In a recent case decided by the Employment Appeal Tribunal the question of whether a ‘Worker’ was entitled to receive payment for holiday.
The Employment Rights Act 1996 and the Working Time Regulations 1998 define a worker as someone who has entered into or works under;
1) A Contract of Employment; or
2) 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.
To establish if someone is a Worker the essential questions that need to be asked are:
- Is there a mutuality of obligations?
- Is the person required to do the work personally?
- Is the individual providing their service as a business?
The concept of a Worker has only developed fairly recently in employment law terms and essentially creates a class of person who has some limited employment rights. They do not meet the full requirements of an employee, but are not providing their services as a business, and therefore qualify for some rights.
Two rights that a Worker has are the right to receive holiday pay (Working Time Regulations) and the right not to suffer unlawful deductions from their wages (Employment Rights Act).
Mr Holden was employed by Plastering Contractors Stanmore Ltd (PCS) as a general labourer from April 1997.
In February 2001 Mr Holden agreed to accept £200 from PCS in return for agreeing to become a sub-contractor. PCS then made the relevant payments to HMRC under the construction industry scheme and Mr Holden sought advice from an accountant to deal with his personal tax.
Mr Holden was notified by PCS as and when they needed him to work for them. He would accept the work, although was not required to do so and PCS had no obligation to provide him with work. The reality was that he actually worked exclusively for PCS and on a regular basis.
PCS provided him with instructions, supervision and equipment whilst he was working.
When the phone calls from PCS started to dry up Mr Holden became frustrated with PCS and he obtained work with another company. He also made a claim in the Employment Tribunal for unpaid holiday pay and unlawful deductions from wages for their continuing failure to pay holiday.
PCS argued that Mr Holden was not a worker and therefore not entitled to payment for holiday.
At the Employment Tribunal the Judge agreed with Mr Holden and PCS appealed the decision.
The Employment Appeal Tribunal considered all of the elements that make up a Worker.
- Mutuality of obligations
It was decided that although there was no mutuality of obligations between assignments each time Mr Holden carried out work for PCS there was mutuality of obligations.
- The use of substitutes
The Employment Appeal Tribunal concluded that once a contract was found to exist with mutual obligations, the focus would move to the nature of those obligations. The reality was there had never been any discussion between Mr Holden and PCS about substituting his service with someone else and there had never been a time when Mr Holden did not provide service personally.
Mr Holden was clearly under the control and supervision of PCS when he was working for them.
As a result of reviewing and applying the tests above it was decided that Mr Holden was a worker and PCS appeal was dismissed.
The case returned to the Employment Tribunal to decide Mr Holden’s claim for holiday pay.
This case is a helpful reminder to Employers to ensure that you have the correct ‘legal label’ for your staff. Paying an employee to change their legal status and making a couple of changes to how you term things will not be sufficient to absolve you from your employment obligations.
The implications of getting it wrong can be costly and it is therefore advisable, if you have any sub-contractors, consultants or self-employed persons carrying out work for you to review their status.
If you are interested in reading the full judgement you can find it here Plastering Contractors Stanmore Ltd v Holden
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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.
The guidance should not be relied upon in any decision making process.
It is strongly recommended that you seek advice before taking action.