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Law for Business

Knowhow - guidance - precedents

14 JUL 2014

Employment status - Employees, Workers or Self-Employed Consultants

Pam Loch

Managing Partner

@LochLaw

Employment status - Employees, Workers or Self-Employed Consultants
Employment status has always been a thorny issue. During recessions, we have seen an increase in the flexibility and diversity of relationships and practices in the workplace and a greater confusion as to what a person’s status is. So what are the differences between them?

What is an employee?

An employee is defined by section 230(1) Employment Rights Act 1996 as:

“an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment".


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What is a worker?

A worker is defined by section 230(3) Employment Rights Act 1996 as:

“an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment or 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 contract that of a client or customer of any profession or business undertaking carried on by the individual”.

What is a self-employed consultant?

Consultants are genuinely self-employed and are neither employees nor workers. A consultant may provide services to an organisation as an individual or through a company, in which case the consultant will be a corporate entity.

Why does the status of an individual matter?

The employment status of an individual is important for a number of reasons such as the legal obligations each party has to the other, the level of legal protection given and the way in which an individual is treated for tax and social security purposes.

However the recent case of Clyde & Co LLP and another v Bates van Winkelhof (2012) demonstrates how difficult this area still is for the Courts.

In this case, the Tribunal was asked to determine whether a member of the Limited Liability Partnership (LLP) was a worker and therefore entitled to pursue her claims for whistleblowing and sex discrimination. The Tribunal decided she was not a worker and therefore it was not able to consider her whistleblowing claim. However they could consider her discrimination claim under the Equality Act 2010 as this had a wider applicability to self-employed persons. She appealed the decision and the Employment Appeals Tribunal (EAT) held that she was in fact a worker and could pursue her whistleblowing claim as well. Clyde and Co later appealed and the Court of Appeal returned to the original decision which was that she was not a worker.

However, a further appeal was lodged and the Supreme Court concluded in May 2014 that a member of a LLP has worker status and is therefore able to pursue her whistleblowing claim. Given the difficulty the Courts continue to have in this complex area and in order to reduce the risk of an individual’s status being challenged by the Courts or HMRC, it is crucial that businesses engaging individuals in any capacity make it clear at the outset what the nature of the working relationship is and what rights and obligations both parties have.
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