Mark Shulman, Consultant Solicitor at Keystone Law

**EMPLOYMENT STATUS
Whether an employee or a worker
**
Section 230 of the Employment Rights Act 1996 states that:

"(1) In this Act 'employee' means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act 'contract of employment' means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing."

The term "worker" is defined by section 230(3) of the 1996 Act, which states:

"(3) In this Act 'worker' (except in the phrases "shop worker" and "betting worker") means 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;

and any reference to a worker's contract shall be construed accordingly."

The same definition of a worker appears in Regulation 2(1) of the Working Time Regulations 1998.

Director shareholder
Was a director and shareholder an employee or a worker – or neither? Was that individual entitled to remuneration? No, said the EAT to all of these questions in [Ajar-Tec Ltd v Stack ]()UKEAT/0293/13/DA.

The Claimant was a shareholder and one of 3 directors of Ajar-Tec. He did not work full time and had other business interests elsewhere. He was not paid for the work he did. However, all directors were members of the staff private healthcare scheme, had company credit cards, and they used employee expenses claim forms. Although various draft employment contracts were produced, they were not finalised nor signed by the Claimant. Relations between the directors deteriorated amidst arguments about money. Eventually, the other two directors of the company took a decision to terminate the Claimant's appointment as a director.

*Was there an employment contract?
*An ET found that there was an express agreement that the Claimant would do work for the company and it was an implied term that he would be paid for what he did. Having decided that there was an express contract for the Claimant to do work for the company and to be paid for it, the Employment Judge then considered the tests in Ready Mixed Concrete (South East) Ltd v Ministry of Pensions and National Insurance [1968] 2 QB 497 and concluded that the Claimant was an employee and that it was not necessary for him to decide separately whether he was also a worker. The company appealed.

The questions for the EAT were:

(i) Was there was an express contract?
(ii) If there was no express contract, was there an implied or inferred contract?
(iii) Was there was an express term as to remuneration?
(iv) If there was not, then was there an implied term as to remuneration?

The third and fourth questions required the existence of a binding contract. Whilst it was clear that there was an agreement between the parties that the Claimant would perform work for the company, that still begged the question of whether or not such an agreement was a contract of employment.

No express contract
The company contended that an express agreement that the Claimant would do work for the company did not amount to a binding express contract if there was no consideration for such a promise. The ET had not found that the company had agreed to remunerate the Claimant and so there was no agreed consideration: therefore, it was argued, there was no express contract. The EAT agreed. There was no consideration and the Employment Judge had been in error in finding that there was an express contract of employment with an implied term that the Claimant should be paid remuneration for that work.

*Was there an implied contract?
*The company contended that Employment Judge ought to have considered whether there was an implied (or inferred) contract according to the principles referred to in [Tilson v Alstom Transport ]()[2011] IRLR 169. Although Tilson was a case on agency workers, the EAT thought that the principles applied equally in the present case. Those principles meant that:

a) the onus was on a Claimant to establish that a contract should be implied;

b) a contract can be implied only if it is necessary to do so. In this context, "necessary" means "necessary . . . in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist." It was insufficient to imply a contract that the conduct of the parties was more consistent with an intention to contract than with an intention not to contract.

Factors relevant in the present case to whether there was an implied contract were that the Claimant was the major investor as well as one of the three shareholders and had other substantial business interests. Throughout the three years that the Claimant worked for the company, he never specifically sought and had never received, payment for that work. Despite having had the opportunity to resolve the position of remuneration and status on a formal basis he had taken no steps to do so.

The EAT considered that in those circumstances, it was difficult to see how, on those facts (as found by the Employment Judge) the existence of an implied contract could possibly be satisfied. Although case law confirmed the principle that there may in an appropriate case be an implied contractual term to pay a reasonable sum for work done, that only applied if there was either an express or implied contract at all. It was not possible to say that in the light of relevant factual background in the present case, the only conclusion was that the Claimant was working part-time under an implied contract of employment.

As on the Tribunal's findings the EAT was itself unable to imply a contract or a contract of employment between the parties, the matter had to be remitted to be tried again by a fresh Employment Judge.

Could an ad hoc worker claim unfair dismissal?
Was an ad hoc telephone interviewer an employee and therefore entitled to claim unfair dismissal? No, said the EAT in [Saha v Viewpoint Field Services Ltd ]()UKEAT/0116/13/DM.

The Claimant worked as an ad hoc telephone interviewer for a company providing researchers. She was asked to give a commitment of at least 2 shifts per week. The Claimant gave details of various shifts that she would be willing to work and she then worked for between 7 and 43 hours per week from November 2006 until her position was terminated in February 2012. If work was not available, the Claimant would not work, even if she said she was available. The Claimant was also able to cancel her availability after she had committed to work, even if work was available.

Following an audit, the company was advised that the telephone interviewers did not have employee status and in January 2012 they wrote to them, including the Claimant as follows:

"…the role of a Telephone interviewer should be self employed. We therefore are required to give you 30 days notice of the termination of your contract. We hope that you will decide to continue working with the Company as a self employed person."

