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