Self-employed, worker or employee: what is the diagnosis?

With work practices constantly changing to accommodate modern life, it is becoming increasingly difficult to distinguish between employees, workers and the self-employed.

Community Based Care Health Ltd v Narayan provides a reminder of the challenges when seeking to prove self-employment in a longstanding relationship; and of the need for clear guidance to help organisations determine employment status.

The facts

Dr Narayan worked as an out-of-hours GP providing services to the NHS through Community Based Health Care Ltd (CBCH). She worked regular shifts for CBCH on a 12-week rota at one medical practice. There was, however, no obligation for CBCH to give her work or for her to accept any work which she was offered. She could take holidays whenever she wished.

Dr Narayan was allowed to work for other practices and sometimes did so. She had set up a company, on advice of her accountant, which both CBCH and her other practice paid her through. She then in turn paid her tax and national insurance through it. CBCH were unaware that the bank details given were for her company bank account rather than her personal one.

The NHS required all out-of-hours providers such as CBCH to ensure that their doctors were suitably qualified and able for the role. CBCH carried out regular audits of their doctors in order to meet this requirement.

In 2016, a dispute arose regarding advice that Dr Narayan had given and an accusation that she had swapped duties at short notice without permission. As a result, CBCH said that they were no longer going to be able to offer her any work. Dr Narayan raised a number of claims including unfair dismissal, sex and race discrimination, unpaid holiday pay and breach of contract.

Case outcome

CBCH argued that Dr Narayan was self-employed and therefore could not bring the various tribunal claims against them. The Employment Tribunal judge considered thirteen key factors in Dr Narayan's job which were relevant to establishing her employment status, including the following:

• There was no obligation to provide her with work nor was there any obligation on her to accept work;
• She did not need permission from CBCH to work for other practices or providers;
• She abided by CBCH's rules in relation to shift pattern;
• CBCH provided any required drugs to her;
• She had to provide her own equipment;
• If she was unavailable for a shift CBCH offered her, she could not send someone in her place;
• CBCH audited her to ensure that she was of suitable standard for the NHS; and
• She had to arrange her own indemnity insurance.

Taking these factors into account, the Employment Tribunal found that Dr Narayan was not self-employed and that she was a worker (but not an employee). This meant that her claim for unfair dismissal could not proceed, but her claims for race and sex discrimination, unpaid holiday pay and breach of contract could.

CBCH appealed on a number of grounds. One of these was that as they were paying Dr Narayan's limited company, their contractual relationship was with the company rather than with her as an individual. The EAT dismissed this argument. The relationship required those performing out-of-hours services to be qualified and approved and clearly a corporate entity could not meet these requirements. Further, as CBCH was unaware that the company existed, they could not have reasonably believed their contract was with it.

CBCH also made reference in their appeal to an earlier case of Suhail v Herts Urgent Care where it was held that a doctor who was willing to provide his services to "whichever provider of medical services might wish to provide him with work" was self-employed. The EAT distinguished CBCH's case from Suhail on the basis that, while Dr Narayan was not prohibited from marketing herself to a wide range of providers, in practice she had worked regular shifts for CBCH for a number of years. Dr Narayan was an integral part of CBCH's business.

In practice

This case highlights that even if, at the outset, the intended relationship was one of self-employment and client, if in practice the relationship is more akin to employee or worker and employer then the tribunal will be prepared to find that such a relationship exists.

Cases like this have resulted in calls for better guidance on determining employment status. In fact the Government intends to legislate to clarifythe employment status tests; and align them for employment rights and tax purposes - read about this in our earlier blog.

Employment status for tax purposes

It is important to remember that:

• An individual's status for tax purposes can be significant when assessing their status for employment law purposes but they are not necessarily the same; and
• Not all individuals will want to challenge their employment status to gain employment rights because of the risk that HMRC will use this to argue that they should also have been treated as an employee for tax purposes.

IR35 reform

There will be an increased focus on the status of contractors from April 2020 when the new tax rules for off payroll workers in the private sector come into force. Businesses may use CEST, the government's online tool, to make an assessment of their contractors' employment status for tax purposes and this will highlight those who have been operating under the wrong status and who may have paid a short-fall of tax for some time.

The changes are not retrospective and HMRC has indicated that it will not carry out targeted campaigns using the client's status determination as the basis to assess historic IR35 exposure. However, this does not rule out the possibility of an assessment that a contractor is inside IR35 being used as the basis as a claim for back tax.

For more information on the new IR35 rules, go to Brodies' IR35 hub.