Professional Practice Research Report on Clarity and certainty over employment status in the U.K.
Executive Summary
Problem statement: In the U.K., a recent challenge that has encumbered attempts to enforce section 230 Employment Rights Act (E.R.A.) 1996 is linked to the emergence of the ‘gig economy.’ New work arrangements have emerged that potentially deny the idea that employees’ rights do actually exist.
Objectives: In consideration of the benefits and problems that any change to the law would bring, this report examines whether more clarity and certainty over employment status will be beneficial in the UK.
Findings: The Taylor Review acknowledges the significance of clarity in “employment status” to the economy and calls for statutory reform. It emphasises the realignment of the “employment status framework” to eliminate the divergences between the tiered systems for “tax” and “employment rights.” The Government’s response, as indicated in the Good Work Plan (2018), shows a strong resolve to strengthen the rights of workers consistent with the recommendations of the Taylor Review. However, this would only enable Courts to be more flexible and to favour individuals with contracts that are seen to have failed to embody the real essence of the attributes of the work arrangements.
Conclusion: The Government should develop policies that could clarify the most appropriate employment tests that reflect the changes to modern working arrangements between individuals and employers. There is a need for legislation that makes sure that the concept of “employment status” is sufficiently flexible and responsive to newer work methodologies. Clarity and certainty over “employment status” would be beneficial to the U.K.’s economy by increasing the rate of employment and ensuring a steady growth of wages. It will ensure greater flexibility for interpretation of “employment status” and providing greater worker protection.
Introduction
The term “employment status” is increasingly becoming an intricate legal concept in the United Kingdom.[1] The existing framework for establishing individuals’ “employment status” is considered to have become even more problematic because of sweeping changes in today’s industrial relations[2] on account of the emerging gig economy – a scenario wherein independent contractors are paid based on each project.[3] In essence, “employment status” is the categorisation of an employment relationship that determines how individuals are entitled to statutory employment rights as well as offers employers certain responsibilities.[4] Today, a number of diverse working relationships exists that individual employers and their prospective employers could agree on.[5] Then again, such relationships need to be transformed into numerous categories with the view of assigning individuals rights and protections, as well as to determine the tax to be remitted by individuals and employers.[6] The issue of “employment status” forms a critical component of U.K. employment and tax legislation. It is also central to the effectiveness of U.K. employment protections.[7] Correspondingly, it is significant for employers and individuals employees to understand an “employment status” that is applicable to their work scenarios in order to check that the most pertinent protections are invoked whenever there is a need.[8] In an equally fundamental manner, “employment status” has implications on taxations systems that could be imposed on employers and their individual employees.[9] This makes it critical to have a clear as well as an effective tax base, whereby each affected party to an employment contract is aware of the tax rates or insurance contributions relevant to an organisation.[10] Hence, a question is proposed: Considering the benefits and problems of any change in the law, would more clarity and certainty over employment status be beneficial in the UK?
The current position in relation to “employment status”
Critically, a key problem with the labour law is that effective enforcement of employment rights is a challenge because of the ambiguity of the term “employment status.”[11] However, the manner in which the rights are enforced may have unexpected implications on individuals and their employers, depending on the work conditions[12], work arrangements, and working relationship.[13] In the U.K., a recent challenge that has encumbered the attempt to enforce section 230 Employment Rights Act (E.R.A.) 1996 is linked to the emergence of the ‘gig economy,’ whereby new work arrangements have emerged that potentially deny the idea that employees’ rights do actually exist. Fundamentally, the protections provided to individuals at the workplace vary contingent on their status, such as “worker,” “employee,” or “self-employed.”[14] Yet, determining the right “employment status” has become gradually complex because of changes in work arrangements and the prevalence of gig economy, the growth of freelance work contrast, and the disinclination of many companies to employ individuals on a long-term basis.[15]
There appears to be a lack of clarity on the borderline between “employee and Limb (b) worker “employment statuses for rights, as well as between the Limb (b) worker and self-employed categories.” When it comes to employment rights, two key “employment status”es exist. These include employee and worker. On the other hand, section 230 Employment Rights Act (E.R.A.) 1996 stipulates that all employees should be classified as workers, while not all workers should be classifiable as employees. In essence, workers who cannot be categorised as employees are described in section 230 (3) (b) and are generally considered as “Limb (b) workers.” Hence, elements of personal work provided as a service should be proved to exist. Also, a proof of contract should be verifiable, as well as the nonexistence of seller/customer relationship.[16]
Currently, the “employment status” approaches for tax and employment rights are built in a range of measures that have evolved over the years.[17] Given that the manners in which businesses hire their staff are evolving, the courts are also responding to the imminent changes and in the process considering the pertinent factors depending on facts of the case. This could be said to have created the current system’s flexibility.[18] On the other hand, while there has been some level of inconsistency across a number of case laws, it appears that there lacks a specific principle that employers and individuals could employ to establish their “employment status.” Such could lead to uncertainty.
