status anxiety

Status Anxiety

1 July 2014

Content

• Definitions (statutory and common law)

• Different statutory protections

• Recent case law

• Problem areas: zero hours contracts, interns, tax

• Case studies

• Q & A

Status: Definitions and Distinctions

A hierarchy (of sorts)

Employees



Employee – statutory definition



An “employee” is “an individual who has entered into or works under ... a contract of employment”.

“Contract of employment” means “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether it is oral or in writing”.

Employment Rights Act 1996, s. 230(1) and (2)

Employee – common law tests



There are various tests:

•The control test

•The economic reality test

•The business integration test

•The multiple or multi-factorial test

Employees

Workers



Worker – statutory definition



A “worker” is “an individual who has entered into or works under (or, where the employment has ceased, worked under) –

•A contract of employment, or

•Any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another 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...”

Employment Rights Act 1996, s. 230(3)

Worker – common law interpretation



“The intention… is plainly to create an intermediate class of protected worker, who is on the one hand not an employee but on the other hand cannot in some narrower sense be regarded as carrying on a business...”

“… the policy behind the inclusion of limb (b)… can only have been to extend the benefits of protection to workers … who are viewed as liable to be required to work excessive hours, to suffer unlawful deductions from their earnings or to be paid too little… the purpose of the Regulations is to extend protection to workers who are, substantively and economically, in the same position…”

Byrne Brothers (Formwork) Ltd v Baird and others [2002] IRLR 96

Workers

The difference between employees and workers

• Worker status has a lower “pass mark”

• Fewer rights (e.g. unfair dismissal, redundancy payments etc.)

• Typically more transient/ less integrated

• Mutuality still exists – but with (limited) scope for substitution

• Still subordinate

Workers



Typical examples include:

•Self-employed labourers who work as sub-contractors

•A casual worker

•An independent consultant (working for a fixed period of time)

•A commission only salesman

But… ALWAYS FACT DEPENDENT

Self-Employed



Self-employed

Volunteers

Various Definitions



There is no universal or statutory definition:

"a person engaged in an activity which involves spending time, unpaid (except for travel and other out of pocket expenses), doing something which aims to benefit some third party…”

“… a specified period of time that a person spends with your [organisation], during which they have an opportunity to learn directly about working life and the working environment… placements offer people the chance to try their hand at particular tasks, others simply provide an opportunity to watch and learn. The nature, length and arrangements … vary greatly."

Is there a contract?



To establish relevant employment protection an individual must first establish that they have a contract with an organisation. This will require existence of the four basic elements of a contract:

•Offer

•Acceptance

•Consideration

•Intention to create legal relations

The absence of a contract between an individual and an organisation will be fatal to a claim under ERA 1996 or the EqA 2010

Murray v Newham Citizens Advice Bureau

• Murray applied to become a trainee voluntary advisor with the Newham CAB

• Murray signed a document produced by CAB which contained a number of obligations on his part (volunteering on specific days of the week, at specific times and for a defined duration, completing training, etc)

• The document also contained a number of obligations on CAB (to provide training, support and pay expenses)

• The CAB then rejected Murray’s application, which prompted Murray to bring a claim of disability discrimination against CAB

Murray v Newham Citizens Advice Bureau

• The Employment Tribunal found that the agreement did not come within the definition of “employment”, citing the crucial factor as the absence of pay and stating there were no obligations on either party

• The EAT found the Tribunal “not only plainly wrong but that it manifestly contains errors of law”: the agreement did contain a number of obligations and the absence of pay is not a crucial factor in determining employment

• The EAT remitted the case to the Employment Tribunal to consider “what actually happens” and to take a sensible view as to whether the agreement fell within the definition of employment

X v Mid Sussex Citizens Advice Bureau & others



• X volunteered with the Mid Sussex Citizens Advice Bureau (CAB) for 4-5 hours per week

• She signed a "volunteer agreement", which stated that it was "binding in honour only … and not a contract of employment or legally binding”

• When the CAB asked X to cease her volunteer work she sought to bring a claim for discrimination

• However, an employment judge decided that the tribunal had no jurisdiction to hear X's claim. This decision was upheld by the EAT, the Court of Appeal and the Supreme Court

X v Mid Sussex Citizens Advice Bureau & others



• X did not have protection because she did not have a contract

• The Framework Directive is not unlimited in its scope and extent. It confers carefully defined protection against discrimination in specified circumstances

• It was clear from the legislative history of the Framework Directive that it was not intended that Article 3(1)(a) should encompass voluntary work

• The European Parliament had proposed an amendment to extend Article 3(2)(a) to include "unpaid or voluntary work" but this was not accepted by the Council

Practical tips



• Avoid making payments to volunteers that could be construed as wages

• Payments to cover actual expenses should be clearly identified as such and ideally reimbursed against receipts

• Remove or, at least, minimise perks that could be seen as consideration

• Giving a volunteer the ability to refuse tasks and choose when to work will point away from the existence of a binding contract

Practical tips



• Avoid using contractual language (“hopes and expectations”)

• Adopt flexible language, such as "usual" and "suggested” (see the template provided)

• Keep arrangements under review – don’t let relationships evolve unchecked

"Voluntary workers” a specific exemption to NMW



"Voluntary workers”



“Voluntary workers” - a category of worker who work for charities, voluntary organisations, and statutory bodies.

Voluntary workers (as opposed to volunteers) are not entitled to the NMW if the following conditions are met:

– They receive no monetary payment other than reimbursement of expenses actually incurred or reasonably estimated as likely to have been incurred in the performance of their duties

– They receive no benefit in kind other than reasonable subsistence or accommodation (section 44(1)(b), NMWA 1998)

"Voluntary workers”



The government gives the following examples of expenses incurred in the performance of a voluntary worker's duties:

•Travel to and from the place of volunteering and in the course of volunteering

•Cost of care of dependents needed to enable the voluntary worker to do the voluntary work

"Voluntary workers”



Training will not be considered a benefit in kind for NMW purposes if it is:

•Necessary to perform the duties of the voluntary worker

•For the sole or main purpose of improving the voluntary worker's ability to do the work

•Necessarily acquired in the course of the voluntary work

Zero hours contracts

Zero hours contracts

•Not legally defined so open to broad interpretation

•Subject of 2013 government consultation

•Contract for casual working with no guarantee of work

•The employee is only paid for work done

Zero hours contracts

Advantages

•Flexible (potentially, for both sides)

•It enables employers with fluctuating levels of work to operate efficiently

•Employees maintain protection from unfair dismissal, redundancy entitlement

•In practice (sometimes) employees have a say in their hours

Zero hours contracts

Disadvantages

•Perceived as (and often are) exploitative – some employees are unable to work for other employers in between shifts and are unable to turn down work if / when it is offered

•Unless work truly does fluctuate, ZHC are often myopic: they invariably fail to inspire commitment / high standards / consistency

•Alternative: a bank of casual workers?

HMRC: taxing and vexing issues

Zero hours contracts

•PAYE?

•The Social Security (Categorisation of Earners) (Amendment) Regulations

•The redrafted s.44 of the Income Tax (Earnings and Pensions) Act 2003

•IR35

Rule of Thumb



Rule of Thumb

“If it looks like a duck, walks like a duck and quacks like a duck –

then it probably is a duck”

Questions

Contacts

Paul Jennings – Senior Associate

E-mail: p.jennings@bwbllp.com: 020 7551 7694

Bates Wells Braithwaite

2-6 Cannon Street

London EC4M 6YH