Atypical Workers in the UK - Essay Example

Establish Employee Status Running Head: ATYPICAL WORKERS IN THE UK The Difficulties That Atypical Workers in the UK Face in Attempting to Establish Employee Status Your Name Here University Name Here Establish Employee Status 2 Abstract Over the years, statutory employment legislation in the UK has developed on the basic foundation of traditional indefinite full time contracts of employment. However, it has not kept pace with the greater flexibility within the labour market or the greater prevalence of 'atypical' work. The Trades Union Congress (TUC) estimates that the employment status of as much as one third of the UK workforce is not clearly defined (Report of UK Conference 2000). On this foundation alone, it should become clear that maintaining the current definitions within employment legislation is not a tolerable option. This large segment of the workforce (sometimes referred to as 'atypical' or 'economically dependent workers') includes agency workers, casuals and freelancers. The issue is especially significant from the industrial relations point of view since economically dependent workers do not generally benefit from the protections granted to employees both by law and collective bargaining, including provisions on health and safety, information and consultation, working time, vocational training and social protection. In addition, they do not have the benefit of trade union representation. The real question from the standpoint of atypical workers appears to be; do they have, in effect, an implied contract of employment Establish Employee Status 3 The Difficulties That Atypical Workers in the UK Face in Attempting to Establish Employee Status The contract of employment is accepted to be the basis of any actual employment relationship in the UK. Hence, it effectively becomes the principles of contract law that define every aspect of employment law. The courts, however, have consistently viewed the employment relationship as essentially different from most contracted relationships. This is essentially due to the fact that there is normally a distinct inequality in the actual bargaining power in such a relationship.1 Nearly one third of all individuals in the UK have working arrangements that are prone to difficulties when establishing employment status according to legal tests. These workers commonly fall between definitions of 'employee' and 'self employed' but are generally classified for legal purposes as 'self-employed'. According to Greene2, in the UK context they are most commonly termed (although not official classifications) as: 'dependent self-employed': workers who are classified as self' employed but who are often reliant on one employer 'false or bogus self-employed': an individual who objectively speaking is an employee but who, for reasons connected to the evasion of regulatory legislation is described as self-employed by themselves and/or by their employer 'borderline self-employed': an individual whose legal status (employee or self-employed) is unclear.3 The category of workers affected by this situation is broad, ranging from low paid manual workers to high-paid information technology staff, journalists and creative professionals. A worker defined as 'self employed' is usually barred from employment protection law, although they do pay lower rates of income tax and can claim back certain expenses against tax. Studies indicate that the majority of such workers in the UK are in Establish Employee Status 4 traditional job sectors (rather than high-paying creative and IT sectors). Their work is often characterised by less employment protection.4 Often these ambiguous training opportunities, increased risk of accidents, uninsured losses, longer hours and less working arrangements are compatible with those considered 'non standard', including casual, zero hours, home, agency, portfolio and freelance workers.5 Since the 1960s and 1970s, parliament has been attempting to address the issue of fairness in the employer-employee relationship. Initially, this was done through creation of industrial tribunals (Industrial Tribunal Act 1996), statutory redundancy payments (Employment Rights Act 1996) and the right to claim unfair dismissal (Employment Relations Act 2004). As exemplified by the Employment Relations Act of 2004, legislative activity has expanded substantially - not coincidentally due to the membership of the UK in the European Union, and the further development of anti-discrimination legislation. While a contract of employment represents the basis of an employment relationship, such a contract may be either express - in which both parties agree upon the terms, or implied - meaning the terms are not specifically agreed upon, but are still considered part of the contract. Section 1 of the Employment Rights Act 1996 states that employees are entitled to receive a written Statement of Terms and Conditions of Employment within two months of the date of hire. Even though this Statement needs to include very specific information by law, an employer will typically include any and all additionally applicable terms of employment, to avoid any potential confusion to the nature of employment. However, despite