In English law, an employment contract is a specific kind of contract whereby one person performs work under the direction of another. The two main features of a contract is that work is exchanged for a wage, and that one party stands in a relationship of relative dependence, or inequality of bargaining power. On this basis, statute, and to some extent the common law, requires that compulsory rights are enforceable against the employer.
There are diverging views about the scope by which English law covers employees, as different tests are used for different kinds of employment rights, legislation draws an apparent distinction between a "worker" and an "employee", and the use of these terms is also different from their use in the European Court of Justice and European Union directives and regulations. Under the Employment Rights Act 1996 section 230, an "employee" is anyone with a contract of service, which takes its meaning from a series of court cases that are also applicable for tax and tort law, where different judges have given different views about the meaning of the word. An "employee" is entitled to all types of rights that a worker has, but in addition the rights to reasonable notice before a fair dismissal and redundancy, protection in the event of an employer's insolvency or sale of the business, a statement of the employment contract, and rights to take maternity leave or time off for child care.
A "worker" is a broader concept in its statutory formulation, and catches more people, but does not carry as many rights. A worker means any person who personally performs work, and is not a client or a customer. A worker is entitled to a minimum wage, holidays, to join a trade union, all anti-discrimination laws, and health and safety protection.
Scope of employment rights
As yet, the UK has not consolidated a comprehensive definition of the people to whom employment rights and duties apply. Statute and case law, both domestic and European, use two main definitions, with approximately six others. The EU does have one consolidated definition of a 'worker', which is someone who has a contract for work in return for a wage, and also stands as the more vulnerable party to the contract.Lawrie-Blum v Land Baden-Württemberg (1986) Case 66/85, ECR 2121; Pfeiffer v Deutsches Kreuz, Kreisverband Waldshut eV (2005) C-397/01, IRLR 137 This reflects the kernel of classical labour law theory, that an employment contract is one infused with inequality of bargaining power, and stands as a justification for mandating additional terms to what might otherwise be agreed under a system of total freedom of contract.
UK courts have agreed that an employment contract is one of a specific type, and that it cannot be equated with a commercial agreement.Johnson v Unisys Ltd IRLR 279. Lord Steyn: "It is no longer right to equate a contract of employment with commercial contracts. One possible way of describing a contract of employment in modern terms is as a relational contract." However, UK statutes deploy two main definitions, of an 'employee' and a 'worker', with a different number of rights. The government may also pass secondary legislation to include specific groups of people into the 'employee' category. An employee has all available rights (all the rights of a worker but also child care and job security rights). The meaning is explicitly left to the common law under the main statute, the Employment Rights Act 1996 (ERA 1996) section 230, and has developed according to the classical 19th century contrast between a contract 'of service' and one 'for services'. While the classical test was that an employee was subject to a sufficient degree of 'control',Yewens v Noakes (1880) 6 QBD 530; R v Negus (1873) LR 2 CP 34 new forms of work where people were had greater autonomy outside the factory to choose how to do their jobs, meant that, particularly from the mid-20th century,National Insurance Act 1946, 9 & 10 Geo 6 c. 67, s. 1(2) additional tests of employment were developed. Multiple factors, including how much one could be said to be integrated into the business,Cassidy v Minister of Health 2 KB 343, Stevenson, Jordan & Harrison Ltd v MacDonald & Evans 1 TLR 101; Bank voor Handel en Scheepvaart NV v Slatford 1 QB 248, 295. Denning LJ: "It depends on whether the person is part and parcel of the organisation." or whether one metaphorically wore the 'badge' of the organisation, were looked at, with a focus, it was said on 'economic reality' and form over substance. Multiple relevant factors would include how much the employee was 'controlled', if they owned their tools, if they had the chance of profit and bore the risk of loss.Montreal v Montreal Locomotive Works 1 DLR 161, 169, per Lord Wright, and Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance 2 QB 497, 515, per MacKenna J. But in the late 1970s and 1980s, some courts began to speak of a new test of 'mutuality of obligation'. One view of this was merely that workers exchanged work for a wage.Nethermere (St Neots) Ltd v Gardiner IRLR 240; Dacas v Brook Street Bureau (UK) Ltd EWCA Civ 217 Another view stated that the employment relationship had to be one where there was an ongoing obligation to offer and accept work.O'Kelly v Trusthouse Forte plc ICR 730, IRLR 369; James v Greenwich LBC. This appeared to derive from M. Freedland, The Contract of Employment (1976) pp. 21–22 and first used in Airfix Footwear Ltd v Cope ICR 1210. This led to cases where employers, typically of people on low wages and little legal understanding, pleaded that they had only hired a person on a casual basis and thus should not be entitled to the major job security rights.
In addition, a 'worker' is defined in ERA 1996 section 230 as someone with a contract of employment or who personally performs work and is not a client or a customer. So this concept has greater scope, and protects more people, than does the term 'employee'. This class of person is entitled to a safe system of work, a minimum wage and limits on working time, as well as discrimination and trade union rights, but not job security, child care and retirement rights. This concept thus reaches up to protect people who are quasi-self-employed professionals, albeit not so vulnerable, such as a home cleaner, or music teacher who visits student homes, or in certain cases a taxi cab driver.
