymous author’s summary of those laws, I sometimes suspect the 'ins and outs' of cricket may be easier to follow:
“You have two sides, one out in the field and one in. Each man that's in the side that's in goes out, and when he's out he comes in and the next man goes in until he's out. When they are all out, the side that's out comes in and the side that's been in goes out and tries to get those coming in, out. Sometimes you get men still in and not out.
“When a man goes out to go in, the men who are out try to get him out, and when he is out he goes in and the next man in goes out and goes in. There are two men called umpires who stay out all the time and they decide when the men who are in are out. When both sides have been in and all the men have been out, and both sides have been out twice after all the men have been in, including those who are not out, that is the end of the game.”
Editor’s Note: Related Reading –
6th November 2014