The company's position was that the Claimant had been a worker (rather than an employee) throughout her period of work and the ET found that because there was no obligation to provide or take work, there was no mutuality of obligation such as to make her an employee, and so she could not pursue her claim of unfair dismissal. The Claimant appealed.

*Mutuality of obligation
*The Claimant argued that because she had to commit to and the company had to offer, at least 2 shifts per week, there had been mutuality of obligation (either expressly or by implication). However, the EAT decided that there was an "insuperable difficulty" in that the Employment Judge had made an express finding that there was "no obligation to offer any shifts per week on the part of the Respondent or indeed to work any shifts per week on the part of the Claimant."

Umbrella contract
A further ground of appeal relied on the EAT case of St Ives Plymouth Ltd v Mrs Haggerty UKEAT/0107/08 (unreported). Specifically, reliance was placed on the part of the EAT's judgment where it was stated that:

"In our judgment, it follows that a course of dealing, even in circumstances where the casual is entitled to refuse any particular shift, may in principle be capable of giving rise to mutual legal obligations in the periods when no work is provided."

The judgment referred in turn to the earlier Court of Appeal decision in the case of O'Kelly v Trust House Forte [1983] ICR 728. In looking at whether there was an umbrella contract, the Court of Appeal had stated:

"So far as mutuality is concerned, the "arrangement," to use a neutral term, could have been that the company promised to offer work to the regular casuals and, in exchange, the regular casuals undertook to accept and perform such work as was offered. This would have constituted a contract. But …the true view could only be determined by the tribunal which heard the witnesses and evaluated the facts."

On that analysis, the test (as expressed in the St Ives Plymouth case) was "not whether it is necessary to imply an umbrella contract, or whether business efficacy leads to that conclusion.  It is simply whether there is a sufficient factual substratum to support a finding that such a legal obligation has arisen.  It is a question of fact, not law." 

In the present case various factors were prayed in aid by the Claimant:

* there was a lengthy period of employment; * the work was important to the employers; * the Claimant's work was regular; * throughout her dealings with the company up until the Claimant received the letter of termination, the company had always described her in all documentation as an employee.

However, whilst the Employment Judge, taking into account all those points, would have been entitled to find as a fact that the mutual legal obligations had arisen out of the course of dealing between the parties, he had made various findings of fact to the contrary. Therefore, unless his conclusions were perverse, (and it seemed to the EAT impossible to suggest that they are perverse) the appeal on this new, wider basis, had no prospect of success and was therefore rejected.

Contract for each assignment
A further ground of appeal relied on the EAT decision in [Drake v Ipsos Mori ]()[2012] IRLR 973. The Claimant contended that the Employment Judge had failed to consider whether there was a separate contract of employment during each individual assignment which the Claimant worked and with the rules on continuity of employment effectively joining up the assignments. Ironically, this ground had derived from the fact that the Respondent's Grounds of Resistance had made a number of statements to the effect that the Claimant was only employed while on specific commissions during specific weeks or specific assignments. Accordingly, the Claimant argued, if there was a series of short-term assignments considered together, the requirement for the period of qualifying continuous service to bring an unfair dismissal claim could be satisfied.

But, said the EAT, a claim put on this basis was never going to succeed because the dismissal about which the Claimant complained was not the termination of the latest assignment, but the termination of the overall arrangement and it was only the termination of the overall arrangement that would give rise to a viable complaint of unfair dismissal. That overall arrangement (with no mutuality of obligation) had already been found not to constitute employment and so the appeal was dismissed.

However, although the appeal was dismissed, the EAT commented that it had "considerable sympathy" for the Claimant and that  "there can be no doubt that this is an area which is crying out for some legislative intervention" because the exercise in these cases, so far as Tribunals are concerned, is "highly artificial".

Are LLP members workers?
Was a member of an LLP a worker who could claim the benefit of the whistleblowing provisions under the Employment Rights Act 1996? Yes, said the Supreme Court in [Clyde & Co LLP and Anor v Bates van Winklehof ]()[2014] UKSC 32.

Background
The Appellant was an English qualified solicitor. She became a member of Clyde & Co Limited Liability Partnership ("LLP"). She signed a Deed of Adherence to the LLP's Members' Agreement. Subsequently, the Appellant reported to the LLP's money laundering reporting officers that the managing partner of the Tanzanian law firm, with whom the LLP were doing business, had admitted paying bribes to secure work and to secure the outcome of cases. She claimed that these were protected whistleblowing disclosures and that she was subject to a number of detriments as a result, including suspending her and ultimately expelling her from the LLP.

She brought claims in the ET against the LLP and one of its Senior Equity Members under the whistle-blowing provisions of the 1996 Act. Clyde & Co objected to her whistle-blowing claim on the ground that she was not a "worker" within the meaning of section 230(3) of the 1996 Act and, as such, did not benefit from the protection given to "whistle-blowers".

The key issue was whether, under section 230(3)(b) of the Employment Rights Act 1996, the Appellant had worked under "any other contract…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…".

At the Supreme Court hearing it was common ground that:

* the Appellant worked "under a contract personally to perform any work or services"; *  she provided those services "for" the LLP; * the LLP was not her "client or customer".

