At the start of an employment dispute, the first legal questions that an employer should ask is: What legal status does the claimant hold? Are they an employee, some other worker or self-employed?

An individual's status matters because they impact the bundle of rights that individuals are entitled to: holiday, sick pay, pension entitlements and more depend on whether you are an employee, some other worker or self-employed. In addition, you must generally be either an employee or other worker to pursue a claim in the employment tribunal.

The answer to the apparently simple question of status can be unclear. Section 230 of the Employment Rights Act 1996 (the ERA), attempts to define both what an "employee" and a "worker" are, although in practice the answer often comes down to a matter of interpretation. The status of an individual is impacted by what is expected on both sides of the relationship and, of course, what is contained in the relevant contract, if one exists.

The legal test under ERA section 230(3) for whether someone is a worker is if that individual:

"has entered into or works under (or, where the employment has ceased, worked under)

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual."

Whether an individual is a worker or self-employed is determined by many factors, such as how much control their "employer" can exert over them, whether they work on a commission or salaried basis, and whether the "employer" is obliged to provide the individual with work and the individual is required to do that work. This question becomes even murkier when the individual has a role without a comfortable legal definition, such as, to the surprise of many, a Non-Executive Director (NED).

Catt v. English Table Tennis Association

An employment tribunal had to grapple with the status of an NED in a recent case, which was appealed to the Employment Appeal Tribunal (EAT) before being sent back to another tribunal to look at the question afresh. Anthony Catt was an NED of the English Table Tennis Association Ltd (ETTA). Mr Catt alleged he had suffered detriments after making 27 protected disclosures. In order to bring a claim under the relevant whistleblowing legislation, he would have to be a worker (or employee) under section 230 of the ERA. The ETTA argued that Mr Catt was not a worker, as he was an NED and his role was not sufficiently subordinate to be considered a worker.

At a preliminary hearing to consider Mr Catt's status, the tribunal found in favour of the ETTA, deciding that Mr Catt was not a worker. It came to that conclusion based on its finding that, looking at the "true agreement" between the parties, they did not intend Mr Catt to have worker status. It also focused on the absence of subordination over Mr Catt and a lack of dependency of Mr Catt on the ETTA. Mr Catt appealed to the EAT.

The EAT's decision

The EAT upheld Mr Catt's appeal. It found that the tribunal had fallen into error by focusing on issues of vulnerability, subordination and dependence. Those factors may be relevant, but in this case the tribunal had overlooked the fact it was dealing with someone who held office as an NED. Instead, the EAT held that the tribunal should have assessed the situation against the statutory language, bearing in mind that there is no "one size fits all" answer on questions of employment status. It remitted the question of whether Mr Catt was a worker to a new tribunal (the Second Tribunal) to consider afresh.

The Second Tribunal's decision

After hearing from witnesses and considering the documentary evidence, the Second Tribunal came to the conclusion that Mr Catt was a worker within the meaning of section 230(3) of the ERA. The commitment by Mr Catt to devote 15-20 days of the year to the ETTA's affairs, coupled with the offer of an annual payment of £1,500, was sufficient to bring into existence a contract between Mr Catt and the ETTA. The fact that the ETTA described Mr Catt as a volunteer did not exclude him from the operation of section 230(3) of the ERA. Similarly, whilst the ETTA paid Mr Catt an honorarium, it was described as "salary" on the pay statements and the tribunal regarded it as "consideration" (funds paid in exchange for services).

The Second Tribunal considered the ETTA's status as a members' association that governed a popular sport on a national basis but found it to be irrelevant in this instance. It acknowledged that the nature of the organisation could be relevant in certain other circumstances (for example, if it was a religious organisation). The Second Tribunal also relied on the fact that Mr Catt had no choice but to accept the ETTA's terms to become an NED.

The Second Tribunal came to the following conclusions in respect of the arguments put forward by the ETTA:

• A prohibition in a company's articles of association on creating contractual relationships with individuals cannot determine the question of whether such a contract existed.
• Failing to provide an individual with a contract of employment does not preclude them from being a worker or even an employee.
• Failing to provide holiday, sick pay, pension entitlements or anything else which is legally required to be provided to workers does not preclude someone from being a worker.
• Providing or failing to provide a staff handbook to an individual has no bearing on whether a contractual relationship exists between the company and that individual.
• Even if the means of termination of a relationship is for the board of a company to vote for an individual's resignation or some other means of termination arising from a company's articles of association, this does not preclude the existence of a contract.

What can we learn from the decision in Catt?

This case does not set out any general guidance on when NEDs will fall within the definition of workers. As the EAT pointed out, there is no "one size fits all" answer to that question and a tribunal asked to consider it must always start by examining the factual circumstances of the particular case. Catt is a salutary reminder, however, that NEDs may have worker status and organisations engaging NEDs must be mindful of the rights that this brings, including the right to paid holiday and national minimum wage.

More broadly, there must be clarity when establishing an individual's status, both expressly in the contract and in the ongoing conduct towards the person in question. It is not enough to argue by analogy that an individual who works for you is not a worker or does not have a contractual relationship with your organisation by highlighting that organisational policies applying to employees or workers were not followed. It may be prudent to state unambiguously that there is no intent to create a legal relationship between the parties but, in order to withstand the scrutiny of a tribunal, the parties' conduct must match this position.

Businesses should review the agreements they have in place with any NEDs and consider their potential exposure based on the reality of the situation. We also recommend being mindful of this case when carrying out due diligence exercises for any acquisitions.