UK's Two-Tier Workforce: Legal Responses

Introduction

In the UK, there is an emergent class of atypical workers who work alongside permanently employed staff, where both atypical and permanent workers essentially perform the same functions, but there are differences in their wage structures as well as terms and conditions of employment. Where the permanent workers enjoy statutory protections of their job security and rights, the atypical workers are vulnerable in this respect and have neither the security of their employment, nor protections for their rights. This is the two-tier workforce that has grown steadily within the UK job market. The courts and the legislature has responded to the disparities and dichotomy between the atypical workforce and permanent employees. The essay discusses the legal responses to the principle issue of employment status.

Two-Tier Workforce: Meaning and Legal Issues

The EU Acquired Rights Directive, was implemented in the UK through the Transfer of Undertakings (Protection of Employment Regulations) 1981 (TUPE), allowed the transfer of workers from public to private sector due to contracting out of services from public to the private sector. TUPE provided that the transferred workers would have their wage levels and terms and conditions of employment protected after the transfer, however, the pension arrangements were not protected. This ultimately led to a system where the new recruits were not given same levels of protections and this led to the two-tier workforce. Two-tier workforce signifies a workforce where two workers do the same job in exchange for differential treatment with different wages, and work terms and conditions. It can be explained as a system wherein full-time permanent employees work on a basis of a contract of employment alongside “vulnerable atypical workers” working outside the scope of employment laws. Where the permanent employee workforce enjoy both security of work as well as employee rights, the atypical workers do not enjoy any of these securities.

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  1. John Kew, John Stredwick, Business Environment: Managing in a Strategic Context (CIPD 2005) 30.
  2. Ibid.
  3. Ibid.
  4. David Cabrelli, Employment Law in Context: Text and Materials (Oxford: Oxford University Press 2014) 103.

Two-tier workforce is increasingly emerging as the norm in the UK. The increase in use of two-tier workforce has led to concerns about the growing wage gap and differential treatment between permanent and other employees. In recent times, the Trade Union Congress (TUC) has some out strongly in opposition to the two-tier workforce increase in the UK. In a recent report, the Commission on Vulnerable Employment has provided evidence from the testimonies collected from casual workers and second tier labour force which suggests that there is a growing sense of disenchantment with the labour protection in the UK. The report defines ‘vulnerable employment’ as “Precarious work that places people at risk of continuing poverty and injustice resulting from an imbalance of power in the employer-worker relationship.” The report points out that vulnerable workers, such as immigrant labour, do not generally have access to employee rights and statutory protections because they are not considered to be ‘employees’ under a contract of employment between themselves and their employers. There is also a trend in defining full time labour as ‘self-employed’in order to avoid providing statutory rights to the employed workforce. Self-employed and employees on casual contracts are not given basic rights such as sick pay and paid leave.

The widening gulf between permanent employees and those who are casual workers has been noted with concern by the judiciary as well. In James v Greenwich LBC, Mummery LJ made the following statement:

“On the other hand, a significant move in the direction of the casualisation of labour and the growth of a two-tier workforce, one tier enjoying significant statutory protection, the other tier in a legal no man's land being neither employed nor self-employed, vulnerable, but enjoying little or no protection, may create social injustice and a festering sense of grievance which would not be satisfactory in the interests of an efficient workforce, a competitive economy, a healthy society or anything else.”

  1. Ibid.
  2. TUC Commission on Vulnerable Employment, “Hard Work Hidden Lives”, accessed .
  3. Article 7 (4).
  4. Ibid, 12.
  5. Ibid, 4.
  6. Ibid.

The statement by Mummery LJ above indicates that the vulnerable workers coming in the second tier are met with differential treatment where they are deprived of the statutory protections enjoyed by the permanent employees. The legal issues that may arise out of this situation would include the definition of the term ‘employee’ for the purpose of acquiring status that would ensure protection of employee rights, and the application of the definition to individuals working under casual contracts, or contracts that term the individual as a ‘self-employed’ person. As the two-tier system creates a disparity between the permanent employees and other employees, it becomes essential for the legislature as well as the courts to respond to the issues outlined above, so as to minimise such disparities.