Therefore, how could it be said that the Claimant was not a "worker"?

Effect of the Limited Liability Partnerships Act 2000
The Court of Appeal had held that the Appellant could not be a worker for the purpose of section 230(3) of the 1996 Act because of section 4(4) of the Limited Liability Partnerships Act 2000 which provides:

"A member of a limited liability partnership shall not be regarded for any purpose as employed by the limited liability partnership unless, if he and the other members were partners in a partnership, he would be regarded for that purpose as employed by the partnership."

The Supreme Court decided that section 4(4) of the 2000 Act was to be construed simply to mean that, whatever the position would be were the LLP members to be partners in a traditional partnership, then that position is the same in an LLP.  The Court stated that on any view, "employed by" in section 4(4) would cover a person employed under a contract of service. The question for the Court was whether "employed by" in section 4(4) had a wider meaning than that (i.e. beyond those with a contract of service) and also covered those who "undertake to do or perform personally any work or services for another party to the contract . . .".  In the Court's view, section 4(4) did not have that meaning because:

* the natural and ordinary meaning of "employed by" is employed under a contract of service; * within the class of self-employed individuals, there was a distinction between (i) self-employed people who carry on a profession or a business undertaking on their own account and enter into contracts with clients or customers to provide work or services for them, and (ii) self-employed people who provide their services as part of a profession or business undertaking carried on by someone else. Had Parliament wished to include this latter "worker" class of self-employed people within the meaning of section 4(4), it could have done so expressly, but had not; * had Parliament wished to exclude the possibility of partners in a traditional partnership being workers for that partnership, it would have been expected to do so directly and expressly, but it had not done so; * by enacting definitions of "employment" and "employed" in section 230(5) of the Employment Rights Act 1996 (which covered both employment under a contract of employment and the employment of workers under their contracts), Parliament had expressly enacted an extension in that Act to what would otherwise be the natural and ordinary meaning of those words. Such an extension was conspicuously lacking in the 2000 Act.

For all those reasons, the Supreme Court concluded that section 4(4) of the 2000 Act did not mean that members of an LLP could only be "workers" within the meaning of section 230(3) of the 1996 Act if they would also have been "workers" had the members of the LLP been partners in a traditional partnership.

Is a subordinate relationship required?
Having reached the conclusion that section 4(4) of the 2000 Act did not operate so as to exclude the Appellant from being a "worker", it was then necessary to consider what the pre-requisites were to being a worker. The analysis addressed in the Court of Appeal was that "underlying the statutory definition of worker is the notion that one party has to be in a subordinate relationship to the other".

Although there was "not a single key to unlock the words of the statute in every case", there could be no substitute for applying the words of the statute to the facts of the individual case. However, that was not to be solved by adding "some mystery ingredient" of "subordination" to the concept of employee and worker. While subordination may sometimes be an aid to distinguishing workers from other self- employed people, it was not a freestanding and universal characteristic of being a worker. As the case of the controlling shareholder in a company who is also employed as chief executive shows, one can effectively be one's own boss and still be a "worker". In the Appellant's case, the LLP was in no sense her client or customer. She was a worker for essentially the same reasons that Dr Westwood was held to be a worker in Hospital Medical Group Ltd v Westwood [2012] EWCA Civ 1005, [2013] ICR 415, in that she could not market her services as a solicitor to anyone other than the LLP and was an integral part of their business.

Human Rights Act
As the Supreme Court had already decided that the Appellant had protection under the Employment Rights 1996 Act as interpreted in a completely conventional way, it was not necessary to decide whether her Convention rights would have required the Court to interpret the domestic legislation compatibly (as required under section 3(1) of the Human Rights Act 1998, where there is a duty to read and give effect to legislation in a way which is compatible with those Convention rights).

Therefore, in the Court's view, the Appellant clearly was a "worker" within the meaning of section 230(3)(b) of the Employment Rights Act 1996 and entitled to claim the protection of its whistle-blowing provisions. The appeal was therefore allowed and the case remitted to the ET to determine the Appellant's whistleblowing claim (along with her sex discrimination claim).

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**Summary of key points
**
Ajar-Tec Ltd v Stack UKEAT/0293/13/DA. *

**a person cannot be employed under an express contract of employment where there is no consideration; the principles in the case of Tilson v Alstom Transport* [2011] IRLR 169 should be applied to determine whether there is an implied contract; * there may in an appropriate case be an implied contractual term to pay a reasonable sum for work done, but that only applies if there is either an express or implied contract at all.

Saha v Viewpoint Field Services Ltd UKEAT/0116/13/DM *

**a course of dealing, even in circumstances where a casual worker is entitled to refuse any particular shift, may in principle be capable of giving rise to mutual legal obligations in the periods when no work is provided; * whether an umbrella contract arises depends on whether there is a "sufficient factual substratum to support a finding". It is a question of fact, not law.

Clyde & Co LLP and Anor v Bates van Winklehof [2014] UKSC 32

* a member of an LLP is a  "worker" for the purposes of the whistleblowing provision in the Employment Rights Act 1996;

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.