Employment status in England and Wales

The different categories of worker

There are three main categories of employment relations:

• the employment of a dependent employee, regulated by an employment contract
• the engagement of a worker, and
• the engagement of an independent contractor for particular services or tasks, which is regulated by a special contract, such as a self-employment contract, consultancy contract or freelance contract.

The category of “employee shareholder” came into force on 01 September 2013. This overview does not consider “employee shareholders”.

• Employees: the Employment Rights Act 1996 (ERA) defines an “employee” as:

“an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.”

A “contract of employment” is defined as:

“a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.”

Other statutory definitions of employee are wider, notably those in discrimination legislation such as the Equality Act 2010. This wider definition incorporates those who are not working under a contract of employment but who have a contract personally to carry out work and would fall into the definitions of “workers” in the more recent legislation, and those who are genuinely self-employed, provided that their contract obliges them to perform the work personally.

• Workers: all employees are workers. The wider set of “workers” has the protection of some of the more recent legislation such as the Working Time Regulations 1998 and the National Minimum Wage Act 1998.

The ERA defines a “worker” as:

“an individual who has entered into or works under (or, where the employment has ceased, worked under):

• a contract of employment, or
• 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”.

• The self-employed: generally, if an individual has a contract of employment this means that the person in question is an employee, whereas if he/she has a contract for services he/she will be self-employed, or an independent contractor.

Distinguishing the categories

The two key requirements of a contract of employment are "mutuality of obligation" and "sufficient control". If either or both of these factors are absent, there cannot be a contract of employment, and so it is not possible to be an employee.

Legal consequences of the distinction

Implied contractual obligations

A number of obligations are implied at common law in a contract of employment. Obligations are imposed on both the employer and the employee and include:

• the mutual duty of trust and confidence; an employee’s duty to obey the employer’s lawful and reasonable orders, and the employer’s duty of care towards employees.

Employment protection

A number of other statutory rights are only available to employees including:

• the right not to be unfairly dismissed, and
• the right to receive a statutory redundancy payment; certain written particulars of employment; minimum periods of notice; certain maternity rights; statutory sick pay; statutory maternity pay; and parental leave.

Vicarious liability

An employer will be liable for the wrongful acts or omissions committed by an employee “in the course of employment”. This will not normally be the case where an individual is an independent contractor.

Directors and senior managers

A company director is regarded as an “employee” for most statutory purposes if he/she has a service contract with the company. A non-executive director will not normally be regarded as an “employee”.

Agency workers

This category generally refers to workers who are supplied to a client by an agency on a temporary basis, where there is a contract between the agency and the worker.

It is possible that an implied contract of employment will exist between the client and the agency worker, if there is, as a matter of fact, an employment relationship between the two parties. Agency workers are entitled to equal treatment in relation to their "basic working conditions".

Further information is available here.