Accept no substitute? Worker status to be overhauled

The rights an individual has under UK employment law depend to a large extent on their status. At one end of the scale, employees enjoy a host of rights, including protection against unfair dismissal.  At the other, genuinely self-employed individuals have little or no protection beyond any contractual rights.   In the middle, there are “workers”, who have many of the rights of employees (minimum wage, paid holiday, whistleblowing and discrimination protection) but are not entitled to claim unfair dismissal if their contract is terminated.  

Unfortunately, identifying whether an individual is a “worker” is not straightforward.  The legal test is whether they are required to perform services personally - and excludes them if they are providing services to clients for the purposes of their own business (in which case they would be self-employed).  However, a large body of caselaw has grown up around this seemingly-simple definition.  One of the key principles from these cases is that if the individual has a genuine and unfettered right to send a substitute in their place, there is no requirement of personal service and so they are not a worker.  Unsurprisingly, many businesses include substitution clauses in contracts in an effort to demonstrate genuine self-employed status. 

Proposed new worker status test

The Government has now launched a consultation on proposals to change this position via legislation.  Its concern is that substitution clauses in contracts are used as a trump card to defeat worker status and deny statutory protections to individuals who are not, in reality, running their own business.  Under the Government's proposals, the lack of a personal service requirement would no longer be fatal to worker status if the individual was working under a significant level of direction by the “employer” and was not operating their own business.  This would be a significant change of approach. 

Presumption of worker status

In order to simplify enforcement of statutory rights such as paid holiday, the Government is also proposing that there will be a presumption of worker status unless proved otherwise.  This presumption already exists in the minimum wage legislation but would be extended to other rights such as holiday pay and pensions auto-enrolment. 

Enforcement and penalties

The Government is proposing that the existing (although little-used) power of Employment Tribunals to impose financial penalties for breaches of the law with “aggravating factors” would be extended to cases where an employer has repeatedly failed to recognise employee or worker status.  This reflects the Government's concern that “bogus” self-employed structures are abused by some employers to avoid legal obligations.  The Government is also consulting on the role that the Fair Work Agency should play in enforcing the correct approach to worker status. 

New rights for the self-employed

The consultation is also seeking views on enhanced legal rights for self-employed individuals, including a right to a written statement of terms (equivalent to a s.1 ERA 1996 statement for an employee or worker), and extending certain legal protections (such as protection against blacklisting) to self-employed staff.

Analysis 

It's undeniable that the current law on worker status is complex, unwieldy and often contradictory.  It's also the case that some employers put complex (and somewhat artificial) contractual arrangements in place to try to avoid worker status and the rights that attach to it.   The Government isn't wrong to try to tackle the issue.  However, for all its failings, the current law and the priority given to the “personal service” requirement does provide some certainty for businesses.  A legal test for worker status based on the extent of direction and control, on the other hand, would be significantly less clear-cut, although arguably fairer.  

The proposals are complex and are likely to take some time to develop into actual legislation, particularly given the breadth of the Government's employment law reform agenda.  Given that the specific details will be critical,  it's difficult for employers to do much at this early stage.   However, businesses that rely heavily on non-employees should keep abreast of these developments (and may wish to respond to the consultation, open until 8 January 2027, which can be found here).