What are the differences between employees and workers and why do they matter? Jennifer Smith, who is a Partner at JMW Solicitors LLP, explains the differences between an employee and a worker and how this affects an employer in legal terms.
At first blush, the terms ‘worker’ and ‘employee’ may seem synonymous and interchangeable; however, from a legal perspective, they are vastly different. The employment status of an individual is incredibly important for a variety of reasons; this blog post explains the importance of the distinction and the different rights that are ascribed to each category.
Why does the distinction matter?
It is essential that employers grapple with this central question of whether their staff are workers or employees before entering into contracts, so that they may assess the extent of any employment rights involved and their respective obligations.
This has become of particular importance in the last 5 years with the rapid emergence of the "gig economy", whereby individuals are engaged by businesses on a very flexible basis. Businesses in recent years such as Uber and Deliveroo have encountered significant issues when labelling employment status, both in terms of establishing what employment rights individuals have and furthermore, tax liability.
The likes of Uber and Deliveroo have more often than not opted to engage individuals as self-employed contractors (so neither as an employee or a worker) and who therefore ostensibly have the freedom to accept work, or reject it. However, many individuals are challenging, through the employment tribunals, their employment status as independent contractors and, critically for employers, with some success. In establishing that they are in fact workers, this affords them increased protection at work.
The legal differences between workers and employees
A helpful place to start is the Employment Rights Act 1996 (“ERA”). The ERA contains the most significant legislative rights for individuals categorised as employees. Section 230 defines an ‘employee’ and a ‘worker’ in the UK.
Over many years and as the working environment has evolved and diversified, the courts have had to develop a number of checks to help with the correct classification of individuals. Employees are typically employed under a contract of employment (Section 230(1) ERA). Employees have the highest level of employment status and they subsequently enjoy many forms of statutory employment protection rights.
Why is this important?
Determining whether someone is an employee or not will be a crucial factor when making some commercial decisions in the business. For example, when considering whether to introduce more flexible working arrangements or how to treat staff in the event of an insolvency, or in a TUPE situation.
More recently, many businesses have been forced to make difficult commercial decisions in light of the COVID-19 pandemic, including restructures and redundancies to relieve operational costs. If a business is made up of mainly employees, then it will need to undertake a proper process (including, where necessary, making redundancy payments or payments under termination agreements); to streamline its workforce and mitigate the risk of defending (what can be costly) tribunal claims (i.e. prospective unfair dismissal claims). In contrast, where a business demographic contains just workers, the business will only generally need to consider contractual notice periods when making economic dismissals, as workers do not have the ability to make unfair dismissal claims or receive statutory redundancy payments.
Are there any limitations on who can be classed as an employee?
Yes. The employee/worker difference is helpfully distinguished by a number of principles, which have been outlined by the courts through case law. The key principles are:
- Control – who controls the work that an individual does? If the employer exerts a significant degree of control, then the individual is likely to be classed as an employee. Conversely, if there is a degree of flexibility, then the individual is more likely to be classed as a worker.
- Substitution – can someone else be sent to carry out the work or must it be carried out by the individual? If the individual can be substituted, they are more likely to be classed as a worker.
- Mutual obligations – is the employer obliged to provide the work and the individual obliged to perform the work? If so, the individual is likely to be classed as an employee.
The term ‘worker’ is much broader. A worker is defined under section 230(3) of ERA 1996 as:
"an individual who has entered into or works under (or, where the employment has ceased, worked under):
(a) a contract of employment, or
(b) 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".
So what is the difference between employee and worker rights? Workers typically have limited employment rights, due to the greater degree of flexibility that they have as part of their employment contract.
What are workers’ rights?
Workers generally enjoy some basic employment rights, including, but not limited to, the right to holiday pay, national minimum wage, working hours and rest breaks (as set out by the Working Time Regulations 1998), pension contributions, and protection for making a protected disclosure (whistleblowing).
Workers however are not entitled to the following (note this is a non-exhaustive list):
- Statutory sick pay (SSP)
- Certain payments on insolvency
- Remuneration during suspension on medical grounds
- Protection on the transfer of undertakings
- Not to be refused employment because of membership (or non-membership) of a trade union
- Rights of shop / betting workers to refuse to work on a Sunday
- Unfair dismissal
- Redundancy pay
- Maternity, paternity, or parental leave
- Statutory minimum notice periods
There is no specific legal meaning for this term; however, it does connote a category of worker with an even higher degree of flexibility, such as those on zero hours contracts or short fixed term contracts. Although a casual worker has fewer rights than an employee, they are still entitled to certain key rights (e.g. national minimum wage and paid holidays).
Related article: Casual workers' rights: an FAQ for employers
There are several considerations to take into account when considering employee/worker status, particularly when engaging individuals as either employees, workers, or casual workers. Even when the business feels that it has made a choice to assign a status (employer/worker/casual worker) to an individual, the factual scenario of the engagement may dictate differently!
There are advantages and disadvantages when considering this and the business will need to carefully balance the makeup of a workforce that would suit its operations best, against the legal requirements and rights of the individuals engaged and risks that those engagements may bring.
Written by Jennifer Smith
Jennifer Smith is a Partner at JMW Solicitors LLP in Manchester. She joined the firm in 2011 and deals with all aspects of employment law, specialising in disciplinary/dismissal issues and discrimination.