Determining Employee Status Tests and Case Law 

Employment Status Meaning

Statutes offer various rights and safeguards to working people, depending on their specific circumstances. Before providing advice about an individual's employment rights, it is necessary, as a result, to ascertain the status of the person working under a contract. There are three different outcomes that may occur.

Employee

Statutory employment rights are aimed at protecting working individuals who are most closely connected to and dependent on their employer. Most working people fall into this category and are called “employees”. Employees benefit from all statutory employment protection. Section 230(1) ERA defines an employee as “an individual who…works under…a contract of employment”.

Worker

There is a second category of working individual called “worker”. Workers are similar to employees but tend to be less connected to their employer and may work on a more casual basis. Workers benefit from most statutory protection but not all.  Section 230(3) ERA defines a worker as “an individual who has entered into works under:

a)    a contract of employment; or

b) any other contract whether express or implied (and if it is express) whether oral or in writing whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contact that of a client or customer of any profession or business undertaking carried on by the individual.”

Self-employed

There are some working individuals who are in business on their own account and work for themselves.  They provide services to their clients and customers but do not work for them in the same sense as employees or workers. As a result, they do not benefit from most of the statutory protection.

Distinguishing categories

In most cases it is clear which category an individual belongs to.  There are however some individuals who are difficult to categorise because the employment arrangement they are in is mixed in character.  Where this happens, lawyers and employment tribunals are forced to look beyond the statutory definition and turn to the tests which have been laid down by case law.

For example, to determine whether an individual is an employee the starting point is to refer to s.230 ERA. If this does not resolve the matter one must turn to case law.

Irreducible minimum

From the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and NI [1968] 1 All ER 433, the following characteristics (or “tests”) must be present for an individual to be categorised as an employee:

• Personal service

• Control

• Other provisions that are consistent with a contract of service

• Mutuality of obligation

The correct way to identify the existence of a contract of service is to consider the above tests, other factors and the overall picture.

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The Employment Status Tests

Employment status is a critical legal distinction in England and Wales, categorising individuals as employees, workers, or self-employed for employment rights purposes. The primary reason for this distinction is that it determines the specific employment rights an individual possesses and the corresponding obligations of the "employer". Historically, significant discussion and commentary have not always led to meaningful change in this area, but reforms are continually proposed.

Determining Employment Status

For employment rights, an individual's status (employee, worker, or self-employed) is not always straightforward to determine. Case law has extensively developed tests for this, and each case is decided on its unique facts, which can lead to a degree of unpredictability. Ultimately, only an employment tribunal can make a final determination of employment status for employment rights purposes.

The Multiple Test and Irreducible Minimum

The existence of a contract of service (which defines an employee) is determined by considering a number of factors, known as the "multiple" or "mixed" test. A foundational aspect of this is the "Ready Mixed Concrete" decision, which identified key tests for a contract of service: an agreement for personal service in return for remuneration, a sufficient degree of control, and consistency with other contract provisions. The Supreme Court in Autoclenz confirmed the continuing relevance of this multiple test, calling it "the classic description of a contract of employment".

Following Ready Mixed Concrete, three areas have become central to determining an employment relationship, often referred to as the "irreducible minimum": personal service and substitution rights, control, and mutuality of obligation. If any one of these three core areas is not established, it can be fatal to a finding of an employment contract, though this is not an incontrovertible rule, as all relevant factors must be considered.

Personal Service and Substitution Rights

Generally, an employee (and worker) must provide personal service, whereas a self-employed individual would typically have the right to provide a substitute or subcontract work. However, a limited or occasional power of delegation may not be inconsistent with employment status. Case law extensively examines whether a substitution clause is sufficient to negate personal service and, if so, the extent to which it operates.

Case Law Insights

The Supreme Court in Autoclenz allowed tribunals to disregard written clauses that do not reflect the true terms of the contract, even if they include substitution clauses. The Pimlico Plumbers case established principles: an unfettered right to substitute is inconsistent with personal service, while a conditional right (e.g., only when unable to work, or with the absolute consent of another) may be consistent. A right limited only by the substitute being "as qualified" is more likely to be inconsistent. The EAT in Sejpal v Rodericks Dental Ltd reiterated that an unfettered right to substitution is fatal to a claim, but clarified that limitations (e.g., regulatory requirements or the employer's express acceptance) can mean the right is not unfettered, and the predominant purpose can still be personal service. The Supreme Court in Independent Workers Union of Great Britain v Central Arbitration Committee found that Deliveroo riders' virtually unfettered right to appoint substitutes was inconsistent with an obligation to provide personal service, which was essential for an employment relationship for trade union freedom rights.

Control

Control involves the power to dictate "the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done". A sufficient degree of control is part of the irreducible minimum. Employers commonly dictate contractual terms, have disciplinary powers, and manage relationships. However, for senior or skilled roles, control often focuses on the right to direct what is done, rather than precisely how.

Case Law Insights

The EAT in White v Troutbeck SA clarified that the question of control is about the contractual right of control, not necessarily day-to-day supervision. Many employees, particularly skilled professionals, have significant autonomy. Self-employed individuals typically have greater freedom in their working methods, hours, and independence from employer controls.

