Employment status: the naked truth?

In Stringfellow Restaurants Ltd v Quashie [2012] EWCA Civ 1735, the Court of Appeal reinstated an Employment Tribunal decision that a lap dancer who worked at a Stringfellows nightclub was not an employee and, therefore, could not pursue an unfair dismissal claim. This finding is interesting in that it runs contrary to a recent trend where the courts appeared to be finding the existence of an employment relationship in an increasingly wide range of circumstances.

The question of "who is an employee" has always been a challenging one and subject to frequent scrutiny by the courts. The distinction between an employee and an individual providing a personal service on a self-employed basis is often a difficult one to draw. And the implications of the distinction are significant. Whether or not someone is an employee has an impact on, for example, how earnings are taxed, whether a company has vicarious liability for the actions of an individual, whether an individual benefits from maternity, paternity rights and sick pay, and, as was at issue in the Stringfellow case, whether an individual can benefit from the statutory protection not to be unfairly dismissed.

When examining whether or not an employment relationship exists, the courts will look at many different aspects of the relationship to make a determination. The courts are keen to understand how the relationship works in practice, and will not just assume that the contract accurately records the nature of the relationship.

The fundamental ingredients of an employment relationship are the provision of personal work or skill in return for remuneration – the so-called 'mutuality of obligation'. An employer will also exert control over an employee, whereas a self-employed person would likely have a much wider discretion to determine how, where and when the service would be provided. Other factors which may be considered are whether the tools or equipment used in the work are owned and maintained by the employer, whether an individual takes on financial risk as a result of the services provided or if they are just paid a fixed salary or wage, whether an individual hires their own help to complete the services, how the individual is taxed and whether the individual is paid when absent due to holiday or sickness. This list is not exhaustive; the court may consider any factors it considers relevant.

In the Stringfellow case, Ms Quashie (the Claimant) was obliged to work certain shifts assigned to her, holidays could be taken when Ms Quashie wanted but were agreed by prior arrangement and she was subject to numerous rules and regulations which dictated the way she acted at work. If Ms Quashie acted in breach of any of these rules, she would face a "fine" – a financial penalty determined by the severity of the infraction. It was found that although there was nothing formally preventing Ms Quashie from dancing elsewhere, she was under the impression that this would not be viewed favourably. Ms Quashie was encouraged to dress "elegantly" and to buy her outfits from an approved supplier, but she did not have to do so.

Ms Quashie's remuneration arrangements were subject to a complex set of rules. The customers of the Stringfellows club were provided with a menu setting out how much they needed to pay for a dance. The customers paid the dancers in "Heavenly Money"; a form of voucher that avoids actual money being exchanged. The customers purchased Heavenly Money from the club, and in turn, the club would exchange the heavenly money collected by each dancer into cash for the dancer.

Prior to paying the dancer the money she had earned, Stringfellows would make certain deductions. Each dancer was required to pay a £15 "tip-out" fee for each shift which was designed to cover the various facilities used by the dancers at the club. Stringfellows also took a percentage of the earnings as a commission fee. The dancer was also required to pay a £65 per night "house fee". Any fines that the dancer had incurred would also be deducted.

While the EAT found that there were sufficient ties between Ms Quashie and Stringfellows to establish mutuality of obligation (she had to attend meetings and turn up on the days she had indicated she would be available), the Court of Appeal upheld the Tribunal's finding that Ms Quashie was not an employee, principally because the remuneration arrangements meant that an essential part of the wage/work bargain was missing. The Court of Appeal stated that the true position was that Stringfellows did not employ Ms Quashie to dance; rather, Ms Quashie paid Stringfellows to be provided with an opportunity to earn money by dancing for the clients. This finding was also reinforced by the fact that this remuneration arrangement meant that Ms Quashie took an economic risk in attending the club to dance. It was perfectly plausible that she could leave a shift with less money than she arrived with. Also, Ms Quashie did not receive holiday or sick pay. Ms Quashie also accepted she was self-employed under her own contract and made arrangements to pay her own tax.

Unfortunately, it is difficult to extrapolate definitive analogies from most judicial decisions on employment status as each scenario is so fact dependant. The Claimant's situation in this case was certainly fairly unusual. Nevertheless, the judgment does go to show that even if a significant degree of control exists between the parties, other factors may be sufficient to undermine an employment relationship. The decision also helpfully reinforces the principle that, although it will not be determinative, the written contract and agreement between the parties as to the status of the relationship will be persuasive. All that said, there are rumours that Ms Quashie will appeal the Court of Appeal's decision, so watch this space.