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.

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