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Employment Status and Contracts - How to get it right

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Employment Status and Contracts - How to get it right

In early December 2023, Employment Expert & Associate Chris Dobbs held our second webinar in our new monthly series of ‘Coffee Break Briefings’.

In that free webinar, he looked at the second step in the ‘employee lifecycle’: employment status and contracts.

Chris talked about defining employment status, for employees, workers and the self-employed, contractual relations and compliance.

This is the summary of that webinar. You can watch it back below, or read on for the summary.

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Defining Employment Status

Fundamentally, and legally, the employment relationship is a contractual one.

Over time, employment status has really become the backbone of that relationship and the difference between an employee, a worker and a self-employed individual stems from that contractual relationship and its benefits/protections.

Employment status ultimately dictates the rights, entitlements and obligations that the two parties have in whatever dynamic may exist. As we know, for employees, those rights are significantly higher than they are for the self-employed, for example.

Related: The Complications of Employment Status

Employee status

The not-so helpful definition of an employee that you will find in the legislation is somebody ‘under a contract of employment’.

One way of looking at an employee, and trying to define it from existing case law, is that they work significantly under the direction and under the control of the employer.

The counterbalance to that of course is that an employee has significant statutory rights, such as unfair dismissal protection, redundancy pay entitlement etc.

An employee ultimately needs a job, they want to be paid, they need an income. It's a very easy relationship to abuse if it's not well legislated and well protected.

Related: How to make redundancies - A guide for employers

Worker Status

Essentially, a worker can be someone who's under a contract of employment but also someone who is engaged under a contract to provide work or services. The important distinct between this and a self-employed individual is the requirement to do that work or provide those services personally.

To me, the best way to think about workers is to look back at that degree of control that an employer has over an employee and slightly relax it. This reduction I control is reflected in the reduced statutory protections.

Zero hours workers are the archetype of this, there is absolutely no obligation on them to accept work or undertake work at a certain time. The only thing that does remain in place is that when they do that work, it is that individual who is expected to do it.

The definition of a worker and an employee is such a grey area that it very often comes down to the individual circumstances.

The Workers (Predictable Terms and Conditions) Act 2023 has passed: What it means for you

Self-employed status

The basic definition of someone who is genuinely self-employed is that they undertake work for someone else and on their own terms.

Self-employed people have no rights granted outside of the contract, so if you don't have a written contract with these individuals there is no additional governing principles behind this beyond simple contract law.

The only claims that a self-employed consultant has, or that the engaging party has against the consultant, are breach of contract and, therefore, it's actually quite important to have any particular terms clearly laid out.

What is the difference between self-employed and a worked/employee?

The self-employed have a contractual relationship to get a certain piece of work done, or to provide certain services. The biggest distinction between them and a worker or an employee is that this is not a personal contract; there has to be a meaningful and viable option to substitute. In other words, a self-employed individual cannot be personally compelled to do the work.

What’s the difference between a worker and an employee?

To determine this, a tribunal will usually look at:

  • Degree of integration

    • A self-employed individual, for example, may use their own email address
    • Whereas a worker or employee is more likely to use a business domain
  • Degree of control and the obligations
    • The more control you have over an individual, the more likely they are to be deemed an employee
    • Ask yourself, am I obliged to give this individual work and are they obliged to do it?

Contractual relations

All of the aforementioned relationships are contractual in nature. Contracts are used to both comply with legal obligations and to govern certain aspects of the relationship which need to be properly recorded, such as salary.

Even if you don't have a written contract with an employee, they've still got all of their statutory rights. But, for the self-employed, a contract is the only place their rights and obligations will be listed.

Contract Terms

(This section will focus on employees & workers)

The first thing to think about is the wider contract law concept of Express vs Implied Terms.

Express terms are the ones deliberately included as part of any contract.  The exchange of goods or services for money is almost always express whenever you buy an item or employ a person.

Either statute or case law will tell us that there are things that should be read into a contract and, whether you've got them written down or not, implied terms will be there because the courts or legislation say they have to be.

In an employment contract, it is implied that all statutory minimum rights be will included such as minimum wage and holiday.

Related: How to write strong employment contracts - Advice for Employers

Section 1 compliance

The Section 1 statement of terms is a statutory obligation to provide certain information immediately to employees and workers.

Section 1 tells us there's three types of information that we have to give people, there is information we have to give them:

  • Immediately in a single document,
  • In another readily accessible document, and
  • Within 2 months of start date

The terms included in the single document are what you’d expect, essentially the ‘core terms’ (a lot of which are statutory rights), such as start date, term of employment, rate of pay, hours etc.

The reasonably accessible document includes information that you’d expect to crop up less regularly, but information which an employee or worker will want to know; such as sick pay, pension information, disciplinary procedures etc.

Related: Sickness Absence Policies - What to do if an employee is always off sick

Related: How to handle Workplace Grievances in 2023

What happens if you don’t comply with Section 1?

If you don't provide the Section 1 statement, you've got no documented record of anything that's been agreed. So, the default position is that everybody's on their statutory rights, and whatever may or may not have been agreed between you is going to have to be deemed potentially through a Court process.

For employees/workers, there is no freestanding claim for no Section 1 statement being provided; but it can be ‘tacked on’ to other litigation.

Additional Contractual Provisions

There is a duty of confidentiality that applies during employment, and you probably want this to survive indefinitely afterwards – so inclusion in a contract can be crucial.

Post-termination restrictions/restrictive covenants need to be well drafted if included, otherwise it is very possible that they would be deemed unenforceable if they're not individually thought through for each employee or grade of employee.

For more senior staff in particular, these elements could be incorporated into a contract:

  • Other benefits and allowances (e.g. car allowances, differences in pension, share options etc.)
  • Additional duties (especially for directors)
  • Service Agreements vs Employment Contracts

Where service agreements differ from senior employment contracts is they will envisage a wider set of scenarios. For example, where a director has been removed from their position, you may also want to terminate their employment. This does not necessarily happen automatically.

Related: Non-Compete Clauses and Post Termination Restrictions - How enforceable are they?

Related: Recruitment: - The legal implications that employers need to know

New employment rights, minimum wage and more in draft legislation 2024

Towards the end of the webinar, Chris went on to speak about a new draft piece of legislation that was announced in November and the Low Pay Commission's recommendations for the National Living wage in 2024.

You can read our seperate summary for that here.

Missed this webinar? Sign up for the next one

Don’t worry if you missed this webinar, there’s still plenty more to come over the next 12 months as Chris talks you through the employee lifecycle.

You can sign up to our free newsletter to receive invitations to upcoming webinars and events here.

You can also find recordings, slides and summaries of previous webinars here.

Employment & HR Solicitors

Our bright Employment Team has a vast experience in advising employers in cases of all kinds.

We’d be happy to provide tailored advice and assist you in mitigating, preventing and fighting claims, such as unfair dismissal.

You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial appointment.

We also offer tailored courses for new and experienced employers and HR professionals alike, which may be useful to you.

You can find out more here.

The content of this article, blog or video is not intended as specific legal advice. For tailored assistance, please contact a member of our team.