Employment and worker status

Employment and worker status: the risks and costs of getting it wrong

Determining the correct employment status of an individual is sometimes a tricky task for employers to get right – are they an ‘employee’, a ‘worker’ or genuinely ‘self-employed’? Part of the problem is the complexity of the law in this area, which is often more about shades of grey rather than black and white. Two recent cases illustrate the dangers associated with getting the employment status of a worker or employee wrong.

Pilot contracted via chain of intermediaries was not ‘self-employed’

In Lutz -v- Ryanair DAC & Anor, a pilot who flew for Ryanair contracted via a chain of intermediaries was held to be a worker of the main intermediary (MCG) and an agency worker when flying for Ryanair. Essentially, Ryanair flights are piloted by a combination of its own directly employed pilots and a pool of contracted pilots who are supplied to it by an intermediary, MCG. Following his application and selection, Mr Lutz contracted with MCG via a service company set up by an accountancy firm arranged by MCG. Whilst flying for Ryanair, Mr Lutz was fully integrated with its other pilots – wearing the airline’s uniform and ID card, taking its competency assessments, and flying from a base it fixed according to its flight rosters. After a few years, following a dispute about rostering, MCG Ltd terminated the arrangement with Mr Lutz following a disciplinary process attended by a Ryanair representative. Before the employment tribunal, Mr Lutz successfully argued that he was not a self-employed contractor but was instead either ‘employed’ by MCG as a crew member or as a ‘worker’ and thus entitled to paid holiday, and that he was also an ‘agency worker’ who was entitled to parity of terms with Ryanair’s own pilots. The tribunal’s decision was upheld firstly by the EAT and later by the Court of Appeal, meaning the tribunal is now free to determine the merits of Mr Lutz’s substantive claims.

Drivers with no genuine right of substitution were ‘workers’ as opposed to ‘self-employed’

In BCA Logistics Ltd -v- Parker & Ors, a group of over 400 drivers were engaged by BCA on a ‘self-employed’ basis to undertake vehicle collection, inspection, delivery and transport services for its customers. The standard-form contact they signed contained a clause allowing them to send a substitute to do their work, but the drivers argued that the substitution clause was not genuine. The employment tribunal agreed with the drivers – “not only was a substitute never used but nobody seriously expected a substitute to be used” – and went on to rule that the drivers were in fact ‘workers’. The EAT rejected BCA’s appeal and upheld the tribunal’s decision. The tribunal had based its conclusion on the non-genuineness of the substitution clause based on multiple factors – in particular, no driver had used a substitute in over 25 years, there were clear practical difficulties with substitution and that it was unrealistic to suggest BCA would risk handing over high-value customer vehicles to unknown untrained substitutes.

The risks of getting employment status wrong

Incorrectly assessing the employment status of an individual carries significant risk for employers. Status as an employee, although rare in this context, provides an entitlement to most employment rights including unfair dismissal and redundancy pay.

Perhaps more commonly, having ‘worker’ status will entitle the individual to rights such as national minimum wage and paid holiday. For example, in a recent case, a seemingly ‘self-employed’ dentist was awarded over £80K in unpaid holiday pay plus compensatory interest for late payment. To add to employer’s woes, another recent case has questioned the legality of the two-year limit on back pay claims brought as an unlawful deduction from wages. The creation of the Fair Work Agency in April 2026, which will have robust powers to enforce holiday pay on a worker’s behalf, means employers now have less than a year to get their house in order.

This backdrop highlights the importance of employers auditing the employment status of any non-employed staff to ensure they have been ascribed the correct status and employment rights. We have extensive experience of undertaking these audits and working with employers to find pragmatic and workable solutions to mitigate against the assessed risks.