The UK parliament has responded to the problems created by the two-tier system by trying to restrict the growth of the system. Till date, the major focus for this has been to statutorily recognise new contract types that would have intermediate position between the contract for employment and contract for services. These intermediate categories are: statutory worker contract and contract personally to do work, where people employed in these categories will receive more statutory protection as compared to atypical workers. The statutory worker contract gets more rights than the contract personally to do work. The fixed term contract is also part of the atypical contract of service, which is becoming increasingly common in the job market. Such contracts are only for a fixed period of time, however, during this period, the employee does get some statutory rights.

  1. [2008] EWCA Civ 35, [59], [60].
  2. David Cabrelli, Employment Law in Context: Text and Materials (Oxford: Oxford University Press 2014) 103.
  3. Ibid, 108.
  4. Robert Upex, Richard Benny, Stephen Hardy, Employment Law (Oxford: Oxford University Press 2009) 273.
  5. Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2002/2034).

Employment Status: Legal Developments

The status of an employee is determined on the basis of both the law as well as the facts. The definition of employee is provided in the Employee Rights Act 1996 (ERA 1996), section 230 as follows:

“(1) “employee” means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.”

As per this definition, an employee is a person working for another under a contract of employment, which is further defined as a contract of service under the same section. The contract of service was also defined by MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance as follows:

"A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service. … Freedom to do a job either by one's own hands or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be."

The status of employee is important because it defines the rights of the employees and is also the basis of statutory protections that the employee enjoys. Employer is responsible for the deduction of tax of employees and also provide the deduction for national insurance.

As mentioned earlier, the status of the employee is a matter to be determined on the basis of law and facts. The law is provided in the section 230 of ERA 1996. When combined with facts, the status of the employee may become determinable. Courts have attempted to provide a clear understanding of determination of employee status. The need for clear defining of employee status has arisen due to the increase in casualisation of labour in recent times due to the endeavours of business organisations and employers for cost cutting after the recession of 2007. Employers have taken to taking labour that may be defined as ‘self-employed’ in contracts or having a two-tiered workforce, allowing the employers to retain some part of its workforce as permanent employees under contracts of employments and the rest part of the workforce as self-employed, or casual employees. The difference between the two is that permanent employees enjoy a significant amount of protection of their rights whereas the rest of the employees who may be performing similar functions do not enjoy such protections. This leads to a differential treatment for the employees. Because the employers hold more powers in the drafting of the employment contracts, there is a possibility that the employer may use this power to define the status of the employee as ‘self-employed’ or casual. Therefore, courts have taken a pro-labour approach to questions of employment status.

  1. The Employee Rights Act 1996, Section 230, accessed .
  2. [1968] 2 QB 497, [515 C].
  3. James Marson, Beginning Employment Law (Oxon: Routledge 2014) 47.

The ‘control test’ was evolved by the courts to determine the status of the employee as based upon the level of control that is exercised by the employer. In Ready Mixed Concrete (Southeast Ltd) v Minister of Pensions and National Insurance, the court defined control exercised by the employer as the authority of the employer to guide and control the actions of the employee including the manner of performing these actions and the time and place for the actions. Control need not be equated to direct supervision, and there can be control exercised by the employer over the employees without actual direct supervision. Even day to day control by the employer is not required for determining the status of the employee. A person may also be self-employed in which case, the individual is considered to be working on his own account and also has some business interest in the work.

In James v Redcats (Brands) Ltd, the court held that even if there is an absence of mutuality of obligations or commitment between the parties to provide and perform work while the individual is not working would have no bearing on the status of employment when the employee is working. If there is a wage-work bargain between two parties, this would imply the presence of basic elements of consideration for the purpose of recognition of the worker contract, which would entitle the worker to statutory protections. If the dominant purpose of the contract is to provide personal services, then the definition of employee is engaged. In other words, the dominant purpose test, which provides that the provision of personal services must be the dominant feature and not the ancillary feature of the contract, can be used to determine whether the relationship between a worker and the employer fall within the employment field or the business field.

  1. Ibid, 144.
  2. (1968) 2 QB 497.
  3. Montgomery v Johnson Underwood Ltd, [2001] IRLR 269.
  4. White and Todd v Troutback SA, [2013] UKEAT 0177/12.
  5. Autoclenz v Belcher, [2011] UKSC 41.
  6. [2007] ICR 1006.

The ‘integration’ test can also be used by the courts to determine the status of employees. In Cotswold Developments Construction Ltd v Williams, the court propounded the integration test. The test asks two questions, the answers to which can help determine the nature of the relationship between the employer and worker:

(1) Does the worker market his services, which allows him to be hired by multiple clients or customers? Or

(2) Does the worker work as the integral part of the business?