The options for reform
A number of reports have acknowledged the significance of clarity in “employment status” to the economy, while simultaneously making claims that there is a need for statutory reform. Among the most fundamental reports is the Matthew Taylor Review of Modern Working Practices (July 2017)[19].
The Taylor report
A review of the Taylor Review indicates that it basically consists of four sets of recommendations. The first set entails relabelling the category intermediate ‘workers’ as ‘dependent contractors’ and capitalising the existing “secondary legislation” to completely illuminate what each of these categories connotes. The second set states that the levels of tax for both “employed and self-employed should be moved closer to parity.”[20] The third set advocates for the reintroduction of the “rolled-up holiday pay.” Rather than providing individuals, they should be allowed “an entry of 12.07% in their payslips.”[21] The fourth set requires that a new variety of ‘soft’ rights should be introduced that allow individuals to ask to work on “fixed hours” basis or “direct contract” and to identify and reprimand employers who show contempt to courts or disregard their obligation to remit Tribunal awards.
In view of the universality of human rights and section 230 Employment Rights Act (E.R.A.) 1996, it seems plausible to assert that the four sets of recommendations are anchored in the superseding ambition’ that all types of work have to be dignifying, decent and fair.[22] Although the Taylor review was expected to bring about clarity to the question of “employment status” by providing a critique of ‘ambiguous legislation,’ it still has some incomprehensible statements that require hard legal analysis. For instance, it is also critical to argue that the idea of relabelling ‘worker’ status, which could mean something like renaming the “minimum” to be a “living wage”[23] does not substantially affect or alter the law. In effect, it should instead be observed that section 23 of the Employment Relations Act 1999 already has a provision that provides governments with the mandate to pass orders that give more individuals the privilege of “employment status.” Still, a number of recommendations provided in the Taylor report are practicable.
The Taylor report emphasised the significance of flexibility to be at the heart of future “employment status,” as this is what determines individuals’ statutory employment rights along with the amount of tax that should be remitted.[24] In an attempt to clarify the “tests for employment stability,” the report highlights that the “existence” of a separate framework for establishing “employment status” in the attempt to find out the employment rights and tax to be paid had added to the “lack of clarity and uncertainty” for both the “employer and the individuals,” and could expose workers to greater forms of exploitation by their employers.[25]
In view of this finding, the Taylor Report recommended a need for a realignment of the “employment status framework” to eliminate the divergences between the tiered systems for “tax” and “employment rights” are substantially reduced – or better still, eliminated. In the review, Taylor concluded that the existing three-tier system for employment rights has not run out of its usefulness even in the contemporary job market, particularly as it reflects the seeming extensive classes of diverse forms of employment relationships.[26]
Taylor also recommended the necessity for making sure that “employment status” tests agree on whether an individual is “self-employed” or is entitled to “worker rights” should stress on “control” instead of the notion of “right.” The report underscored that existing legislations are excluding workers. This implies that certain individuals lack clear information on their working relationship. In view of this finding, the report recommended a need for the Government to develop legislation that could guarantee greater clarity of the working relationships or arrangements to ensure that individuals are aware of what they sign up for during a job recruitment process.[27]
The Government’s response
The Government’s response, as indicated in the Good Work Plan (2018), shows a strong resolve to strengthen the rights of workers consistent with the recommendations of the Taylor Review of Modern Working Practices (2017). The Government’s response indicated an agreement with the recommendations made by the Taylor report.[28] The Government agreed with the findings of the report (particularly the sources of a lack of clarity on “employment status” and its implications) and pledged to develop policies that could clarify the most appropriate employment tests that reflect the changes to modern working arrangements or relationships.[29] The Government agreed that businesses or employers should not be allowed to circumvent their responsibilities and obligations by attempting to miscategorise or mislead their personnel, and pledge to develop a policy on “employment status” that addresses risks for such worker exploitations.[30]
A review of conclusions of the courts
The current legislation that attempts to define employee for “tax and employment rights,” in the meantime, consider the existences of a “contract of service.” In effect, the legislation does not make any additional clarity.[31] It is because of such lack of clarity that courts have attempted to interpret the legislation and come up with tests that could help establish one’s “employment status.”[32] Such tests were used in past precedent case laws, including the Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968].[33] The case laws set a precedent for factors that should exist for a “contract of service” to be viewed to exist, including whether a worker agrees to work in consideration of a pay.
In the last decade, however, there have been attempts by courts to demonstrate greater flexibility to the interpretation of “employment status,” including by setting up a new test of “mutuality of obligation.” Given that section 230(3)(b) demands that there has to some form or level of the contract, it is necessary that some level of “mutuality of obligation” should exist, to the extent that there exists a consideration. In spite of this interpretation, the case-law of Windle v Secretary of State for Justice [2016][34] demonstrates how the courts determined that the “test of mutuality of obligations” that should be viewed to determine “employed status” is immaterial when determining who should be classified as a “worker.” In contrast, the Court of Appeal determined that “mutuality of obligations” should be treated as a relevant aspect when determining concerns of subordination. There was a clear rationale for this decision, as a “lack of obligation to recognise work in between assignments, suggests independence, and therefore lack of subordination.”