the fact that legal requirements would appear to clarify what identifies an employee, Anne-Marie Greene (2002) points out that occasionally the line becomes blurry, and that economically dependent workers have some characteristics of Establish Employee Status 5 both the self-employed and the dependent employed: "1) they are formally self-employed (they usually have a sort of 'service contract' with the employer); 2) they depend on one single employer for their income (or large part of it)." Greene goes on to say, In some cases, economically dependent workers may also be similar to employees from other points of view: lack of a clear organisational separation - i e they work in the employer's premises and/or use employer's equipment; no clear distinction of task - i e they perform the same tasks as some of the existing employees, or tasks which were formerly carried out by employees and were later contracted out to 'collaborators'; and the 'service' they sell individually to employers falls outside the traditional scope of 'professional services' - i e the tasks are simple, do not require specific skills and no professional knowledge or competence is needed.6 Unfortunately for all those who are affected by such situations, there are no clearly followed statutory definitions of 'employment' or 'self-employment' in the UK. In effect then, decisions are made based on judicial guidance in previous cases dealing with tax and employment law.7 There are four tests that are widely relied on, which consist of a number of factors taken into consideration by the courts.8 These test factors are: 1. Control - who holds control over task, mode, means and timing, duty to obey orders, discretion on hours of work, supervision of mode of working 2. Integration - how integral is the work to the business, existence of disciplinary or grievance procedures, inclusion in occupational benefit schemes 3. Economic Reality - where does the financial risk lie, method of payment, freedom to hire others, providing own equipment, investing in own business, method of payment of tax and national insurance (NI), coverage of sick pay, holiday pay9 4. Mutuality of Obligation: what evidence is there of formal subordination to contract terms, duration of employment, regularity of employment, right to refuse work, Establish Employee Status 6 5. custom in the trade10 To add further confusion to the nature of employment relationships, all four of these factors have been given various levels of importance under different circumstances. By way of example, Burchell et al (1999) stated, The assumption that an individual 'earns' rights to employment protection in return for a formal commitment to his or her employer underlies much of the courts' discussion of mutuality of obligation, although it is rarely articulated precisely in these terms. If this is the purpose of the mutuality test, then it should be remembered that the test, in its present form, goes well beyond excluding cases of short-term hiring; workers with decades of service can lose employment protection rights to which they would otherwise have been entitled if, before the end of their employment, their relationship with the employer becomes irregular as a result of a falling-off of demand.11 Without ant consistent application of them, the tests as they stand today lead to considerable confusion, often contradicting each other, and no one set of factors is viewed as decisive. In fact, Harvey12 establishes that there are 11 possible outcomes of the application of the four tests on the basis of the different factors, with only two of them producing a definitive outcome of 'employee' or 'self-employed'. In addition, there is a disturbing lack of consistency between tax, social security and employment law such that tests are more easily satisfied under certain regulations.13 This means that legal judgements do not always coincide with tax regulations. There is recognition of a debate about the definition of an 'employee' in the fact that Section 23 of the Employment Relations Act 1999 (ERA) empowers the Secretary of State to confer some or all employment rights to categories of individuals who do not or cannot presently benefit from them. Establish Employee Status 7 Obviously, being classified as an employee brings with it benefits. For example, those classified as 'self-employed' generally lose all rights to all non means-tested benefits14 as well as protection against unfair dismissal, redundancy compensation, guaranteed pay and statutory maternity pay.15 In terms of taxation law, those classified as self-employed are eligible for lower income tax and can offset professional expenses against tax. The problem with many of those in the 'dependent self employed' category is that they gain neither the advantages of tax breaks nor employment protection, being classified as 'self employed' for employment purposes and 'employed' for tax purposes. The research findings from Harvey's (2001) study of the construction industry show this disparity very clearly. There are clear economic incentives for employers to hire people as 'self-employed', giving a labour cost saving immediately of around 12.2% (no employer national insurance or employer-provided benefits).16 