Why getting employment status right matters

22 Feb 2018 By Simon Whitehead

In the week the Pimlico Plumbers worker status case appeared before the Supreme Court, Simon Whitehead explains the current situation and provides tips for employers

Until recently, recruiters knew broadly where they stood: people they engaged were either employees, self-employed contractors or, latterly, ‘workers’. Now, in this gig-economy-flexible-working world, things are decidedly murkier. 

Recent cases have challenged where the line between worker and contractor should be drawn.

A flurry of tribunal and court decisions have each found that some ‘self-employed contractors’ may be ‘workers’ for employment law purposes, even if they retain their self-employed status for tax purposes.

In the much-discussed Uber drivers’ case, the Central London Employment Tribunal decided that two drivers were workers, at least whenever they had Uber’s app switched on. 

Uber had maintained – and still does – that the drivers were self-employed contractors. The drivers disagreed. On appeal, the Employment Appeal Tribunal agreed that the drivers were workers (gaps when their apps were switched off did not negate this). The case is due to be heard by the Court of Appeal later this year.

In other key decisions, bike couriers (CitySprint, Excel and Addison Lee cases) and Addison Lee drivers have each been found to be workers rather than self-employed contractors, as was the plumber by the Court of Appeal in the Pimlico Plumbers case, which is currently before the Supreme Court. 

Distinction between worker and contractor 

The distinction between worker and contractor is financially important. ’Workers’ are entitled to basic rights including holiday pay and the national living or minimum wage. Self-employed contractors are not.

Had the contractors sought and achieved the even higher threshold of employee status, they would have been entitled to further rights and protections. The contractors in those recent cases weren’t on that higher borderline, but new cases, of course, bring their own facts.

Employee rights include the right to claim for unfair dismissal and the protection of TUPE. Now that the barrier of employment tribunal fees has been removed, workers may seek to challenge the line between ‘worker’ and ‘employee’ status too. Time will tell whether we start to see cases fought at the edge of the worker and employee delineation.

All of the above is just the employment law situation. If we were to add tax law to the mix, the waters would get muddier still.

The Taylor review of modern working practices favoured retention of the three-tiered – employee, worker, self-employed contractor – approach, though it found the word ‘worker’ confusing (employees and self-employed contractors work too, after all!). It proposed that those with worker status should be reclassified as ‘dependent contractors’, and urged the government to identify a clearer distinction between an employee and a ‘dependent contractor’. 

The review went further, despite its scope, suggesting that the distinctions drawn in tax and employment law should be aligned. The government recently responded to the review, promising to introduce new safeguards for workers and consult on a number of recommendations. 

Key considerations for businesses

In the meantime, if you engage people to work for you, you should think carefully about their status (if you don’t, they might). Understand what is happening on the ground and then look at the paperwork.  Make sure the paperwork and the reality tell the same story. Saying that someone is one thing when they are clearly another is grit for the conflict mill. Such legal trickery won’t wash with the courts.

Does the contract clearly define the worker’s status; for example, are they employed, a worker or self-employed? Don’t be afraid to set this out, but do be honest about what the status is in practical terms. 

Are the terms clear and user-friendly? Do they make objective sense? Is there clear guidance on how the worker will report for work, and account for the time spent working under the contract? Do the terms set out how tax and national insurance will be dealt with?

Overall, do you feel confident that the terms accurately reflect the true relationship with the worker? And, importantly, do you know what this status means for each of you? If you don’t, it’s worth speaking to someone who does.

Simon Whitehead is a partner at HRC Law

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