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20 February 2017

Getting employment status right

The so-called "gig economy" has received significant press coverage recently as a number of high profile businesses, such as Uber, CitySprint, Deliveroo and Hermes, have faced claims from staff that they have been incorrectly categorised as self-employed when they are in fact workers. Workers have more employment law rights than self-employed individuals but do not have the full protection that employees enjoy. As workers are entitled to rights such as paid annual leave, whistleblower protection, and the national minimum wage, the recent decisions of two employment tribunals are a timely reminder of the cost of unintended consequences.

Are you getting it right?

Many pharmacies engage locums on a self-employed basis but are those individuals in fact legitimately self-employed or have they become workers (or even employees) over time?

Commonly, Locum Agreements will expressly state that the locum is self-employed and will detail the working arrangements between the individual and the pharmacy. As the outcome of the recent Uber and CitySprint cases indicate, parties can start out with the intention of a working relationship being one of a business engaging a self-employed contractor to provide services; however, that working relationship could either be incorrectly labelled at the outset or evolve to become an unintended worker or employment relationship over time.

It is important both to have the correct documentation in place and to operate the working relationship on a day-to-day basis in keeping with the desired employed or self-employed status to avoid unintended employment law consequences.

Determining employment status

Employment status is determined by considering a number of factors, including the label applied by the parties (for example, "employee", "self-employed contractor" or "locum"). Tribunals will consider a number of factors when determining an individual's employment status, including (but not limited to):

i. whether the pharmacy is under an obligation to provide a certain amount of work to the locum and whether the locum is obliged to accept the work offered to them;

ii. whether the locum is required to perform the services under the Locum Agreement themselves or if they have the right to send a substitute in their place;

iii. how much control the locum has over when, where and how they carry out their work;

iv. how the locum is able to profit from their work, how they are paid and how they account for their own tax liability;

v. whether the locum is paid sick pay, takes holiday or a form of family leave (such as paternity, maternity or adoption leave);

vi. how integrated the locum is into the pharmacy business, including the length of time they have provided the services to the pharmacy; and

vii. whether the locum has personal liability for any loss, liability or cost incurred by the pharmacy in connection with their provision of the services under the Locum Agreement.

Managing the day-to-day relationship

Self-employed locums benefit from different tax treatment as a result of assuming more financial risk in their working arrangements. It is legally necessary for pharmacy owners or managers to treat self-employed individuals differently to employees to avoid the individual becoming an employee or worker over time. For example, it would not be appropriate for a self-employed locum's agreement with a pharmacy to refer to the locum taking paid annual leave. If a locum is truly self-employed, they would take an unpaid break from work; in doing so, the locum would be accepting a financial risk in taking such a break, which would be in keeping with their status as a self-employed individual.

In reaching their decisions in the recent gig economy cases, employment tribunals have looked behind the complex contractual documentation to the reality of the situation. It is not enough for a Locum Agreement to state that an individual is self-employed to make it so in the eyes of tribunal or indeed HM Revenue & Customs; the working relationship has to be managed in keeping with that label.

The level of control exerted over individuals in their performance of the services is also a factor that has been considered by the tribunals. In the pharmacy sector it is of course necessary to ensure that locums comply with SOPs whilst they are working. However, it is important for pharmacy owners not to over-manage locums by dictating, for example, when they work and requiring locums to provide their services on an exclusive basis.

The decisions in recent gig economy cases serve as a clear reminder to locums and pharmacy owners about the importance of managing their working relationships in keeping with their intended employment status.

  • The decisions in these gig economy cases are very fact specific to the relevant company's business model and the tribunals' decisions are likely to be appealed. However, with Deliveroo cycle riders in Brighton threatening to strike if they do not receive a pay increase and better conditions, issues of employment status are going to remain in sharp focus over the coming year. Whilst the gig economy is a relatively new concept, the legal tests applied by the tribunals in these cases and summarised above are long-established.

  • It is important that staff documentation reflects the reality of the working arrangement in place. Consider the application of policies within any Staff Handbook and whether applying those policies to locums could be considered to be treating locums more like a worker or an employee.

  • Pharmacy owners and locums should take the opportunity to review their working arrangements and, if in doubt, seek advice. If individuals are found to be workers then, in addition to any liability for unpaid holiday and underpayment of the national minimum wage, both the pharmacy and the locum also face potential tax and national insurance liabilities and other fines.

This article was first published in Pharmacy Business. This article was written by Becky Lawton, For more information please contact Becky on +44 (0)1483 252 612 or