There is also clear evidence that self-employment has now taken over from direct employment as the core and majority workforce on major construction sites. Emphasising the ambiguous status of these workers in 1995, while 85% of the workforce on 10 major construction sites were self-employed, 65% of these had income tax deducted at source by the employer (thus forming a type of taxed self employment unusual to construction). Such an irregularity seems to unfairly punish such workers. While legal cases would seem to be the place where such injustices are corrected, the fact is that more often than not, they simply add to the confusion. A most recent case may be cited as an example. Lord Justice Keene (2005) was moved to make the following statement following a recent case, What is clear is that there is now a large and growing number of people in full time or nearly full time work who, because they work under agency arrangements, do not enjoy the full range of employment rights conferred under the legislation on those working under more conventional arrangements...This problem may in due course be regarded as a matter for legislation. It is not one capable of being Establish Employee Status 8 overcome by judicial creativity.17 In Bunce v Postworth Lta /a Skyblue (2005) IRLR 557 at 562 the Court of Appeal upheld the tribunal's finding that the lack of mutuality of obligation between employment agency and work-seeker was fatal and, even if not, the agency did not exert sufficient day-to-day control to make the claimant an employee. In this case the appellant sought to rely on there being mutuality of obligation between the individual contracts that created a general umbrella contract. Whereas it was accepted as a matter of legal principle that this was entirely possible, in the case of Bunce, it had not been proven. Additionally, the appellant's argument regarding the element of control was also not accepted by the court. The mere fact that the client's day-to-day control originated, so far as the appellant's obligation was concerned, in a term of the contract between Skyblue and the appellant was not enough to satisfy the requirement for control by Skyblue.18 Lord Justice Keene stated that: "The law has always been concerned with who in reality has the power to control what the worker does and how he does it. In the present case, during the periods when the appellant was working on an assignment (as a welder), it was the client, the end-user, who had the power to direct and control what he did and how he did it. That is not in dispute. Skyblue could not exercise such control over the appellant."19 While such an argument seems at first to make sense - that who has the most control over what a worker does or how he does it determines employee status, or lack of it - this does not always hold true. For instance, let us imagine a surgeon who is employed by a hospital to perform surgery on patients at their hospital. The hospital pays the doctor's salary, as well as all other benefits to which he is entitled. There is, in fact, in this instance a specific employment contract that was entered into between the parties involved. However, who has 'the power to direct and control what he does and how he does it' Clearly, the surgeon controls what he does - and not the hospital. So, according Establish Employee Status 9 to the reasoning of Bunce, who was a welder - and so controlled his skilled trade - the surgeon is not actually an employee. But this is a perfect example of the confusion of UK employment law, because the surgeon would absolutely be considered an employee. UK employment law is filled with similar confusion. Even if an individual is paid, does the work himself, and the employer exercises authority over him, it is still possible that the worker concerned is not actually an employee for employment law purposes. According to John Antell (2005), other factors must be considered, none of which may be essential in any particular case but which will together allow a "picture to be painted" from which the question can ultimately be decided. What can be said with certainty is that the traditional basic tests of "control" and "mutuality of obligation" remain fundamentally important.20 There are a number of cases that carry the following importance according to Disclaw Publishing (2005): Montgomery (2001)21 - in deciding whether a person is technically "an employee" for the purposes of the unfair dismissal legislation the traditional tests of control and of mutuality of obligation are still "basic and essential" and an "irreducible minimum" for a finding that a contract of employment exists; Carmichael (1999)22 - 1. there is no continuous contract of employment in existence if a worker who is employed on a series of intermittent short contracts is not obliged to accept work and the "employer" is not obliged to provide it. 2. the rule that construction of documents is a question of law (which can be appealed) rather than a question of fact (which cannot be appealed) was developed as a pragmatic rule in medieval times when juries were illiterate and should now be applied restrictively; Express and Echo (1999)23- in determining whether an individual is an employee account should be