The Status of Workers Bill [HL] was introduced in the House of Lords on 26 May 2021. It is a private member’s bill sponsored by Lord Hendy (Labour). The bill’s second reading is scheduled to take place in the House of Lords on 10 September 2021. Lord Hendy has described the purpose of his bill as follows:

The bill is intended to deal with the problem posed by the current state of labour law which permits employers to classify workers into legal categories, many of which do not have the statutory employment rights which Parliament has stipulated employees should have. There are five such legal categories: ‘employees’ with full rights; ‘limb (b) workers’ with limited rights; ‘bogus self-employed workers’ with no rights; workers with ‘personal service companies’ with full rights but enforceable only against themselves; and, finally, the genuinely ‘self-employed’ in business on [their] own account with [their] own clients. The bill resolves this complex picture by designating all the first four categories as ‘workers’ with all statutory employment rights (subject to length of service qualifications). Only the fifth category will be unaffected.

The bill is supported by the Institute of Employment Rights, of which Lord Hendy is chair.

Employment status

Employees and workers

A person’s statutory rights at work depend on their employment status. In employment law, there are three main statuses: employee, workers and self-employed. Workers who do not fall into the employee category have fewer rights than employees, and self-employed people are largely not covered by employment law. Different definitions of ‘worker’ and ‘employee’ are used in different pieces of legislation covering employment rights, trade unions, equality and social security. For tax law purposes, the only distinction made is between employment and self-employment.

The main employment rights statute is the Employment Rights Act 1996. Section 230 sets out basic definitions of ‘employee’ and ‘worker’. An ‘employee’ is “an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment”. A ‘contract of employment’ is defined as “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing”. A worker is:

[…] an individual who has entered into or works under (or, where the employment has ceased, worked under)—

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

According to these definitions, employees fall under the ‘limb (a)’ definition of worker. However, not all workers are employees. Workers who fall into the ‘limb (b)’ part of the definition have fewer employment rights and protections than employees. These limb (b) workers are often referred to simply as ‘workers’ as a shorthand, particularly when drawing comparisons with employees. The table below summarises differences in the rights enjoyed by employees and workers, based on analysis by the Trades Union Congress (TUC)

. Some rights apply from day one, while others apply only once the individual has worked for a qualifying period (for instance, protection against unfair dismissal).

Employment rights Employee Worker
National minimum wage
Protection against unlawful deductions from wages
Paid annual leave
Statutory minimum length rest break
Protection from accidents at work
Not work more than 48 hours a week on average
Protection against unlawful discrimination
Protection for whistleblowing
Not be treated less favourably for working part-time
Join a trade union
Be accompanied in grievances and disciplinary actions
Statutory sick pay
Protections when pregnant Some
Maternity and paternity leave and pay
Minimum notice periods if employment is ending
Protection against unfair dismissal
Right to request flexible working
Time off for emergencies
Statutory redundancy pay


Employment law does not cover self-employed people in most cases. The Government has stated that a genuinely self-employed person does not require legal protection to treat themselves fairly, as they have control over their own work and negotiate the price they are paid. Self-employed people have health and safety protections, and in some cases protection against unlawful discrimination. Other rights and responsibilities will be set out by the terms of the contract they have with their clients.

Over recent years, concerns have been raised about the extent of bogus or false self-employment, where individuals are registered as self-employed although they should qualify for employee or worker status. This problem is thought to be particularly prevalent in the construction industry, and it has given rise to a number of legal cases in the gig economy. For instance, in Uber v Aslam, Uber drivers argued they were workers; Uber maintained they were self-employed contractors, and its own role was simply to act as a technology provider and booking agent. In February 2021, the Supreme Court upheld that the Uber drivers were workers.

Bogus self-employment affects individuals because they may miss out on benefits and protections they would be entitled to as workers, such as the national minimum wage and paid annual leave. It also affects the taxpayer because it allows employers to avoid paying national insurance contributions. Mark Harvey, emeritus professor in the Department of Sociology at the University of Essex, has estimated that this might result in £7.8 billion or more of lost revenue to the Treasury a year.

