who is an employee?

This is an important question, because much of the legal protection we look at in this book relates only to employees. For example, an employee can make a claim for unfair dismissal but someone else who is working in an organisation and who is not an employee cannot make a claim, even if they are dismissed in exactly the same way. Some legislation extends to both employees and those working within an organisation without employment status – discrimination legislation is an example.

There are two alternatives for those that work in an organisation. They can be hired to work under a contract of service (an employee) or under a contract for services (an independent contractor).

Section 230 (1) of the Employment Rights Act 1996 defines an employee as ‘an individual who has entered into or works under a contract of employment’. Section 230 (3) of the same Act states that a worker is ‘an individual who either works under a contract of employment or works under any other contract where that individual agrees to personally perform work or services for another party’. Although these definitions are of some use, they do not tell us exactly who should be given a contract of employment .This is primarily because situations of employment are very varied so that there can be no one clear rule. Where there is any doubt over employee status, it is the responsibility of the courts (usually the employment tribunals) to take each individual case and to apply its judgment. They do this through a mix of using case law and applying a number of tests that have been developed over the years. This task is often carried out in a pre-hearing review – to determine, for example, whether a claim for unfair dismissal can be heard because the respondent is claiming that the claimant was never an employee.

Tests used by the courts to determine an employment relationship have been control tests, organisation tests, ‘ordinary person’ tests, mutual obligations tests, and a combination of tests known accordingly as multiple tests.

Control test

This test originates from a judgment in 1881 in the case of Yemens v Noakes. The judge stated that ‘An employee is subject to the command of his master as to the manner in which he shall do his work.’ The idea was that if a person was being told how to do his work, he was an employee. This is an outdated test for two main reasons. Firstly, we have a much more skilled workforce than nearly 130 years ago, and many employees are expected to work without specific instructions, using their skill and expertise. Secondly, an independent contractor could be told specifically what to do if hired for a specific project (eg a company could hire an electrician to help with a rewiring project, and give very specific tasks).

Organisation test

In Stevenson v MacDonald (1952) 1 TLR 101 the judge, Lord Denning, stated that ‘A person is an employee if that person is an integral part of the business.’ This is of more use than the control test because it overcomes the problem of skilled people having control over their own work. However, it does not help us in the example of the electrician – if the company is carrying out a refurbishment project, completing the rewiring is an important part of the overall process. If there is no other electrician, the person who has been hired could be seen to be an ‘integral part of the business’ (under Lord Denning’s ruling). This does not necessarily mean that he has become an employee.

Ordinary person test

In Collins v Hertfordshire County Council (1947) KB 598 the judge posed the question, ‘Was a contract a contract of employment within the meaning which an ordinary person would give to those words?’ This is also known as the ‘man in the street’ test – in other words, what would ordinary common sense conclude? However, such a simple test does not give us any guidelines over what should be used to determine an employment relationship and what should not. On that basis, the test is of little help.

Mutual obligations test

This test looks at the nature of the relationship between the employer and the person in question, and considers whether there is sufficient mutuality for an employment relationship to exist. There are two levels of mutuality to consider.

Firstly, is there an obligation to provide work (and an obligation to carry out that work)?

Secondly, is there a promise of future work (both a promise to provide it [employer] and a promise to carry it out [employee])? This test definitely helps us to understand the definition of an employee more clearly, but there are still some difficulties. If we go back to our electrician example, he could go on to be hired for a series of future refurbishment projects. Although he has no written contract of employment he starts to assume that he is an employee because there is always work for him, and he always carries it out. The employer then runs out of work for him and simply states he is no longer required. The electrician protests that he is an employee, and hence must be made redundant (see Chapter 9). The employer replies that he has always been an independent contractor, and there has never been an obligation on the employer to provide work for the electrician. It has simply been coincidence that a series of projects followed one after the other. So is the electrician an employee?

The following case helps us to examine this further: ●●

Carmichael v National Power (2000) IRLR 43

In this case Mrs Carmichael and her colleague worked at a power station as visitor guides. The work was part-time. There was some correspondence between the ladies and National Power that the ladies relied on as a contract of employment. The relationship between the ladies and National Power was described as that of a ‘station guide on a casual as-required basis’. National Power argued, therefore, that the work was on a casual basis and that there was no obligation to provide work. On that basis the relationship was not one of employer and employee. It was also noted that on 17 occasions Mrs Carmichael had been unable to work, and her colleague had been unable to work on eight occasions. On none of these occasions had National Power taken any disciplinary action.

