Employment status

Employment law has several mechanisms for determining whether or not a person is eligible for any particular employment right. The primary mechanism is the individual’s employment status. While there are a variety of legal statuses, the main ones in employment law are: ‘employee’, ‘worker’ and ‘self-employed’ (also known as ‘independent contractor’).

• Employees have the full range of employment rights, including protections against unfair dismissal, redundancy pay and various kinds of parental leave.
• Workers have fewer rights although retain many of the most basic entitlements such as the National Minimum Wage, paid annual leave and protections against discrimination and for whistleblowing.
• Self-employed independent contractors are not eligible for most employment rights. However, they will still enjoy some equality law protections against discrimination and some basic protections of their health and safety while on a client’s premises.

The legal tests Employee

The test for ‘employee’ status largely relies on the common law definition of a ‘contract of service’, developed through case law over many decades. The key tests, are set out in the 1968 case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance:

• the individual agrees to work personally for pay
• there is a mutuality of obligation between the parties: the employer is obliged to provide work and the employee is obliged to do it
• the employer exerts a sufficient degree of control over the work, and
• the provisions of the contract are consistent with it being a contract of service

Worker

For ‘worker’ status the tests, as set out in the Employment Rights Act 1996, are less demanding, being only that an individual:

• works under a contract personally to do work, and
• the work is done for another party to the contract that is not a customer or client of a profession or business undertaking carried on by the individual.

Self-employed

Where people do not meet any of these tests, they would instead be considered self-employed. For example, they might be genuinely in business on their own account or might not have an obligation to perform work personally if they have an unlimited right to send someone else in their place.

Proposals for reform

There have been a number of reviews of employment law over the past two decades, to explore whether the complexity of the current legal system would benefit from reform. In particular, issues have arisen for atypical workers – such as agency workers or those working under zero-hours contracts – who can find it difficult to acquire rights because of the way the law applies to their circumstances.

In October 2016 the then Prime Minister, Theresa May, commissioned Matthew Taylor, the Chief Executive of the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA), to lead a review of modern employment practices. The Taylor Review reported on 11 July 2017.

This coincided with select committee interest in the issue. The Business, Energy and Industrial Strategy Committee held an inquiry into the ‘The future world of work and rights of workers’, which was cut short by the 2017 general election. The Work and Pensions Committee undertook an inquiry into ‘self-employment and the gig economy’, also curtailed by the election, and the committee published an abridged report on 1 May 2017.

The government response to the Taylor Review was published in December 2018 in the form of the Good Work Plan. In this, the government committed to legislate in this area to clarify and align definitions of employment status, saying:

We will bring forward legislation to improve clarity on employment status, reflecting modern working practices. We will also bring forward detailed proposals on how the tax and rights frameworks could be aligned.

However, the government position changed during the covid-19 pandemic, saying in their 2022 response to its consultation on employment status that labour market conditions had now changed and that a legislative response would no longer be appropriate.

No legislation was ultimately brought forward on this area. Instead the government published in July 2022 more detailed non-statutory guidance for employers on determining employment status.

These reviews, inquiries and proposals followed earlier reviews of employment status by successive governments, which also did not yield any fundamental alteration of the statutory framework.

In their June 2024 publication, published shortly before the 2024 general election, Labour’s plan to make work pay – delivering a new deal for working people