This, however, brings in another test for worker status that goes beyond the fundamental “contractual principle of consideration.” In the case-law of Byrne Brothers (Formwork) Ltd v. Baird [2002],[35] the Court held that some form of personal service should exist, as well as an unencumbered” right to substitute performance” that can overcome “worker status.”[36]
In contrast, the more recent case law of Pimlico Plumbers Ltd and another v Smith [2017][37] adopted these conceptions and developed them in ways that show that courts have particularly been flexible in how they interpret worker status. In the case law, Sir Terence Etherton MR stated that the issue as to whether there has to be an obligation to carry out work in person “will depend on the precise contractual arrangements and, in particular, the nature and degree of any fetter on a right of substitution, or, using different language, the extent to which the right of substitution is limited or occasional,” (at para [84])[38]. Such an interpretation provides a claimant involved in a case of determining worker status with two alternatives. First, the claimant could argue against a fraudulent contract.[39] Second, the claimant could argue that the contract is impractical as it is too occasion, in events where there is “a genuine right of substitution.”
The issue of the worker-client/customer relationship has also been examined in recent case laws. In effect, a worker is considered to have been hired as a crucial component of the operation of the principle.[40] On the other hand, in self-employed scenarios, a worker’s services are considered to be non-specific to the world.[41] It is such an aspect of the test that has proved to be definitive in distinguishing between a person who is a worker and a self-employed. In the case-law of Autoclenz Ltd v Belcher [2011][42], the Supreme Court stated in its ruling that tribunals have the mandate to determine a sham contract. Hence, an issue of concern in virtually all cases would be the contractual terms, between an individual and a would-be employer. As established in the case-law of Aslam v Uber [2015][43], two Uber drivers successfully persuaded an employment tribunal that they should indeed be categorised as workers consistent with section 230 (3)(b). The tribunal observed the case to be “faintly ridiculous.” It later transpired that the tribunal concluded that the contract should not be considered to have reflected the actuality of the situation.[44] The Employment Appeal Tribunal upheld the ruling.[45][46]
The issue of Zero-hours contracts[47] has recently become contentious due to the employer’s duty to provide payable work on one hand, and the employee’s right to agree to certain work arrangements on the other hand.[48] Such complexities recently arose in the case Pimlico Plumbers Ltd and another v Smith [2018][49], where, in spite of a confusing contract, the Court determined that a plumber should be considered a “worker” and not a “self-employed individual.” In this case, the Court used a more extensive “dominant feature” test pertaining to substitution and assessed if the overriding attribute of the contract was could be considered as an obligation to perform work in person instead of to delegate work.[50] While this ruling, which is currently the latest and the most highly related to “employment status,” is important in as it provides more clarity regarding who should be granted worker status, it fails to stipulate a new legal principle for determining worker status.[51] In essence, it merely demonstrates an attempt by the Courts to be more flexible and to favour individuals with contracts that are seen to have failed to embody the real essence of the attributes of the work arrangements.[52]
Conclusions and views over beneficial reforms
In conclusion, the Government should develop policies that could clarify the most appropriate employment tests that reflect the changes to modern working arrangements between individuals and employers. The issue of “employment status” is significant yet fairly complex. This calls for caution to avert any unintended implications. In many cases, “employment status” has tended to be clear-cut. In situations where a party’s “employment status” is disputed, there has been a tendency to seek the intervention of the Court, whereby employment laws are left to play a supportive role.
Clearly, the courts have tended to adapt over time in response to cases of “employment status” put before them. Nevertheless, it is also significant to consider the fact that given that the labour market is continually evolving, there is a need for legislations that makes sure that the concept of “employment status” is sufficiently flexible and responsive to newer work methodologies. This implies that changes to the law should be increasingly clear and certain. However, it suffices to argue that given that newer methodologies or working have not been particularly clear. In addition, the boundary between employment rights has relatively been vague, particularly between employed and self-employed individuals.
Clarity and certainty over “employment status” would, therefore, be beneficial to the U.K.’s economy by underpinning successes in the area of increasing the rate of employment and ensuring a steady growth of wages by ensuring greater flexibility for interpretation of “employment status” and providing greater worker protection. It is also imperative to suggest that businesses will be provided with a greater potential for growth, leading to greater employment opportunities, as they would have greater flexibility in how they can interpret “employment status,” and benefit from a greater pool of innovative personnel. At the same time, workers would have a greater potential for protections from exploitation by employers. In essence, the labour market would have a greater capacity to adjust accordingly to the changing nature of the work arrangements, as a result of the gig economy, while guaranteeing protection of the rights of workers.
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