Concerns have also been highlighted about the impact of coronavirus. The House of Commons Work and Pensions Committee noted the difficulties in distinguishing between genuine and bogus self-employment in the gig economy. It said it was “inevitable” that some people in precarious and low-paid work would have found themselves ineligible for both the coronavirus job retention scheme (furlough) and the self-employed income support scheme. It said the impact of coronavirus made it “more important than ever to clarify the law on employment status”.

Determination of employment status by the courts

Where there is a dispute about an individual’s employment status for employment rights purposes, they can bring a claim to an employment rights tribunal. The courts have developed a series of tests to determine employment status. These include whether:

  • the individual agrees to work personally for pay (or whether they can send a substitute);
  • there is a mutuality of obligation between the parties (for instance, whether there is an ongoing contractual obligation to provide and perform work);
  • the employer exerts control over the work; and
  • the individual is performing services in business on their own account.

The House of Commons Library has noted that “current case law suggests that the tests for identifying a worker are the same as those for identifying an employee, albeit that the ‘pass mark is lower’”, for example the degree of employer control over the work.

Employment status disputes in the gig economy have typically hinged on whether someone is a worker or self-employed. There have also been cases where the issue is whether someone on a zero-hours contract is an employee or a worker. Tribunals and courts have sometimes found that the ‘mutuality of obligation’ test for an employee is satisfied if an individual is obliged to be available and accept work when offered, even if the employer is under no obligation to offer work.

The Taylor Review of Modern Working Practices—an independent review carried out in 2017—took evidence that some individuals and employers did not understand how this framework operated legally and practically, while some employers deliberately sought to circumvent it.

Personal service companies

There is no legal definition of the term ‘personal service company’. It is usually taken to mean a limited company where a director is the only or main shareholder and provides services through the company, rather than working directly for clients or being employed by another employer. There may be tax benefits for both the individual and the client organisation in such an arrangement. However, if the individual providing services through a personal service company is effectively working as the client’s employee, then under the IR35 rules, income tax and national insurance contributions must be paid in broadly the same way as an employee’s earnings would be taxed.

In 2014, the House of Lords Personal Service Companies Committee expressed concerns that individuals working through personal service companies might “not be aware that they have foregone at least some levels of employment protection and benefits to which they would be entitled if they were in conventional employment”. Lord Hendy has argued that, “on the face of it, they have full employment rights—but only against their own company”, meaning that “the real employer is insulated against any responsibility whatsoever for their rights”.

What would the bill do?

The Status of Workers Bill would remove the existing definitions of ‘worker’, ‘employee’, ‘employer’ and ‘contract of employment’ from the Employment Rights Act 1996 and the Trade Union and Labour Relations (Consolidation) Act 1992. It would insert new definitions, so that in both acts ‘worker’ and ‘employee’ would mean an individual who:

(i) seeks to be engaged by another to provide labour,

(ii) is engaged by another to provide labour, or

(iii) where the employment has ceased, was engaged by another to provide labour, and is not, in the provision of that labour, genuinely operating a business or his or her own account.

In both acts, an ‘employer’ of a worker or employee would mean:

(i) every person or entity who engages or engaged the worker or employee, and

(ii) every person or entity who substantially determines terms on which the worker or employee is engaged at any material time.

A ‘contract of employment’ would be defined as:

[…] a contract, however described, whereby an individual undertakes to do or perform any labour, work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual […]

Both acts would be amended to provide that, in the case of any legal dispute over someone’s employment status, it would be for the employer to demonstrate they were not an employer or that the person providing the labour was not engaged as an employee or worker.

All of these provisions would apply to employment for the purposes of a government department, but not to members of the armed forces.

Both acts would also be amended to specify that if a worker or employee provides labour through a personal service company, the employer would be the third party for whom the labour is performed. The bill would insert a statutory definition of a personal service company in both acts.

