Worker or self-employed?

The question of what constitutes a “worker” was addressed again in a recent Employment Appeal Tribunal case*.

What is the significance of the worker category?

Classification as a worker gives the individual more employment rights than being self employed.

Workers are protected against unlawful deductions from wages,  by the Working time legislation which prescribes maximum weekly working time, daily and weekly rest requirements and have a right to paid holiday.

Businesses who hire staff on a self employed basis and don’t provide their staff with paid holidays run the risk of a claim from former or existing staff that their status is that of “worker” and they are entitled to paid holiday.

In this case the Claimant was a self-employed sub-contractor working almost exclusively for a company. There was no obligation on him to accept work when offered and no obligation on the company to offer him work. He claimed he was a “worker” and entitled to holiday pay.  He had been working with the company for 16 years, they regularly offered him work and expected him to turn up and work during working hours.   He wore the company’s work clothes and drove its vehicles.

The Employment Appeal Tribunal said there were three questions to ask in this situation:

  1. Was there a contract at all?
  2. Did the contract require the individual perform the services personally? If he was entitled to provide a substitute, that would be an important, but not decisive, factor.
  3. Was he was carrying on a business and was the Company a client of that business. This involved considering the level of control the Company had over the individual, whether he was integrated into the business and whether he marketed his services to others.

In this case they concluded that there was a contract, that it was for the services to be provided personally and that the Company was not a client of a business carried out by the Claimant, they decided that he was a worker.

Practical Implications

When engaging staff on a self employed basis, companies should consider carefully their requirements for the staff and their real status.  Failing to correctly identify a worker risks a future claim for arrears of holiday pay.

If you believe a self employed contractor will not count as a worker,  ensure there is a professionally drafted contract defining the relationship showing that the status of the contractor and demonstrating that they do not have “worker” status.

*Plastering Contractors Stanmore v Holden

Increase in National Minimum Wage

From Wednesday 1 October the National Minimum Wage (NMW) will increase.

The new rates are

  • The adult rate, for workers aged 21 and over, will increase by 3% to £6.50 an hour (up 19p from £6.31).
  • The youth development rate (for workers aged between 18 and 20) will increase by 2% to £5.13 an hour (up 10p from £5.03).
  • The young workers rate (for workers aged under 18 but above the compulsory school age who are not apprentices) will rise by 2% to £3.79 an hour (up 7p from £3.72).
  • The rate for apprentices will rise by 2% to £2.73 an hour (up 5p from £2.68).

The NMW is enforced by HMRC.  The penalties for non-payment were increased earlier this year.  An employer who has failed to pay NMW for a period after 7 March 2014 can be fined up to £20,000.  They may also face a claim for the unpaid wages from their employees.

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From 1st October eligible employees or agency workers will be entitled to to take unpaid time off work (up to 6 ½ hours in one day) on up to 2 occasions in a pregnancy during working hours in order to accompany a pregnant woman when she attends an appointment for ante-natal care.

To be eligible the employee must be the husband or civil partner, or long-term cohabitee of the pregnant woman, or the father of the expected child.

Employers can insist on a document (including e-mail) that confirms the relationship with the pregnant woman, shows that the purpose of the time off is to attend an antenatal appointment and that the appointment has been made on the advice of a doctor, midwife or nurse and the date and time of the appointment.  Employers may also refuse the time off where it is reasonable to do so.  There is no guidance on what is reasonable

If someone is refused time off, the employee can make a claim to an Employment Tribunal and the Tribunal will award compensation equivalent to twice the pay they would receive for the equivalent amount of time they requested as time off.

Dismissing an employee  for seeking to exercise this right will be automatically unfair. It is also unlawful to subject them to a detriment.

Partners of pregnant women: right to time off for ante-natal appointments

Zero-Hours Contracts: Exclusivity restrictions on workers banned

To update my blog last week, Vince Cable this morning confirmed that employers are to be banned from placing restrictions on workers on zero hour workers from seeking additional work elsewhere.

It is estimated that employees on zero-hour contracts account for about 2% of the UK’s workforce. Cable stated that zero-hour contracts do have a place in the labour market, despite calls for contracts of this nature to be banned completely, but that they need restrictions which stop workers from being abused.

Despite the government plans to address the issue of zero-hour contracts, there are still concerns surrounding them as a whole. Even if workers can seek income elsewhere, they are still by no means guaranteed work and still face uncertainty regarding their income. For some employers and employees though this is the very benefit of the arrangement. Students and others with other flexible commitments view the arrangements as a chance to work when they are available. On that level it can be a valuable means of getting experience in the labour market whilst employers can access additional workers when they need them.