Autoclenz Ltd v Belcher – the true nature of the relationship, not contractual terms, determine whether a person is a worker Jivraj v Hashwani UKSC 40 – arbitrators do not have employment contracts Governing Body of Clifton Middle School v Askew ICR 286 – employment relationship Edmonds v Lawson EWCA Civ 69, IRLR 391 – pupil barrister was not an apprentice Mingeley v Pennock and Ivory (t/a Amber Cars) EWCA Civ 328 – taxi driver found not to be a worker due to the facts of his relationship with the taxi company Hall v Woolston Hall Leisure Ltd EWCA Civ 170 – complicity with employer's income tax evasion did not remove employee's protection from discriminatory dismissal Beloff v Pressdram Ltd 1 All ER 241 – outside work did not negate a journalist's employee status Ferguson v John Dawson & Partners (Contractors) Ltd EWCA Civ 7, 1 WLR 1213 – Megaw LJ: declarations of employee status to be "wholly disregarded" Calder v H Kitson Vickers & Sons (Engineers) Ltd ICR 232, 251 – Ralph Gibson LJ: declarations are not conclusive, but relevant Newnham Farms Ltd v Powell (2003) EAT/0711/01/MAA – employment contract found to exist as a result of conduct, conveying entitlement to minimum wage Aslam v Uber BV (2016) – scope of employment rights for Uber drivers, "worker" concept Clark v Oxfordshire Health Authority IRLR 125 – no employment contract existed due to lack of mutuality of obligation Consistent Group v Kalwak EWCA Civ 430 – Employment Appeal Tribunal's judgment that a zero hours contract was a sham overturned due to errors in its treatment of evidence
Employment rights Employee statement of contract (ERA 1996 s 1) reasonable notice (ERA 1996 s 86) unfair dismissal (ERA 1996 s 94) redundancy (ERA 1996 s 139) guaranteed pay on employer insolvency (ERA 1996 s 94) transfer of employment status on transfer of business (Transfer of Undertakings (Protection of Employment) Regulations 2006, implementing the Transfers of Undertakings Directive 2001/23) maternity, paternity and parental leave request flexible working time (ERA 1996 s 80F) right to return to work consultation on changes to contracts or organisation (Information and Consultation of Employees Regulations 2004, implementing the Information and Consultation of Employees Directive 91/533) Income Tax (Earnings and Pensions) Act 2003, Part 11, employed earner, "gainfully employed under a contract of service" contributions to National Insurance (Social Security Contributions and Benefits Act 1992 (c. 4) ss 1(2)(a)(i) and 2(1)(a))
Worker union organisation (Trade Union and Labour Relations (Consolidation) Act 1992) minimum wage (National Minimum Wage Act 1998, and Agricultural Wages Act 1948 where relevant) 28 days holiday, working time limits (Working Time Regulations 1998, implementing the Working Time Directive) procedures under the Transfer of Undertakings (Protection of Employment) Regulations 2006, implementing the Collective Redundancies Directive 1998, though the UK regulations use 'employee' occupational pension (Pensions Act 2008)
Construction of employment
France v James Coombes & Co AC 496 Lloyds Bank Ltd v Bundy QB 326 Pao On v Lau Yiu Long UKPC 2 National Westminster Bank plc v Morgan 1 All ER 821 Johnson v Unisys Limited UKHL 13 Reda v Flag Ltd UKPC 38 Gisda Cyf v Barratt UKSC 41 Autoclenz Ltd v Belcher UKSC 41
Express terms
Once a person's work contract is categorised, the courts have specific rules for determining, beyond the statutory minimum charter of rights, what are its terms and conditions. Analogous rules for incorporation of terms and implication of terms exist as in the ordinary law of contract; however, in Gisda Cyf v Barratt, Lord Kerr emphasised that this process of construction is one that must be "intellectually segregated" from the general law of contract, because of the relation of dependency an employee has. In this case, Ms Barratt was told her employment was terminated in a letter that she opened 3 days after its arrival. When, 3 months and 2 days after arrival, she lodged an unfair dismissal claim, the employer argued it was time barred on the ground that in ordinary contract law one is bound by a notice when a reasonable person would have read a message. The Supreme Court held that Ms Barratt was in time for a claim because she was only bound by the notice when she actually read it. The applicable in employment was different, given the purpose of employment law to protect the employee. From formation to termination, employment contracts are to be construed in the context of statutory protection of dependent workers.
Statutory compulsory terms: right to statement, payment of wages, notice, fair dismissal, redundancy, minimum wage, working hours, pension British Telecommunications plc v Ticehurst ICR 383 Cheltenham Borough Council v Laird EWHC 1253 QB, on misrepresentations before entering an employment contract
Incorporation of terms