After a recent decision by the UK Employment Appeal Tribunal, councils and similar institutions across the United Kingdom may want to reassess the terms of their agreements with individuals providing services, and organisations using independent contractors should consider whether those individuals should be properly classified as workers or employees.

The UK Employment Appeal Tribunal (EAT) rejected Glasgow City Council’s appeal against two foster carers, Mr and Mrs Johnstone (the Claimants), being regarded as employees of the Council in Glasgow City Council v. Johnstone. In its ruling, the EAT held that the terms of the agreement between the Claimants and the Council were both contractual in nature and “indicative of a contract of employment.”

This ruling is the first time that a UK appeal court has confirmed that certain foster carers are entitled to employment rights. Whilst the EAT made it clear that the circumstances in this case differed from “ordinary” foster care arrangements, the outcome will nevertheless lead councils and similar institutions across the United Kingdom to reassess the terms of agreements they have in place with individuals providing a service.

More widely, organisations that structure the engagement of service personnel as independent contractors should also consider if these individuals should properly be classed as workers or even employees. This case continues the trend of tribunals finding in favour of worker and employee rights for individuals who were previously regarded as independent contractors, such as taxi drivers, couriers, and plumbers.

Importance of Agreement

The case first came before the Employment Tribunal in 2017. The Claimants alleged that they had suffered a detriment as a result of whistleblowing disclosures that they had made, as well as unlawful deductions from wages, claims which are only available to employees. In its response, the Council argued that the Tribunal did not have jurisdiction to hear the claim on the basis that the Claimants were neither employees nor workers. The Council asserted that the relationship between it and the Claimants was based on statute (in this case the Looked After Children (Scotland) Regulations 2009) rather than a contract. Although these regulations required there to be a contract with the carers, the content of the agreement was not specified.

The EAT found that the agreement between the Claimants and the Council was, in fact, contractual. The agreement contained provisions to the effect that the Claimants were

  • paid a substantial fee (of £30,160 per annum), not just expenses;
  • prevented from taking any other paid employment;
  • paid regardless of whether a child was placed in their care; and
  • allowed to take holiday without the child placed in their care, unlike other foster carers.

The EAT noted that, whilst certain terms of the agreement simply reflected the requirements of statute, other terms went above and beyond the statutory requirements, in particular the terms regarding payment and the degree of control exercised by the Council over the Claimants. These elements were held to show that a contract of employment existed. Therefore, the Claimants were found to be employees of the Council.

Implications for Employers

The Independent Workers Union of Great Britain, which supported the Claimants, has described this as a “landmark victory” and called on the UK government to reconsider the status of foster carers across the United Kingdom.

Workers are defined as being employed or engaged under a contract of employment or another form of contract. For a worker to be an employee, in the absence of an express employment contract, the following elements must be satisfied:

  • the requirement to provide personal service;
  • mutuality of obligations (to provide and to perform work); and
  • a degree of control exercised by the employer.

For those who are self-employed, in Bates,[1] the UK Supreme Court stated: “[T]he law now draws a distinction between two different kinds of self-employed people. One kind are people who carry on a profession or a business undertaking on their own account and enter into contracts with clients or customers to provide work or services for them . . . .The other kind are self-employed people who provide their services as part of a profession or business undertaking carried on by someone else.”

The Johnstone case follows a number of recent cases regarding employment status. This case is consistent with other claims for worker status in the United Kingdom regarding the status of “gig economy” contractors (a market model in which workers contract with organisations for temporary, short-term engagements). In a recent LawFlash we described the unsuccessful attempt of cyclist Jess Varnish to prove that she was an employee of British Cycling and UK Sport.

However, this finding now seems to be the exception rather than the rule, with a growing trend towards finding in favour of worker or employee status in cases involving taxi drivers, cycle couriers, plumbers, and actors. The Supreme Court is due to determine the status of taxi drivers in a case that was appealed by the employer later in September 2020.

Employers should continue to assess the engagement of personnel and ensure they are properly characterised, from a tax and an employment and worker rights perspective, to avoid disputes and potentially costly claims. This is particularly important given the forthcoming changes to off-payroll rules (see our LawFlash).