The employment tribunal agreed that there was no employment relationship. Eventually, the Court of Appeal overturned this decision. National Power appealed against this decision and the House of Lords found in favour of the employer – so the relationship in this case was not one of employer and employee. The basis for the decision was that the relationship, as described, failed the first stage of the test of mutuality. National Power had no obligation to provide work, and Mrs Carmichael and her colleague had no obligation to work even if there was work available. A decision that seems to contrast with this is that of:

●● Cornwall County Council v Prater (2006) EWCA Civ 102

Prater was a teacher working with children who were unable to attend school. She worked under a series of contracts, with no obligation to take a further contract once one had been completed – and the Council were under no obligation to offer her any future contracts. There were some breaks between contracts, but both parties accepted that they would not be seen to break her continuity of employment if she were found to be an employee. The Court of Appeal held that Prater was working under a series of contracts of employment and that they added together to give her sufficient service to accrue employment rights. They distinguished this case from Carmichael by stating that the Carmichael case was determining whether there was an ‘umbrella’ contract that amounted to employment – rather than focusing on the actual status of Carmichael when she was working. In the case of Prater the focus was on her status when she was actually working, and it was found that this status amounted to employment. The length that the relationship has been in place might also be relevant:

●● Younis v Transglobal Projects (2005) EAT 0504/05 Younis was engaged to generate sales over a three-year period. His engagement was subject to a 60-day notice period. He was paid a small retainer plus commission. He worked for other organisations and there was no contractual obligation on him actually to do any work for Transglobal Projects during his three years. Despite this, the EAT concluded that there was mutuality of obligation – and hence an employment relationship – because the contract had been operating for three years’ duration. These cases further underline that each case is decided by the courts on its individual facts, and that there is a limit to general principles that can be applied.

Multiple test

The experience of using the tests we have examined has shown the courts that it is not possible to focus on one particular aspect of the working relationship and to use that to determine whether or not there is an employment relationship. On that basis, the most commonly used test in the courts today is the multiple test. In using the multiple test the courts look at every aspect of the relationship as described, and use them to determine the nature of that relationship. This is best illustrated in the following case:

●● Ready-Mixed Concrete v Minister of Pensions (1968) ER 433 Ready-Mixed Concrete decided to separate the making of concrete from the delivery of the concrete. It put in place a system of ‘owner-drivers’ – in other words, the delivery men would own their own vehicles and would be self-employed. In determining whether or not the drivers were self-employed the courts looked at a number of aspects of their employment. In favour of the drivers’ being employees was: – they had to wear company uniforms (suggesting a level of control from the employer) – their lorries had to be available for company work at certain hours (an obligation to work) – they could only use the lorries for company business (again, suggesting a level of control) – they had to obey the foreman’s orders (definitely an issue of control) – they could sell the lorries back to the company at an agreed valuation (not typical of an independent relationship). In favour of the drivers’ being self-employed was: – the drivers were responsible for the maintenance and running costs of the lorries (suggesting that the expenses of employment were their own) – the drivers could employ a substitute driver (there was no obligation on the driver to be personally available for work) the drivers could own more than one lorry (suggesting that they could work for more than one employer) – the drivers paid their own tax and NI contributions (an employer typically deducts tax and NI from the employee’s pay). Although there were factors suggesting both types of relationship, the court decided that there were three crucial conditions to meet for a contract of employment to exist: – Did the employee agree to provide his own work and skill? –

Had the employer got some element of control? – There must not be any term inconsistent with a contract of employment. (Inconsistency with a contract of employment could be such things as the employee’s being responsible for payment of his own tax and NI contributions – typically the employer deducts these from the employee’s pay. However, that one point alone would not necessarily be enough to determine employment status.)

The court found that the first two conditions were met. However, the third condition was not met because there were factors inconsistent with a contract of employment, and on that basis the drivers were to be classed as self-employed. The relevant factors are those listed above as being in favour of the drivers’ being self-employed.

In determining the nature of a working relationship in the courts today those three crucial conditions are usually addressed, and the decision is made based on the answer to them. Even if you think that the courts have not arrived at a satisfactory solution to determining who is an employee, it is important to consider whether the solution that is in place is fair to both the employer and the employee. It is unlikely that there can ever be a clear-cut test that gives an objective formula to determine employment status. This is because all employment relationships differ in some way. This becomes increasingly true as we see a wider use of atypical contracts – which we look at in the next chapter. Because we have an increasingly flexible workforce, we have increasing variations on employment relationships. Although, therefore, we might conclude that there never will be a perfect solution to this dilemma, we must not underestimate the importance of the decisions made. An employee has a wide range of rights, which a non-employee simply does not have. It is often advantageous to be classified as an employee. However, we must remember that an employee also has a wide list of duties to the employer, and not everyone might want to be bound by these duties.