DTI’s employment status review

The Employment Status Review (ESR) was first announced by
the government on 11th July last year in document called ‘discussion
document on employment status in relation to statutory employment
rights.’ The consultation period to reply to this paper has now passed.

However, the ESR does offer an interesting insight into the
government’s thoughts on the issue of extending employment rights to
atypical workers such as agency workers, temps, contractors and labour
only subcontractors (in the construction industry).

The ESR has its roots in section 23 of the Employment Relations Act
1999, which enables the Government to extend the coverage of many
statutory employment rights by secondary legislation. However, it would
seem that the actual discussion document was encouraged by the remarks
of Mr Justice Buckley in Montgomery –v- Johnson Underwood. In this case
it was stated by Mr Justice Buckley that the there appears to be
considerable uncertainty concerning the status of individuals who find
work through employment agencies and he urged the government extend the
protection of employment legislation, specifically unfair dismissal.

Therefore, the main issue that the government was seeking to
address in the ESR was whether the ‘present coverage of employment
rights reflects the underlying economic reality of the employment
relationship and whether a different coverage would better meet its aims
for the labour market.’ This is because, the government says, in
practice many atypical workers do the same or similar work to an
employee, may be subject to comparable demands in that they may have
equally little independence over when and how they work and may be
economically dependent on a single source of work. For such reasons it
is contended by the government that there may be a case for giving them
the same protection as employees.

The discussion document restricts itself to employment issues and
omits to address the possible taxation effects such changes in
employment status will have. Commenting on the DTI’s paper, John Avery
Jones of the Tax Law Review Committee (TLRC) said:

“Employment status needs to be considered across the board. It is
not sensible to look at one piece of the jigsaw in isolation. Changes in
one area may have implications for others. What we need is an
inter-departmental review as part of ‘joined-up’ government. The DTI
paper asks for views on whether there should be a broader review of
definitions across employment and tax law. This is precisely what the
TLRC has been calling for.”

The discussion document considered a number of possible approaches
to the extension of employment rights ranging from an across the board
extension of employment rights to all, to cherry picking certain
employment rights for extension, and possibly to making no change to the
current position.

Considering that there is a possibility that the government could
extend all employment rights to all it is surprising that this
consultation did not receive more attention although this may be
explained by the fact that it was released at the some time as the
government consultations on the Agency Workers Directive and the EAA
Regulations. Nevertheless, the possible implications of such an
extension of employment rights would be profound in the UK labour market
as it may mean that all ‘atypical’ workers including agency workers
could accrue employee rights.

It is apparent that many of the secondary rights could be extended
with minimum cost to agencies and clients; for example, allowing time
off work for public duties, pension trustees, parental leave, right to
an insolvency payment and time of for trade union activities. However,
there are significant practical problems of extending all rights
particularly primary rights particularly unfair dismissal and
redundancy.

In relation to unfair dismissal it is not at all clear against whom
can a temp claim such a right? The agency is unlikely to have been
responsible for terminating the engagement, there are no disciplinary
procedures to be followed as with a regular employee and the client does
not have any contractual relationship with the temp. Nevertheless, the
government argues that extending rights may guarantee protection and
increase people’s willingness to take up atypical work.

Moreover, if the government does not include this extension of
employment rights to workers supplied by personal service companies, it
could be that in order to avoid the rights from accruing, every agency
will insist that their workers are hired through a composite or umbrella
company. That would defeat the government’s objective. Therefore, it is
possible that the DTI may be thinking that limited company workers may
also be awarded the same rights. In that event there could be an impact
on the tax status of the individual contractor, and there could be wider
implications resulting in fewer agency workers available in the UK.
That could affect the business of payroll companies.

It is not known what the government’s response is to the discussion
document. However, whatever the government decides to do, it is clear
that the extension of employee rights to atypical workers would create
extra costs for businesses in the UK. The TLRC has highlighted the fact
that the implications of extending employment rights should not be
calculated without taking into consideration the impact of any
reclassification for tax and National Insurance purposes. Any
reclassification may impact on the workload of payrollers in certain
sectors, such as construction.

Most businesses are probably hoping that the government will have
decided that sufficient measures have already been put in place in
relation to employment rights and that the line can be drawn without yet
further measures. However history under this government dictates that
no one should hold their breath.

To be kept up to date with this and other current issues which have an effect on your company and industry register for Agencyzone, Lawspeed’s free newsletter service.