The bill would add powers to both acts enabling the secretary of state to designate other persons as ‘workers’ and other entities as ‘employers’. The secretary of state could make such regulations only after consultation with organisations representing the categories of workers/employers to be designated.

The bill would extend to England and Wales and Scotland.

What has the Government said about employment status?

Theresa May’s Government committed in 2018 to legislating in this area. In its Good Work Plan, published in December 2018, it said it would bring forward legislation to “improve the clarity of the employment status tests, reflecting the reality of modern working relationships”. It said this legislation would tackle the problem of business “avoid[ing] their responsibilities by trying to misclassify or mislead their staff”. It said it would also bring forward detailed proposals on how the tax and employment rights frameworks could be aligned.

The then Government made these commitments following the Taylor Review of Modern Working Practices, published in 2017, and a consultation on employment status, run in 2018. The Taylor Review made a series of recommendations relating to employment status, including:

  • Government should replace the minimalistic approach to legislation with a clearer outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail.
  • Government should retain the current three-tier approach to employment status [employee, worker, self-employed] as it remains relevant in the modern labour market, but rename as ‘dependent contractors’ the category of people who are eligible for worker rights but who are not employees.
  • In developing the test for new ‘dependent contractor’ status, control should be of greater importance, with less emphasis placed on the requirement to perform work personally.
  • In redefining ‘dependent contractor’ status, Government should adapt the piece rates legislation to ensure those working in the gig economy are still able to enjoy maximum flexibility whilst also being able to earn the national minimum wage.
  • In developing the new ‘dependent contractor’ test, renewed effort should be made to align the employment status framework with the tax status framework to ensure that differences between the two systems are reduced to an absolute minimum.

No legislation was introduced before Theresa May left office in 2019. Boris Johnson’s Government set out plans in the December 2019 Queen’s Speech for an Employment Bill. Among other things, this was intended to create a new single enforcement body for workers’ rights and introduce a new right for all workers to request a more predictable contract. The Government’s background briefing for the Queen’s Speech did not mention anything specific about employment status. No Employment Bill was introduced in the 2019–21 parliamentary session, and it was not mentioned in the latest Queen’s Speech in May 2021.

However, when asked in June 2021 whether the Government would legislate on the Taylor Review recommendations, including those relating to unclear employment status, Paul Scully, Parliamentary Under Secretary of State for Business, Energy and Industrial Strategy, said in June 2021 that the Government would bring forward an employment bill when parliamentary time allowed. In July 2021, Mr Scully said the Government was “currently considering options to improve clarity around employment status” and was “working with stakeholders and cross-Government on how best to address it in a post-Covid scenario”. Lord Callanan, Parliamentary Under Secretary at the Department for Business, Energy and Industrial Strategy, recently said the Government believed the three-tiered employment status structure “provides the right balance for the UK labour market”. He added the Government’s work with businesses, trade unions and other groups sought to ensure that any options for clarifying employment status were “effective, preserving the flexibility of the labour market while making it easier to understand for individuals”.

The Government has stated that the new single enforcement body it plans to establish will not specifically cover bogus self-employment. It argued that the power to determine individual cases should rest with the employment tribunal.

Other responses

The Labour Party announced in July 2021 that its policy would be “to give all workers security at work by creating a single status of ‘worker’ for all but the genuinely self-employed, with rights from day one of employment”. Under this plan, all workers would be entitled to statutory sick pay, the national minimum wage, holiday pay, paid parental leave and protection against unfair dismissal.

The TUC published a report on insecure work in July 2021 in which it called for the Government to bring forward an employment bill urgently, including introducing penalties for employers who mislead people about their employment status.

The Confederation of British Industry (CBI) has previously argued (in response to the Government’s consultation in 2018) that the three-tier employment status should be retained. It described worker status as “integral to business confidence and flexibility in the UK labour market”. It argued that concerns around a lack of clarity in the UK’s employment status framework stemmed from ineffective enforcement rather than ineffective law.

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