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Could employment status uncertainty put your restructure plans at risk?

11 October 2017 #Other

As anyone who has ever been involved in a restructure exercise will testify, it is often a complex and time-consuming process. Unfortunately, the current uncertainty on employment status, evidenced by well reported cases involving Uber and Deliveroo, highlights further risks for businesses to address in the planning process.

Identifying the employees affected

One of the bedrock questions when planning a restructure is knowing the rights of each individual affected, your legal obligations, the steps you need to take and critically, the cost to the organisation.

When a restructure involves potential redundancies of 20 or more employees, there is an obligation upon employers to collectively inform and consult those at risk and to inform the Secretary for State.

In addition, any employee with more than 2 years’ continuous service being made redundant must receive statutory redundancy pay.  If the process is unfair there is scope for employees (usually with two years’ service) to bring unfair dismissal claims.

This should be fairly straightforward if you know that all of your staff are employees, but in many businesses, for example within the tech sector, significant numbers of individuals are engaged on a self-employed basis or via agencies.

Businesses and individuals value the flexibility of these working arrangements but there is a new uncertainty now as to the status of the individuals engaged under many of these arrangements.

The thin line between employees and workers

You may recall that in the recent cases on employment status, such as Pimlico Plumbers, Uber, Citysprint and Addison Lee, the individuals were found to be “workers”, rather than self-employed (as described by the employer and the contract) and as they were not found to be employees, redundancy rights did not apply.

However, it would be risky to ignore the fact that the dividing line between employee and worker is fairly thin.  The nature of claims in these recent cases did not need to establish that the individuals were employees, but it is not unrealistic that claims for unfair dismissal or redundancy rights by individuals working in similar circumstances could succeed.

Although employees should be employed under a contract of employment, Tribunals are willing to ignore what is in writing if it is contradicted by what is actually happening on the ground. Often, in practice, the key difference between workers and employees comes down to mutuality of obligation, i.e. does the organisation have to offer work and in practice, not just on paper, does the member of staff have to take it or can they refuse?  If there is absolutely no mutuality, the individual will not be an employee.  This can be difficult to assess, as mutuality can exist once an assignment has been accepted.   

You should consider the individuals your business engages as consultants or on a casual basis, even though they may not show up on a simple analysis of headcount. How much control do you have over them at work and can they refuse work? Whilst the contract may state that you do not have to offer them work and they do not have to accept it, if they have worked for a long period of time without a break and have never refused work, they may be able to argue they are employees. Even if the intention was that you could withdraw work when it was quiet or the worker could refuse, if this has never actually happened in practice they could be seen as an employee.

Discrimination, another test of status

It should also be remembered that protection against discrimination extends beyond employees, and potentially even workers, to cover all individuals who are under a contract to personally do work.

Although this does not give them rights in a redundancy situation, there is a risk that if they were excluded from consultation and they could link this to a protected characteristic then they could make a claim of discrimination. For example, this could arise if your cleaning staff are predominantly female and are workers but your employees are mainly male.

Consequences of losing the numbers game

A failure to consult with individuals because they are deemed to be workers or self-employed may give rise to various claims. If they are no longer retained following a restructure, and they are able to show they are employees with relevant service, they are likely to succeed in claims of unfair dismissal and redundancy pay.

There is an additional risk of a protective award if you failed to consult collectively, believing the number of employees affected was less than 20.

If in reality the workers and self-employed take you into the 20 and above figure, you may find yourself on the receiving end of a claim by a very large group for an award with a starting point of 90 days’ gross pay for each employee.

And to add to your woes, if you have underestimated how many employees are being made redundant then it is unlikely you will have fulfilled your obligation to inform the Secretary of State. This can lead to company directors facing criminal convictions and an unlimited fine.

Next steps

Audit your workforce and understand the risks.  Be aware that this won’t involve just looking at contracts but will entail understanding in some detail what the individuals do day to day and what has happened in the past. The time spent in getting the categorisation right could save you major problems down the line.

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Helen Beech

Helen Beech
Partner

E: hbeech@clarkslegal.com
T: 0118 9604 639
M: 07747 620 379