MPs discuss 'narrow and restrictive' definition of 'an employee'

MPs raised the issue of the need for clarification between the definitions of 'an employee' and 'a worker' during a debate over statutory dispute resolution procedures in the House of Commons.

This extract is taken from a wider debate which addressed proposed amendments to the Employment Bill and included Alan Johnson, Minister of State, Employment Relations and Regions.

Tony Lloyd, Labour MP for Manchester Central, said: "Discussing workers and employees is an important debate... The definition of employee and employer is narrow and restrictive under the present law. A broader definition is used in other legislation, such as on the minimum wage.

"All of us recognise those who fall outside the definition of 'an employee' are often the most marginalised people in the workforce - although other non-employees can be among the best paid and best protected. There is a huge range of conditions among workers who fall outside the formal definition of being employed. However, those who are entitled to only minimum levels of protection are among the most marginalised people in the workplace."

Philip Hammond, Conservative MP for Runnymede and Weybridge, said: "In an increasingly flexible and fast-moving economy, there will be people who, for their own interests and those of the companies for which they work, wish not to be employees. Admittedly, the Paymaster General recently made the attraction of not being an employee somewhat less than it was for a number of those people. If we are going down the route of reviewing the distinction between 'worker' and 'employee', I agree with the hon. Member for Manchester, Central that there needs to be a clear distinction between people who, according to any reasonable interpretation, have the character of employees but have been excluded from that definition by subterfuge, and people who are genuinely not employees.

"The National Minimum Wage Act 1998 uses a definition of 'worker'. Although interesting philosophically, the issue is not particularly important in practice, because by definition those highly paid people who are not employees but are workers will not be caught by the minimum wage. We have had various interesting discussions about whether people such as computer programmers were covered by the minimum wage, which will always be of purely academic interest unless the supply and demand balance in the market changes dramatically.

"When we consider employment law more generally, however, that point will become more important. My colleagues and I resist the temptation offered by some Government Members to go with the broader definition of 'worker' for everything. However, I think that I can safely say that in doing so, we are not seeking to defend those who artificially exclude people from the protections of the status of employee by subterfuge that the Inland Revenue should be seeking to unravel."

"[Addressing the matter of Statutory Disputes] one would expect a self-employed contractor, for example, an information technology specialist, to have a contract that gave him the protection that he needed and that defined his obligations. That contract would not be a contract of employment, but would give him appropriate remedies. Those remedies would not be available through an employment tribunal, unless the Minister were to use the powers under discussion to broaden dramatically the scope of the definition of an 'employee', but they would be available to him through the usual operation of contract law.

"There is a broad acceptance that statute law should intervene and override the contract between the employee and the employer. The Bill also implies something that is defined in a statute into the terms of a private contract between employer and employee.'

"The greatest and most penetrating interest in where the division lies is the Inland Revenue. It was difficult for Ministers during the passage of the Minimum Wage Bill to argue that a person whom the Inland Revenue was prepared to regard as a self-employed contractor was, for the purposes of that Bill, more akin to an employee. I know from experience that the Inland Revenue is fairly aggressive in seeking to define out self-employed people if it thinks that they have the characteristics of being employed. The Inland Revenue has a fairly long checklist that one is supposed to use to test whether the relationship is one between employee and employer or pertains to a self-employed contractor.

"The Inland Revenue has clear fiscal self-interest in defining people as employed. If it concludes that a person is self-employed, it would be difficult for the Minister or the hon. Member for Manchester, Central to argue that he should be treated as an employee. IR35 notwithstanding, the Inland Revenue has sought to extend that boundary for reasons related to national insurance contributions.

"It is massively over-simplifying matters to suggest that the IR35 debate is only about people trying to avoid tax.

"Our concern is primarily to avoid creating sclerosis in a fast-moving economy in which sectors are changing and evolving quickly, and where employers need to engage the services of highly skilled individuals in a flexible way but, for all sorts of legitimate reasons, may not be able to burden themselves with the continuing obligations of employment imposed by the full panoply of employment protection laws.

"One would hope and expect that those individuals would be suitably remunerated for not having the kind of protections and security that someone with employee status would have. That concern with maintaining flexibility at the cutting edge of the economy drives Opposition Members' arguments."

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Richard Powell, UKTECH