taken of the legal obligations under which he works. It is not enough to look only at how he actually worked in practice Establish Employee Status 10 as this "may not elucidate the full terms of the contract"; Stevedoring (2001)24 - it is not possible to imply a contract where to do so would be inconsistent with the express terms of relevant contracts, an arrangement between a company and a worker under which the worker will provide services on an ad hoc and casual basis and which expressly states that there is no obligation on the company to provide any work and no obligation on the worker to accept any offer of work is not a contract (still less a contract of employment).25 The government stated in November 2001 that it was intending to "embark on a review of the provisions of general employment law that relate to the distinction between an employee and a worker."26 This was followed in July 2002 by a DTI consultation document (consultation ended 11th December 2002) on whether rights currently enjoyed only by employees should be extended to other types of worker. As may be seen from the inconsistent results of current cases, such as Bunch (2005), and "the Muscat case"27, this goal may not yet have been reached fully. One of the more prominent - and potentially far-reaching - cases in recent years is "the Dacas case"28, where the Court of Appeal (the CA) held that Mrs. Dacas, an agency worker, was not an employee of the employment business that supplied her and expressed the view that, in certain circumstances, an implied contract of employment could arise between an agency worker and the client or the agency. The CA was only asked to decide whether Mrs. Dacas was employed by the agency. Although they were not asked to determine whether the Client employed Mrs. Dacas, they expressed the view that she was. As this was not the central point decided in the case and, therefore, not binding on lower courts/tribunals, it remained to be seen whether they would follow the Establish Employee Status 11 CA's reasoning. In subsequent cases, including Muscat (2005), appeals are still in progress that are attempting to question the validity of the Dacas ruling. On a positive note, however, related to a recent Employment Appeal Tribunal (EAT) decision, namely Astbury.29 In this case the EAT suggested that, if workers issue employment claims against only the agency or the client, tribunals should join the other party to the proceedings. If you engage workers and they bring a claim against the agency you should expect to become part of the proceedings. This means you can suddenly find yourself having to defend a claim and potentially being liable to pay damages to the worker. For atypical workers in at least one area then, it would appear that most agency workers are likely to be currently considered an employee of the end user client, especially where a period of around a year has elapsed. On the other hand, where the agency arrangement is genuinely temporary, the potential employee will normally simply not satisfy the qualifying period requirement of one year. However, if the agency arrangement continues for years rather than months, if the worker is dismissed they may claim compensation for unfair dismissal. While some positive spin may be placed on the current situation in employment law due to certain rulings, it would also be good to keep in mind comments of Keene LJ who recognised that the ruling in Bunce (2005) effectively deprives those in the position of the appellant of much of the protection afforded to workers by the 1996 Act, certainly in respect of the right not to be unfairly dismissed. Indeed, the appellant is in a worse position than Mrs. Dacas, because even if he could establish a contract of service with each end-user client, as was suggested in that case, it would not enable him to claim the minimum one year's continuous employment with an employer, required in order to qualify under the 1996 Act for protection from unfair dismissal. But that is the result of Parliament's decision to require a qualifying period of employment before a claim for unfair dismissal can be brought and it seems to be an intended Establish Employee Status 12 result.30 Another important issue arises regarding UK citizens working abroad. According to John McMullen31, from 25 October 1999, section 32(3) of the Employment Relations Act (ERA) 1999 repealed section 196 of the Employment Relations Act 1996. The repeal of section 196 triggered a line of conflicting cases in the Employment Appeal Tribunal (EAT), notably Lawson32, Bryant33, and Jackson.34 In Lawson, says McMullen, ...the company provided support services for the RAF and civilian police on Ascension Island. Lawson was appointed as a security supervisor. He is British and lived in England. He was interviewed in England, paid in pound sterling in England and given a no-tax coding by the Inland Revenue on the grounds that his work was on Ascension Island. In the contract, no mention was made of any applicable law other than the law of England. A dispute arose about his hours. He resigned and claimed constructive dismissal. In light of section 196's repeal, the question was whether he had a claim for unfair dismissal under the UK employment