Mutuality of Obligation

Mutuality of obligation refers to the employer's duty to provide work (and pay) and the individual's duty to accept and perform that work. This factor is crucial because it determines whether a contract exists at all.

Case Law Insights

If there is a high degree of control, but no mutuality of obligation, it can prevent a finding of employee status. The Carmichael v National Power case highlighted that a framework for "ad hoc contracts" without a promise to offer work or an agreement to do it does not create mutuality of obligation. The Supreme Court in Revenue and Customs Commissioners v Professional Game Match Officials Ltd held that the ability to cancel a contract without penalty does not negate mutuality of obligation if a mutual obligation existed from the point of accepting an engagement. The EAT in Somerville clarified that there is no "irreducible minimum of obligation" in the sense of offering and accepting a minimum amount of work to establish worker status, but mutuality is still necessary for a contract to exist. The EAT in Sejpal further affirmed that if a clear contract exists, the concept of an "irreducible minimum" of mutual obligation may not add much.

Other Factors

Beyond the "irreducible minimum," tribunals must consider all elements of a contract and all circumstances of the relationship to determine its true nature. The "economic reality" test from Market Investigations Ltd v Minister of Social Security asks whether the individual performs services as a person in business on their own account; if so, it points away from employment. Relevant factors in this assessment can include:

Pay and Financial Risk

Individuals bearing the financial risk or paid per job/commission only, or setting their own rates, are more likely to be independent contractors. Not receiving pay does not automatically preclude employee status if a notional or implied right to pay exists.

Integration into Business

Performing work similar to employees, having line management responsibilities, being included in disciplinary/grievance procedures, benefit schemes, company email, and social events can indicate employee status.

Other Activities

Freedom to work for other employers and doing so can indicate self-employment, though multiple part-time employments are possible.

Description Applied by the Parties and their Intentions

While the parties' description of their relationship is relevant, it is not decisive if it does not reflect the reality of the situation. Courts can look behind labels, especially where there's unequal bargaining power.

Nature and Length of Engagement

Permanent or long-term engagements are more likely to signal employment than short-term tasks or projects.

Benefits and Insurance

Inclusion in employer benefit schemes (share options, health insurance, bonuses) suggests employment, particularly if these benefits are exclusive to employees. Payment of statutory sick pay or statutory maternity pay does not necessarily indicate employment, as "employed earners" are entitled to SSP. Entitlement to holiday pay is not determinative, as workers also have this right.

Facilities and Equipment

The employer provides equipment points to employment, whereas the individual provides their own equipment, suggesting self-employment.

Taxation

If the employer operates PAYE and the individual is not responsible for their own tax and NICs, it indicates employment. Conversely, self-employed individuals are responsible for their own tax and NICs. However, employment status for tax and employment law purposes is similar but not identical, and HMRC's opinion is not binding on an employment tribunal.

Relevance of the Contract and "Sham" Contracts

Courts and tribunals can look beyond the written terms of a contract to determine the true agreement between the parties. The Supreme Court in Autoclenz Ltd v Belcher accepted that employment contracts are an exception to ordinary contractual principles due to the often unequal bargaining power, where employers largely dictate terms. In Uber BV v Aslam, the Supreme Court broadened this, stating that employment status is a matter of statutory interpretation, not just contractual interpretation, and the written contract should not even be the starting point for analysis, especially if terms seek to thwart statutory protections. The EAT in Ter-Berg v Simply Smile Manor House Ltd clarified that Uber does not mean written terms are irrelevant in every case; they are potentially relevant but not necessarily determinative, and tribunals must adopt a purposive approach.

A contract can be deemed a "sham" if it obscures the true nature of the relationship, often when an individual wishes to argue they are an employee or worker despite a self-employed contractor agreement. The test for a sham is context-sensitive and does not always require a common intention to mislead third parties, especially given unequal bargaining power.

Why Employment Status Matters

The distinction between employees, workers, and the self-employed is significant due to the differing rights and obligations.

Employees

Employees have the highest level of protection, including rights against unfair dismissal and statutory redundancy pay. They are also covered by the Acas Code of Practice on Disciplinary and Grievance Procedures and are automatically transferred under TUPE regulations.

Workers

Workers are not full employees but are entitled to some protections, such as working time regulations and the national minimum wage.

Self-employed independent contractor

Self-employed independent contractors generally have the fewest statutory employment rights, as they are considered to be running their own business.

Other Implications

Employment status also affects implied contractual obligations, vicarious liability of the employer, employer's liability insurance, health and safety duties, and data protection obligations under the UK GDPR.

Reform of Employment Status

The current framework for employment status has been subject to various reviews due to its complexity and perceived inadequacy for modern working models, particularly in the "gig economy".

Conservative Government (2018-2022)

Following the Taylor Review of Modern Working Practices, the government published the Good Work Plan in 2018, intending to legislate for clearer employment status tests but without detail. In July 2022, it decided against legislative changes but published non-statutory guidance for clarity.

Labour Government

The Labour government has committed to moving towards a single "worker" status, creating a simpler two-part framework distinguishing between workers and the genuinely self-employed. This is anticipated to be a major undertaking due to its impact on a plethora of statutory employment rights, with reforms likely to take considerable time to implement, possibly no earlier than 2026. A consultation on employment status is scheduled to be published by the end of 2025.