While the use of integration test proved successful in the case of Hospital Medical Group Ltd v Westwood, in the same case it was observed that the neither the dominant purpose test nor the integration test can provide a universal answer to the definitional problems for employee status.

The UK government has responded to the need for encouraging part time workers’ protection in a number of measures, some of which are derived from the EU directives and law. The Part-Time Workers Directive 98/23 EC and the (Prevention of Less Favourable Treatment) Regulations 2000 (PTWR 2000) were passed with the objective of providing protection to part time workers so that they have the opportunities to partake in a flexible job market. Regulation 5 (2) provides that the worker has the right to not be treated less favourably by the employer as compared to a full time worker.

  1. Ibid.
  2. Ibid, [1017 D] - [1020 G], per Mr Justice Elias.
  3. [2006] IRLR 181.
  4. Ibid.
  5. [2013] ICR 415.
  6. Ibid, [426 C] – [427 D], per Maurice Kay LJ.

Fixed Term contract workers are also provided the statutory right to not be treated less favourably as compared to permanent employees and the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2000 allows the employees to approach the Employment Tribunal in case objectively unjustified unfavourable treatment is given to the employees.

The aspect of unfavourable treatment by using standards of full time work to compare with the part time or fixed-term worker has also been criticized because, it is considered that the nature of work being such, there cannot be a genuine comparison between a full time and a part time worker, therefore using full time work standards for measuring unfavourable treatment to part time workers is a fallacious exercise.

Conclusion

The use of a two-tier workforce within the same organisation leads to dichotomy between the permanent and casual or atypical workers. Whereas the permanent workforce enjoys statutory protection of their job as well as terms and conditions of their employment, such protections may be missing for the atypical workforce. Considering the disparities that can be created by such a system, both the courts as well as the legislature have responded to the issues pertaining to employee status, as this status is central to the applicability of the protection of legislature.

The courts have sought to apply different tests for determination of employee status when the workers are working outside the scope of contracts of employment. By applying these tests, courts seek to determine if individuals who may on paper be defined as ‘casual worker’, ‘self-employed’, etc. are in fact, more appropriately defined as employees. The status of employee is important because it bestows upon the worker certain statutory rights and protections. The Parliament has also sought to provide restrictions on employers so that they cannot treat employees who are part-time workers or fixed-term workers in an unfavourable manner.

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  1. Robert Upex, Richard Benny, Stephen Hardy, Employment Law (Oxford: Oxford University Press 2009) 268.
  2. Ibid.
  3. Ibid, 273.
  4. M Bell, “Achieving the objectives of the Part-Time Work Directive? Revisiting the Part-Time Work Regulations” (2011) 40 Industrial Law Journal 254.

List of Statutes and Directives

  • Employee Rights Act 1996
  • Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2000 (SI 2002/2034)
  • Part-Time Workers Directive 98/23 EC
  • (Prevention of Less Favourable Treatment) Regulations 2000

List of Cases

  • Autoclenz v Belcher, [2011] UKSC 41
  • Cotswold Developments Construction Ltd v Williams, [2006] IRLR 181
  • Hospital Medical Group Ltd v Westwood, [2013] ICR 415
  • James v Greenwich LBC, [2008] EWCA Civ 35
  • James v Redcats (Brands) Ltd, [2007] ICR 1006
  • Montgomery v Johnson Underwood Ltd, [2001] IRLR 269
  • Ready Mixed Concrete (Southeast Ltd) v Minister of Pensions and National Insurance, (1968) 2 QB 497
  • White and Todd v Troutback SA, [2013] UKEAT 0177/12

Bibliography

  1. Bell M, “Achieving the objectives of the Part-Time Work Directive? Revisiting the Part-Time Work Regulations” (2011) 40 Industrial Law Journal 254
  2. Cabrelli D, Employment Law in Context: Text and Materials (Oxford: Oxford University Press 2014)
  3. Kew J, Stredwick J, Business Environment: Managing in a Strategic Context (CIPD 2005)
  4. Marson J, Beginning Employment Law (Oxon: Routledge 2014)
  5. TUC Commission on Vulnerable Employment, “Hard Work Hidden Lives”, accessed .
  6. Upex R, Benny R, Hardy S, Employment Law (Oxford: Oxford University Press 2009)

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