tribunal.35 The Court of Appeal, not surprisingly, rejected the suggestion that the repeal of section 196 conferred the right on all staff not to be unfairly dismissed, wherever they worked in the world. Additionally, it also decided that the employment tribunal had no jurisdiction to hear Lawson's claim at all. He was employed on Ascension Island, not in the UK. Except in instances where there is specific provision to the contrary, the Act only covers employment in Great Britain. In an era of increasing transnational employment, this tighter test will cause real Establish Employee Status 13 difficulties for some employees. Unfortunately, the principles that apply to contract claims and race, religious belief and sexual orientation claims are all different. Under the wording of certain discrimination statutes, for example, an employee in Lawson's circumstances might still be able to bring a claim in a UK tribunal. This mismatch between unfair dismissal and discrimination statutes is regrettable. Recently, according to Anne-Marie Greene, unions such as UCATT and BECTU have been particularly active in representing members at Employment Tribunals to gain rights to employment protection.36 In addition, UCATT has been particularly concerned with the need to retrain industry members and has negotiated with a large construction company to set up a training centre. Workers falling into the 'dependent self employed' category form a substantial minority of the UK labour force, particularly in certain industrial sectors such as construction, many of whom face particularly vulnerable work arrangements, lacking any employment protection. The worst off are those who are classed as employed for tax purposes and as self-employed for employment protection purposes. Using the concept of 'worker' rather than 'employee' has already extended employment rights to some of these individuals and trade unions should continue their campaign for the extension of coverage of other employment legislation. In addition, campaigns to establish the economic reality test as the sole relevant test for employment status, and the abolition of special tax arrangements in construction work, would reclassify many as 'employees'. However the issue is not simple to address. Atypical workers, or the 'dependent self employed' covers a wide variety of workers in the UK, only a small minority of whom value the flexibility and benefits offered to them by virtue of not being classed as 'employed' and who want their representative organisations and the government to support the maintenance of their ambiguous status.37 Establish Employee Status 14 References Astbury v Gist Ltd, Unreported (EAT 14/4/05) Baird Textile Holding v Marks & Spencer plc (2002) 1 All ER (Comm) 737 Bridges & ors v Industrial Rubber plc, EAT (2004) - the case of the "Gosport Nine" homeworkers. British Employment Law (2005). Disclaw Publishing. Retrieved: 2 December, 2005 from Bryant v The Foreign and Commonwealth Office (EAT/174/02) Burchell, B, Deakin, S & Honey, S (1999). The employment status of individuals in non- standard employment, Department of Trade and Industry. Burns, E. (2003). An Overview of Employment Law. WSA Guideline Notes. Cable and Wireless plc v Muscat (2005) All ER (D) 412. Carmichael and anor v National Power plc (HL) (1999) ICR 1226, House of Lords. Dacas v Brook Street Bureau (UK) Ltd (2004) IRLR 358. Deakin, S. and Morris, G. (1998) Labour Law, 2nd ed. Butterworths. Douglas v Birmingham City Council & others (2003) All ER (D) 329 (Jul) Employment Rights Act (1996), ISBN 0 10 541896 X. The Stationery Office Limited Employment Relations Act (2004), ISBN 0 10 542404 8. The Stationery Office Limited Express and Echo Publications Ltd v Tanton CA (1999) ICR 693, CA. Freedman, J. (2001). Employed or self-employed Tax classification and the changing labour market, Tax Reform Committee Discussion Paper 1. Institute for Fiscal Studies. Establish Employee Status 15 Greene, A. (2002). UK contribution to EIRO comparative study on economically dependent workers, European Industrial Relations Observatory. Hansard, House of Commons for 27th November 2001 at col 865. Harvey, M. (2001). Undermining construction, London: Institute of Employment Rights. Health and Safety Executive (HSE). (2000). Health and safety in broadcasting and the performing arts. Hellyer Bros. Ltd. v McLeod (1987) ICR 526. Industrial Tribunals Act (1996), ISBN 0 10 541796 3. The Stationery Office Limited Jackson v Ghost Limited and Ghost Inc (2003) IRLR 824 Keene LJ in Bunce v Postworth Lta /a Skyblue (2005) IRLR 557 at 562. Lane v. Shire Roofing Co. (Oxford) Ltd. (1995) IRLR 493, 496 (Henry LJ). Lawson v Serco Limited (EAT/0018/02). Legal Briefings. (2005). "The Legal Executive." Journal of the Institute of Legal Executives. McMeechan v Secretary of State for Employment (1997) IRLR 353 McMullen, J. (2004). "Employment Law Claims Guidelines are Big Mess." Reed Business Information, Ltd. Montgomery v Johnson Underwood Ltd (2001) EWCA Civ 318. Stevedoring and Haulage Services Ltd v Fuller (2001) IRLR 627, CA. TUC (2000). "Fundamental rights: The heart of Europe" - report of UK conference 26, May 2000. TUC (2000c) Working Time Regulations - Congress motion. Read More