There are still calls for zero-hour contracts to guarantee a minimum number of hours for workers but I’m not sure that is of benefit to all potential workers never mind employers. However, these reforms do not address the issues surrounding employers favouring workers or more frequently not giving work to those perceived as ‘rocking the boat’ when they raise what might be a relatively minor issues.

However, the changes do start to address the difference in power balance between employers and employees, allowing workers and employers flexibility. Ultimately I suspect the other main factor that will address that power balance is an improvement in the economy. If only those workers who want the flexibility of a zero hours contract work on that basis the issue becomes irrelevant.

All employees now able to seek flexible working

The right to request flexible working will extend to all employees who have been employed for 26 weeks from 30 June.

The right was initially introduced for parents with children under 6 or those with disabled children in 2003. Over the years the qualifying conditions have widened. From 30 June the eligibility criteria is broadened to all employees with 26 weeks employment.

To make a request an employee must apply in writing, specifying the date of the application, stating that the application is made under the statutory procedure, the change that they seek when they want it to apply, the effect they think it may have on the employer and how that could be dealt with and whether they have applied before and if so, when.

The employer must deal with the request in a reasonable manner,
notify the employee of its decision within the decision period (usually three months) and only refuse a request if there are grounds to do so.

The grounds on which a request may be refused are the burden of additional costs, a detrimental effect on ability to meet customer demand, inability to reorganise work among existing staff, inability to recruit additional staff, detrimental impact on quality, detrimental impact on performance, insufficiency of work during the periods the employee proposes to work or planned structural changes.

There is a new ACAS Code of Practice on Handling Requests to work flexibly in a reasonable manner and a Guide for Employers.

Remedies for breach remain much the same. An employee may bring a claim on the basis that their employer did not deal with their application in a reasonable manner, did not notify them of the decision on their application within the decision period, rejected the application for a reason other than one of the statutory grounds, made the decision to reject the application based on incorrect facts or wrongly treated the application as withdrawn. In such cases the employment tribunal will review the procedure and decision making process followed by the employer. What they will not do is question the employer’s commercial decision making or substitute their own view of the situation for that of the employer. It is also possible that the decision may be discriminatory. Claims must be brought within 3 months and are subject to the ACAS early conciliation process.

Key points for employers: as an employer you should be able to demonstrate that you have followed the statutory requirements, avoid raising ‘technical’ points about employees’ requests, be able to show that you have seriously considered the request ideally from a perspective as wanting to accommodate employees rather than not wanting to and that you have considered alternatives perhaps not suggested by the employee. Consistency with other decisions can also be important. Finally as with many decisions a good explanation of the decision and the reasons for the decision should be given and, as always, keep records!

Abuse of zero hours contracts

In the Queen’s speech on 4 June the Government announced their intention to introduce measures to crack down on abuse of zero hours contracts. No detail is included as to what is meant by abuse. The subsequent commentary has referred to the exclusivity provisions often included in such contracts and indeed that does seem to be an abuse. However more frequently employees on zero hours contracts believe that if they raise an issue or concern or are unable to work some hours offered to them the consequence will be that there will then no longer be any hours for them.  Employers on the other hand often think it will be a panacea for some of the issues employing staff creates and it does suit some but it can lead to transitory less engaged staff.  Like everything, I suspect they have a place but the recent enthusiasm for such contracts may turn out to have been misplaced in a more buoyant economy.  In this blog I identify some of the legal issues such contracts raise.

What is the current legal position on zero-hours contracts?

There is no legal definition. It is usually thought to mean a contract of employment under which the employee has no set hours and is paid only for the hours worked. At its root is the agreement that there is no obligation on the employer to provide work. This in itself creates a number of legal issues.

Legal issues on zero hours contracts

  • The employment status of the individual is unclear – are they an employee, a worker or self-employed.  In employment the  status of the individual dictates their legal rights.  This lack of clarity creates confusion.
  • As with all contracts in assessing employment status a tribunal look not just at the contract but at what is happening in practice.  A relationship that starts as a zero hours contract may, over time, evolve into something different.
  • Such workers still have rights under the Equality Act indeed the profile of the zero hours workforce may be indirectly discriminatory and lead to claims by part-time workers, one gender or one age group

The reality of zero hours contracts is that the individual’s legal rights will depend on their status and the duration of the relationship and what is agreed in the contract.    They have created an uncertainty of employment for many who work under them.  However the question really is whether that is a consequence of zero hours contracts or a consequence of the raft of changes to employment rights that have been introduced in recent years.  I will blog separately about the rights of workers and employees with no qualifying period of employment, the rights available to employees regardless of their length of employment and the rights employees accrue as their employment continues.


