Employment status: A reminder on the importance of getting it right

During the whirlwind of 2020 and the emergence of the coronavirus pandemic, it has been easy to forget that aside from furlough, redundancy and surviving the day-to-day, other areas of employment law continue to develop. One of these is the much-publicised case law on employment status, which is becoming all the more relevant with the rise of “gig economy” working.

Last week, the Employment Appeal Tribunal (EAT) handed down a judgment on the case of Johnston and Johnston v Glasgow City Council which determined that two foster carers are employees, not self-employed or workers providing personal services. This is a fresh reminder that whatever the climate, employment status should always be considered.

Employment status – why does it matter?

The distinction between someone who is self-employed, a worker or an employee is an important one which stretches well beyond considerations of payroll. Employees are afforded the most protection under law, running on a sliding scale to workers, who enjoy some employment protections, to the truly self-employed who do not benefit from any employment rights. Employees and workers are both entitled to paid annual leave, national minimum wage and are protected from discrimination and as “whistleblowers”.

Employees are also entitled to not be unfairly dismissed, to receive statutory redundancy payments as well as statutory levels of pay for sickness, maternity and other parental and adoption leave, to name a few examples. Identifying someone’s correct employment status is therefore crucial in considering their rights and ensuring as an employer you do not fall short of these entitlements.

Facts of the case

The Claimants saw an advert in 2010 that stated, “Glasgow needs foster carers to join us in our new treatment fostering service for young people”. It offered a “professional fee of £30 160 per annum with significant tax benefits” and “a separate allowance for the young person of £172 per week” and “4 weeks paid holiday a year”. This advert related to a new model of foster care which differed from that used for ordinary foster care arrangements. Firstly, unlike ordinary foster carers, the Claimants were not permitted to be in any other paid employment – it was a full-time commitment. Secondly, they received the professional fee referred to in the advert. This was not paid to ordinary foster carers, and was paid whether or not a child was placed with them. They were required to attend meetings and training irrespective of whether, at the time, they had a child placed with them. In addition to this fee, they received a foster allowance if a child was placed with them, which was not an allowance paid to “normal” foster carers. Lastly, the Claimants were permitted to take their holidays without the child placed with them whereas ordinary foster carers were not.

The Claimants argued that these differences meant that, in effect, they were employees of the Council, and should be recognised as such. The Employment Tribunal (ET) agreed with them, and the Council appealed to the EAT.

Decision

The EAT had two issues to decide: was there a contractual relationship between the parties; and if so was this relationship one of employment?

The EAT upheld the decision of the ET Judge and accepted both of these points. It agreed that the agreement entered into between the Claimants and the Council was contractual in character and the contract contained the essential elements indicative of a contract of employment. The main persuasive factors were that the Claimants were paid an annual set fee for fostering services. This sum had the appearance of remuneration and was not a payment only to cover the Claimants’ costs. In addition to this, the degree of control exercised by the Council over the Claimants in the delivery of fostering services was significant. The EAT decided that due to the high level of control the Council had over the Claimants, that suggested that the Claimants were employees of the Council.

Does this mean all foster carers are employees?

In short, no. The arrangements in this particular case were very specific and varied from the normal arrangements of foster carers who are paid expenses. Indeed, the arguments considered were based upon the differences between the Claimants and “normal” foster carers.

The EAT declined to form any view on what the position might have been had the carers been what were described as “ordinary” carers. It is clear from this case that it turned on its own facts, and is not intended to apply to all foster carers.

Should ”employers” be concerned about their contractors and self-employed consultants?

Employment status should always be considered when entering into a contractual relationship with an individual. What status do you want this person to have? What rights to you want to afford them, and how will the relationship work in practice? To do this, businesses should ensure that there is a contract in place that sets out the key terms of the relationship reflecting the way the arrangements work. In considering this it is important to be aware that the level of control exercised will affect the kind of relationship if it is combined with mutuality of obligation between the parties. It is all too easy to set out a contract, and then for the relationship to differ from this in reality as time passes.

In considering employment status, the courts will always look at how the relationship actually operates in practice, not just how it is set out on paper. Ensuring that the contractual and practical sides of the relationship match up will assist with mitigating the risk of employment status claims in future. Drawing clear lines now can avoid being on the wrong side of the line later.

Want to know more?

If you would like further information on employment status, join our MacRoberts Live Employment Law Update on 30 September 2020. Alternatively, please contact a member of our specialist Employment Law team.

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