EAT provides guidance on worker status and employment status tests

Background

In Ter-Berg v Malde and another, the EAT overturned a tribunal’s decision which had erroneously treated the legal tests for worker and employment statuses as interchangeable.

The claimant, a dentist, sold his dental practice and subsequently entered into an agreement to provide dental services at the same premises. The agreement explicitly stated that it did not create an employment relationship and included a substitution clause allowing the claimant to arrange for a locum in cases of prolonged absence.

The claimant later brought claims in the employment tribunal, arguing that he had been an employee or, alternatively, a worker. The tribunal held at a preliminary hearing that he was not an employee, a decision which the claimant did not appeal. However, in a separate hearing to determine worker status, the tribunal again ruled against the claimant, reasoning that a finding of worker status would be inconsistent with its earlier findings on employment status.

EAT decision

The EAT overturned the tribunal’s decision, holding that it had made three key errors:

• Personal service and substitution rights: The tribunal had concluded that the claimant did not meet the requirement of personal service due to the substitution clause in his agreement. However, the EAT found that the tribunal had misapplied the case law on substitution. It reiterated that where a substitution clause is limited—such as only permitting substitution in cases of illness—this does not automatically negate the requirement for personal service. The tribunal had also incorrectly relied on 'exceptional facts' in reaching its conclusion, when in reality, nothing in the case pointed away from a requirement for personal service.
• Employment status findings were not determinative of worker status: The tribunal had wrongly assumed that its earlier decision that the claimant was not an employee meant that he could not be a worker. The EAT clarified that the test for worker status has a lower threshold and requires an independent assessment, rather than simply carrying over conclusions from the employment status test.
• Intentions of the parties: The tribunal had placed undue weight on the parties’ original intention that the claimant be self-employed. The EAT held that while the parties’ intentions can be relevant in assessing employment status, they are not conclusive in determining whether an individual is a worker. References to being 'self-employed' or an 'independent contractor' can be ambiguous, and the tribunal should have carefully considered whether, despite this label, the claimant actually met the legal definition of a worker.

The importance of distinguishing between status tests

The EAT’s ruling highlights the clear distinction between employment and worker status, confirming that a tribunal cannot simply rely on findings in relation to employment status when determining worker status. While both statuses require an obligation of personal service, the threshold for worker status is lower, meaning that an individual can fail to qualify as an employee but still be a worker.

The decision reinforces that a tribunal must take a nuanced approach when assessing contractual terms, particularly around substitution clauses. A conditional or restricted substitution clause does not automatically undermine personal service, and tribunals should carefully consider the practical operation of such clauses rather than applying rigid rules.

The EAT also made an important point about the parties’ intentions. While a contract may state that no employment relationship exists, this does not automatically exclude worker status. The tribunal must assess the substance of the working relationship rather than simply taking the written terms at face value.

Best practice

Employers should be mindful that tribunals will focus on the reality of the working relationship rather than simply relying on contractual labels. A substitution clause does not automatically defeat worker status, especially if it is conditional or limited. Even where an individual is not found to be an employee, they may still qualify as a worker, and businesses should not assume that a self-employed designation alone is sufficient to exclude statutory protections.

To minimise the risk of misclassification claims, employers should ensure that contractual arrangements accurately reflect the true nature of the relationship. Contracts should be reviewed to assess whether substitution rights, control mechanisms, and the level of integration into the business are consistent with the intended status. If in doubt, seeking legal advice at the outset can help to avoid costly disputes later.

Tribunals will continue to scrutinise working arrangements, particularly where individuals engaged under self-employed contracts may still have worker rights. Employers should carefully structure agreements to align with their intended working relationship while ensuring compliance with employment protections.

The case has been remitted to a fresh tribunal to reconsider the claimant’s worker status in light of the EAT’s guidance.

For more information or advice, please contact Eleanor Taylor in our Employment team on 07340 626 792, or complete the form below.