Determining an Individuals Employment Status | Consensus HR – Herts, Beds
Plastic Omnium Automotive Ltd v Horton – Employment status: Legal test:
Summary:
When determining an individual’s employment status, it is always important to return to the tests set down in the law as shown in Plastic Omnium Automotive Ltd v Horton.
Law:
Employment status has been the subject of much debate over the years, and a number of significant cases have been brought in an effort to determine where the line lies when it comes to employees, workers, and those not in an employment relationship.
The legal definition of the various status’ can be found in the Employment Rights Act 1996 (ERA 1996). Section 230. Under this, an “employee” means an individual who has entered into or works under a contract of employment.
A “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.
The worker relationship has a number of key characteristics, including the lack of mutuality of obligation between the worker and the employer, and the need to perform the services personally. As a worker, an individual does enjoy some basic employment rights such as statutory sick pay, minimum wage and the right to take paid holiday. The legal test to be applied is as follows:
- Has the individual entered into a contract to personally perform work or services for another party to the contract? If not, they cannot be a worker.
- Is the other party to the contract a client or customer of the individual’s business? Again, if they are then the individual is not worker.
Facts:
The claimant was engaged through a service company to provide services to the respondent. Along with another, the claimant was a shareholder of the service company from which they drew salary and dividends.
The service company and the respondent had in place a written contract. Under that contract, the claimant could not provide a substitute in his place although in reality, this happened for some time. The contract also clearly stated that there was no employment contract in place and the claimant was not entitled to holiday or sick pay. However, the daily fee charged by the service company for the services of the claimant included a sum in respect of holiday.
Under the arrangements the respondent provided the claimant with the IT equipment needed to perform his role, a company email address and an office access card. He also reported into one of the respondent’s directors, was required to work set hours and attend training provided by the respondent. In essence, the claimant was treated the same as any other employee of the respondent, other than that he was not subject to the appraisal or disciplinary process. He was required to sign in and out of buildings, as did employees of the respondent, and requested leave in the same way as employees.
An issue arose between the claimant and the respondent. The claimant brought a claim before an employment tribunal that he was an employee, or a worker, and that the respondent had unlawfully deducted his wages by failing to pay him.
Employment Tribunal (ET):
The ET held that whilst not an employee, he was a worker because he was integrated into the respondent’s business and the relationship between the claimant and the respondent operated with the claimant in a subordinate position. The respondent provided the claimant with IT equipment, an email address and he was required to work regular hours and report to one of the respondent’s directors.
The claimant was awarded £28,500 in unlawfully deducted wages.
Employment Appeal Tribunal (EAT):
On appeal the EAT disagreed and found that he was neither an employee nor a worker. There was no contract between the claimant and the respondent, so he did not satisfy the first part of the test for worker status which would have required the claimant to have entered into a contract personally with the respondent. The contract in place was between the service company and the respondent and it was reflective of the working relationship between the claimant and the respondent. Also, whilst the claimant was well integrated to the respondent’s company, the EAT found that this did not mean that the other factors should be ignored.
As a result, the appeal was allowed and the EAT concluded that in this case there was no employment status.
Note for employers:
This case is a reminder of the need to always return to the legal test when determining questions of status. The context of this case along with numerous factors could be argued to indicate some form of employment status. So much of the day-to-day operation of the work performed by the claimant for the respondent was similar, even identical to that of the respondent’s own employees. But in returning to the legal test applied to questions of status, i.e. has the individual entered into a contract under which they undertake to personally perform work or services for another party to the contract, and is the other party a client or customer of the individual’s business – it is clear that employment was not at the heart of this contract.
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