World Cup Fever

I’m not a huge football fan (some may say unsurprisingly) so I find the flurry of articles on dealing with the employment issues raised by World Cup fever bemusing.  Nevertheless ACAS have produced some useful guidance on how coping with some of the issues that employers may face during the World Cup such as all staff wanting leave for the matches, what to do if you are suspicious about sickness absence on match days and unauthorised use of social media or websites to view or discuss matches and possibly dealing with issues around alcohol.  You can find the advice here  World Cup advice and guidance  Acas –  via @acasorguk

I’m just pondering if this is dicriminatory… no such advice is produced or flexibility is advised for the World Netball Chamionships #netballrocks

Holiday Pay: are your payments right?

As the holiday season approaches many employers may be considering how to calculate their employees’ and workers’ holiday pay. Often employees and workers whose pay includes commission, bonuses or regular overtime are paid holiday pay based on basic salary. A series of court decisions and pending cases, most recently concerning commission, suggest that this is the wrong approach.

The Working Time Directive on which the entitlement to holiday pay is based provides that employees to should be paid their ‘normal remuneration’ when on holiday.

In a decision last month the ECJ confirmed that where an employee or worker is paid contractual commission, that commssion must be taken into account when calculating holiday pay. The question of how it should be calculated will be dealt with by the employment tribunals but broadly the expectation is that it will be assessed by reference to average commission earned probably over a 12 month reference period or possibly a 12 week period.

On overtime, employers have followed a 2010 decision which held that holiday pay should be calculated by reference to contracted hours only and overtime disregarded. This has meant that often employees have contracts that provide for working say 16 hours a week but they usually work 30 hours but get holiday pay based on the 16 contracted hours. Two recent casers challenge that as being contrary to the Working Time Directive. It is expected that the decision will be that where workers regularly work overtime holiday pay should be calculated to include those payments as they are part of ‘normal remuneration’.

When calculating holiday pay therefore employers may wish to consider looking at the employees normal pay over the preceding 12 months and making a payment calculated on that basis.

Financial penalties for employers losing tribunal cases

From April tribunals will have the power to order an employer who loses at tribunal to pay a financial penalty of up to £5,000. The payment is in addition to any compensation paid to the employee and can be ordered if the employer’s conduct has ‘aggravating features’ even in circumstances where an award is not made to the claimant.

What amounts to aggravating features has not been explained. I had a case recently where the tribunal came to the conclusion that the employer had made alterations to documents used in a grievance procedure after the documents had been signed and agreed by both parties. You would hope those were aggravating features. Even if they were though the claimant would not have benefitted the penalty is to be paid to the Exchequer.

The amount of the penalty can be from £100 to £5000 and is decided by the tribunal who are required to take into account any factors it considers relevant including the circumstances of the case and the employer’s circumstances. Furthermore an employer who pays quickly (within 21 Days) can reduce their liability by 50%.

This increase in an employer’s potential liabilities following a tribunal decision must be a further factor for employer’s to consider both at the new early conciliation stage or throughout any claim.

Abolition of government support for SSP

Another change effective from 6 April is the withdrawal of government funding for Statutory Sick Pay (SSP). The amount of SSP increased to £87.55 per week for employees above the Lower Earnings Limit with effect from April.

The Percentage Threshold Scheme which enabled employers to reclaim SSP, where the total SSP paid in a month exceeded 13% of the employer’s Class 1 National Insurance Contributions for that month is abolished from 6 April. The government maintains the subsidy acts as a deterrent to stop employers addressing long term sickness issues but all the research and commentators have drawn attention to the burden this will place on very small businesses.

For a small business with an employee off for 12 weeks the cost of the absence is just over £1000. Many suggest that the impact is likely to increase outsourcing and the use of agency workers. It may also lead to employers being forced to dismiss employees on ill-health grounds sooner than they may otherwise have done. If an employer is able to say that the effect of having to pay the SSP affects the finacial stability of the business, it seems to me that dismissal could be a reasonable decision.


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