The government has published a consultation paper on employment status reform and protections for the self-employed. The consultation closes on 8 January 2027.
Employment status
Broadly the law reduces employment status into one of three main types for employment rights: An employee who has the most rights but also has the most responsibilities and obligations towards their employer; a limb (b) worker who is not an employee and who has fewer rights and obligations than an employee; and a self-employed individual who has the least protection but also tends to have fewer personal obligations and has significant flexibility in their work and/or delivers a service to a customer or client as part of a business or professional undertaking.
Under the current framework, it can be difficult to determine the boundaries between the different types of employment status. The government is seeking views on targeted reform of employment status to tackle the most pressing issues with the current rights framework, such as bogus self-employment and the use of substitution clauses.
The government is also seeking views on proposals to improve compliance with the law by including a presumption of worker status so that the burden of proof is on the employer to demonstrate that the person they engage is not a worker and is therefore genuinely self-employed.
Personal service, control and substitution
One of the key tests to determine an individual’s employment status is whether they provide ‘personal service’ (ie whether the work must be carried out personally by the individual). Some businesses make use of broad substitution clauses, which can have the effect of making it difficult for the individuals they engage to meet the personal service test even where significant control is being exerted over how they conduct their work. When determining employment status, courts will consider whether the right to substitution is unfettered. In general, an unfettered right to substitution means the right exists without any restrictions or criteria as to how and when it can be used. This is likely to be inconsistent with personal service and would mean the individual will not be considered a worker. If the right of substitution states that the replacement to carry out the work can only come, for example, from a list of people provided by the employer, then the substitution right is fettered or limited. Depending on the circumstances this may or may not be consistent with personal service. The courts will also consider the reality of the relationship and whether the right of substitution exists in practice or not. If a substitution clause in the contract reflects the reality of the relationship, then even if it is rarely or never used it can still be valid and prevent the test for personal service from being met.
The government’s intended starting point is that where significant control is being exercised over the person who is carrying out that work, that person should not be denied access to core employment rights based on failing to meet the test for personal service alone. Personal service should continue to be an important consideration in determining employment status and should be considered alongside other factors relevant to each case, like control, but the personal service test should not play such a critical role in deciding whether someone is a limb (b) worker. Therefore, the government is proposing to change the law to place less emphasis on personal service so that the existence of a valid right of substitution does not outweigh all other factors that point to worker status.
The government is proposing an alternative approach which is to elevate the importance of control in the limb (b) worker test. The test would be:
- Step 1: Does a contract exist? If no, individual is not a worker.
- Step 2: Does the individual personally provide services and/or are they under a significant level of direction or control by the employer/engager? If no, individual is not a worker, if yes, the individual is likely to be a worker but move to step 3
- Step 3: Is the individual carrying on a business or profession on their own account and is the other party to the contract a client or customer of that business or profession (this would also include an assessment of personal service). If yes, individual is not a worker, if no, individual is a worker.
An alternative way of placing less emphasis on personal service could be for the government to instead legislate so that the existence of a right of substitution does not outweigh all other factors that point to worker status.
The government is also considering renaming 'limb b' workers.
Improving compliance with the status framework
The government proposes to legislate to create a presumption of worker status by reversing the burden of proof in certain cases.
The government also proposes to amend the ERA 1996 to establish that repeated failures by an employer to recognise employment status constitutes an aggravating factor in any breach. This will set out explicitly that if employers choose to argue that someone does not have limb (b) worker or employee status, despite a tribunal having previously ruled that their colleagues do have that status (where the facts of their colleagues’ employment are broadly similar to those of the claimant’s employment) the tribunal can order the payment of an additional penalty, currently of between GBP100 and GBP20,000 per claim.
State enforcement: Fair Work Agency
The government is seeking views on how the Fair Work Agency’s civil proceedings and legal assistance powers could best be used to determine employment status. The government is also considering developing an online interactive assessment tool to assist with determining employment status.
Strengthening protections for the self-employed
The government is considering extending the meaning of ‘worker’ for specific rights and protections to cover self-employed people and establishing a new right to a written statement of terms for certain self-employed individuals including key terms such as:
- Engager’s name.
- Self-employed individual’s name.
- Scope of the work.
- Expected period of the work.
- Payment terms eg how much the self-employed individual will get paid and when.
- Terms for termination.
- Any further details the parties agree should be included in a written statement.
A time frame could be applied to stipulate that only where a contract for services is due to last over a certain specified period of time would there be a requirement to provide a written statement. Like the time frame, the value of the contract for services could be used as a qualifying criterion.
The government is also considering whether to extend blacklisting protections so that more self-employed individuals can benefit from blacklisting protections, and protection against detriment where an individual takes appropriate steps to protect themselves or others from serious and imminent danger in the workplace.
Employers can respond to the consultation here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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