Settlement Agreements and Employment status

Why does it matter if a member of staff is an employee, contractor or worker? There are various reasons why the distinction between them is significant.

Employment status is important for many reasons, not least because it determines what rights an individual has. Generally speaking, an employee will have more rights under employment law than a worker or someone who is self-employed as a contractor.

When a member of staff is an employee additional employment rights and protections are conferred upon that member of staff including protection against unfair dismissal. While workers have less extensive employment protection rights than employees, statutory employment protections often cover workers as well as employees; these include the working time regulations, minimum wage legislation and public interest disclosure act. Crucially, however workers do not have the right not to be unfairly dismissed nor the right to receive a statutory redundancy payment.

Whether an individual is an employee or worker is not a straight forward assessment. Over many years case law has evolved to shape and inform the assessment. The predominant focus on whether an individual works under a contract of service will be governed by the nature of the working relationship. Does mutuality of obligation exist? Is there a master/servant relationship? Is there personal service in exchange for remuneration? Other factors will be considered such as the right to receive holiday pay, exclusivity and financial risk.

The fact that workers may be employees does not preclude employers from using a settlement agreement when terminating the employment relationship. When determining employment status, the Employment Tribunal will be making a judgement based on facts rather than law. Case law is continuing to evolve and as was stated by Honour Judge Shanks, in the recent case of Saha v Viewpoint Field Services Ltd, it is an area of law “crying out for some legislative intervention”.

VFS Ltd provided fieldwork to market research companies. Saha began work with the company in 2006 as a telephone interviewer. The contract of employment required commitment of at least two shifts per week. Saha was always described as an ‘employee’. Yet despite that VFS Ltd terminated the contract of employment and invited her to apply for work on a self-employed basis in 2012, believing her to be a worker.

Saha brought a number of claims in the employment tribunal, including unfair dismissal. The facts demonstrated that she was not compelled to accept work, and nor was VFS Ltd obliged to offer it. Consequently, as there was no mutuality of obligation, the Tribunal concluded that she did not satisfy the criteria of being an employee for the purposes of the Employment Rights Act as she did not work under a contract of service.

The Employment Appeals Tribunal expressed sympathy with the Claimant, however they agreed with the finding of the Employment Tribunal judge that she was a worker not an employee thus prohibited from bringing an unfair dismissal claim.

The assessment of employee status is highly nuanced; if you believe you are working in such a way that you should be deemed an employee rather than a worker or consultant, please do not hesitate to get in contact.

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