Chapter 16: Individual employment rights (1): the contract of employment

Prior to the 1970s, the traditional approach in the UK to industrial relations and employment law was non-interventionist. A change to this legal abstentionism came about during the office of the Labour government 1974–79, which resulted in the enactment of a statutory floor of employment rights as part of the ‘Social Contract’, for example, the Employment Protection (Consolidation) Act 1978, the Sex Discrimination Act 1975, the Race Relations Act 1976 and the Health and Safety at Work etc. Act 1974.

The law relating to individual employment rights has undergone numerous changes over the past four decades, either in the form of statutory regulation or through the interpretation of the law by the Employment Tribunals (formerly Industrial Tribunals) or courts. In the past few decades, the policy has been one of deregulation, which has led to some abuse of individual employment rights by employers, clearly illustrated by the reduction in state support for collective bargaining and trade union rights. However, the impact of EC law has halted the deregulation progress, particularly in the fields of discrimination and maternity rights and transfer of undertakings. A further halt was called for in the Labour government’s White Paper on Fairness at Work (Cm No 3968, 1998), in which the Prime Minister stated that the White Paper:

steers a way between the absence of minimum standards of protection at the workplace and a return to the laws of the past. It is based on the rights of the individual, whether exercised on their own or with others, as a matter of their choice. It matches rights and responsibilities. It seeks to draw a line under the issue of industrial relations law.

• provisions for the basic fair treatment of employees;

• new procedures for collective representation at work; and

• policies that enhance family life, while making it easier for people – both men and women – to go to work.

When considering individual employment rights, it must be borne in mind that the legislation was originally drafted to protect full-time, rather than part-time, employees. As a result, thousands of workers did not qualify for employment protection on the basis that they were either self-employed or worked part time, even though the trend in working patterns shows that there has been an increase in these groups of workers.

For example, a recent report from the Office of National Statistics showed that the number of people working part-time hours rose by 86,000, more than the previous year (2016), reaching 8.55 million. This compared to 23.25 million people working full time.

These changes have come about because of changes in the labour market. The recession has had an enormous impact on the loss of full-time jobs. Part-time jobs are rising to try and compensate for this loss and to boost the economy.

However, the Part-Time Workers Directive (97/81 EC) provided for ‘the removal of discrimination against part time workers and to improve the quality of part time work and to facilitate the development of part time work’. Section 19 of the Employment Relations Act 1999 gave the Secretary of State the power to make regulations to implement the Directive, which resulted in the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2000/1551); these were amended in 2002.

The relationship between employee and employer is governed by the contract of employment, which forms the basis of the employee’s employment rights. The distinction between contracts of employment and those of self-employment is of fundamental importance, because only ‘employees’ qualify for employment rights such as unfair dismissal, redundancy payments, minimum notice on termination, etc. Wider protection is provided under the discrimination and equal pay legislation, which applies to both a contract of service and a contract ‘personally to execute any work or labour’, which in effect includes some self-employed relationships. The Health and Safety at Work etc. Act 1974 is also broader in scope, as it protects employees, the self-employed and, indeed, the general public (see Chapter 19). It is, therefore, important to understand the meaning of the term ‘employee’. Employees are employed under a contract of employment or contract of service, whereas self-employed persons, that is independent contractors, are employed under a contract for services. A worker’s employment status is not a matter of choice, i.e. whether they are considered to be employed or self-employed. It all depends on the terms and conditions of the relevant engagement. Distinguishing whether there is a contract of service or contract for services is simply not a case of tallying the number of factors that satisfy the requirements for an employee and comparing this against the number satisfied for an independent contractor. The courts have purposely stayed away from using this approach and instead attempt to evaluate the overall effect, as not all the requirements are of the same significance and the importance of each may differ from case to case. If it is unclear whether a contract of service or a contract for services exists, then it may be necessary to look back at the original intention of the parties. The following example assists in distinguishing between employees and independent contractors. If A employs a plumber to install his washing machine, A does not become an employer, as the plumber is an independent contractor, although a firm of plumbers may employ him or her.

Over the past decade or so there has been a huge growth in freelance, casual, homeworking and teleworking types of employment. With technology growing at an incredible rate this has allowed a number of individuals to carry out work in a different way. The difficulty that arises is whether these individuals are classified within employment as workers or whether they are self-employed.

There is very limited guidance in the legislation as to what is meant by the term ‘employee’. However, s 230 of the Employment Rights Act (ERA) 1996 offers the following definition:

1. In this Act, ‘employee’ means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

2. In this Act, ‘contract of employment’ means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

However this definition is not satisfactory and as a result tests have been developed through case law for determining whether a person is an employee and, therefore, employed under a contract of service or employment, or whether he or she is self-employed and engaged under a contract for services. (See Lee Ting Sang v Chung Chi-Keung (1990), in which Lord Griffith argued that the question of employee status was largely one of fact.) These enable the courts to distinguish between the two types of contract and, clearly, s 230 should be read in the light of those tests. Although, for the majority of people at work, there is no problem in deciding whether they are employees or independent contractors, there may be occasions on which the distinction is not clear-cut. These tests will be considered in chronological order since, although the early tests are still of relevance, the multiple test and the mutuality of obligations test are now at the forefront, should the question of employment status arise.