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Employment status - aide memoir

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    Employment Rights Act 1996 section 230: employee = someone who has entered into or works under a contract of service or apprenticeship, whether express or implied.

    Contract of service and contract of apprenticeship are both common law concepts.

    Three-stage approach to determining whether there is a contract of service

    Step 1: ask whether there is a contract between the worker and their alleged employer.

    Step 2: if there is a contract, consider whether each of the following elements is present:

    • mutuality of obligation
    • personal service
    • sufficient control;

    only if all are present will the contract be capable of being a contract of service.

    Step 3: if all three elements exist, consider all the terms of the contract in order to make an informed, considered, qualitative appreciation of the whole.

    Ready Mixed Concrete v Minister of Pensions and National Insurance [1968] 2 QB 497

    Step 1 in more detail

    • Intention to create legal relations.
    • An agreement (offer, acceptance and sufficiently certain terms).
    • Consideration (note overlap with mutuality of obligation) - not required where agreement is in a deed or under Scots law.

    Step 2 in more detail

    Mutuality of obligation

    • Obligation on the employee to perform work for the employer (not necessarily an obligation to work whenever asked).
    • Obligation on the employer:
      • some cases say there must be an obligation on the employer to provide work (or to pay a salary/ retainer during any periods when no work is offered) for contract to be one of service
      • recent EAT case says a mere obligation to pay for work done will suffice (ie no need for employer to commit to providing work/pay a retainer): Cotswold Developments Construction Ltd v Williams [2006] IRLR 181 (EAT).

    Personal service

    • For a contract to be one of service, the worker must be obliged to provide his or her own work and skill:
      • a limited power to delegate or appoint a substitute will not preclude a finding that there is a contract of employment
      • a general, unfettered power exercisable at the discretion of the worker will.


    • For a contract to be one of service it must give the employer a sufficient level of control over the worker:
      • the threshold is set low at this stage
      • the question is whether ultimate authority over the worker rests with the employer so that he is (in theory) subject to the latter's orders and directions.

    Step 3 in more detail - a balancing exercise

    Factors tending to point to the individual being an independent contractor:

    • regularly providing services to other business
    • providing own equipment and/or hiring own help
    • financial risk (eg making good mistakes at own cost; having the ability to profit from sound management)
    • high degree of personal control and responsibility.

    Factors tending to point towards an individual being an employee:

    • receipt of wages/salary, sick pay and/or paid holiday
    • being managed by someone who is an employee of the business
    • being subject to the organisation's rules and procedures
    • being integrated into the business (eg attending meetings, wearing uniform).

    Casual workers

    Two main issues:

    1. Is there an over-arching contract of service - sometimes called an umbrella or global contract?
    2. Does each individual engagement give rise to a contract of service?

    Overarching contract

    Two typical types of contract:

    1. No obligations on either side ie employer makes no promise to provide work and worker is free to turn down any offers of work that do come his or her way:
      • suggests no contractual relationship at all (no consideration and/or contractual intent): Carmichael v National Power plc [2000] IRLR 43;
      • in any event, any contract is incapable of being a contract of service due to absence of mutual obligations.
    2. One-sided obligations ie worker agrees to work as and when needed but without any corresponding promise on the part of the employer to offer a reasonable or minimum amount of work, merely an agreement to pay for any work that is actually done:
      • usually will give rise to a contract of some description
      • is it capable of being a contract of service?
        • if Cotswold Developments is right - yes
        • if Cotswold Developments is wrong - no.

    Specific contracts

    Easier to establish than overarching contract but offer lower level of protection.


    • Requirement for mutuality of obligation does not mean there must be a future obligation to offer and/or accept work once an engagement is at an end: Cornwall County Council v Prater [2006] IRLR 362 (CA).
    • Where there is a global contract which doesn't qualify as a contract of service - may not be any room to find a second contract covering a specific engagement: Bunce v Postworth Ltd [2005] IRLR 557 (CA).
    • It may be possible to link individual contracts to give the employee continuity of service. Employment Rights Act section 212 - in certain narrowly defined circumstances gaps in employment do not break continuity.

    Agency workers

    Relationship between employment business and worker

    Will not usually be a contract of service.

    Main issues = lack of mutuality of obligation and/or lack of control

    Mutuality of obligation

    • Depends on type of arrangement:
      • if worker = a 'temp':
        • absence of mutuality of obligation may prevent overarching contract of service arising (as for casual workers)
        • whether each engagement gives rise to separate contracts of service will still be in issue
      • if engaged to work for a single end-user for a longer period:
        • mutuality of obligation usually present.


    • Only where agency retains sufficient control over the worker will the relationship be capable of being a contract of service.

    Relationship between the end-user and the worker

    Main issue = absence of any contract between end-user and worker.

    • express contract? - rare
    • implied contract?
      • tribunal must consider the possibility: Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358 (CA)
      • Dacas does not direct tribunals to reach any particular conclusion: Cable & Wireless v Muscat [2006] IRLR 354 (CA)
      • no contract can be implied unless it is necessary to do so in order to give business reality to a transaction: James v London Borough of Greenwich [2008] IRLR 302 (CA)
      • effect of decisions = worker unlikely to be an employee of end-user provided:
        • relationship can be fully accounted for by reference to contracts between, respectively, the worker and the agent and the agent and their client, and
        • relationship is managed in a way that is consistent with the express contractual arrangements.

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