Employment status in the life sciences sector
From employees of the largest pharmaceutical companies to healthcare workers, businesses within the life sciences sector are driven by people. Different businesses inevitably have different needs for engaging staff and it is increasingly common for organisations to depart from the traditional employment model when doing so. In the life sciences industry, where individuals are highly skilled and often in high demand, the relationship between company and individual may be something other than employer and employee.
Uncertainty surrounding the impact of Brexit on UK immigration and the skilled workforce continues to be a source of concern for the life sciences sector. For more information, please see our Brexit Checklist for Employers here, and our article on post-Brexit immigration in the Independent here.
Categories of engagement
Under the UK employment law regime, there are three categories of engagement:
- genuinely self-employed individuals;
- workers; and
Employees are entitled to the most rights and protections, while workers receive only some. In practice, there is no clear-cut rule to determine which category applies to an individual, as employment status is a question of fact and one for the courts and tribunals to determine. Despite plentiful case law in this area, the fact-specific nature of these decisions means that it is impossible to determine an individual’s status with certainty without litigation.
Business protection and the protection of intellectual property (IP) rights is a key consideration when recruiting in the life sciences sector. It is an established principle that IP created by an employee in the course of their employment belongs to their employer, although an employee can apply for compensation if their invention is of “outstanding benefit” to their employer, as seen in the recent Supreme Court decision in Shanks v Unilever (for more information on this case, please see our article here). Conversely, IP created by a self-employed consultant will belong to that consultant, unless the consultancy agreement states otherwise.
Another common concern for any life sciences company is the protection of its business interests after an individual leaves the organisation, which is commonly sought by way of restrictive covenants (RCs) in the individual’s contract. However, difficulties can arise when enforcing these against self-employed contractors, as RCs indicate a degree of control by the company over the individual, which is one of the relevant factors considered by the courts when determining employment status. A certain degree of control exercised by a company over an individual indicates employee or worker status, and could undermine an individual’s supposed self-employed status.
Where businesses put RCs in place, it’s important to consider the parties to the restrictions. If a company engages a contractor via a personal service company (PSC), the contract – and any RCs within it – will be between the client company and the PSC, rather than the individual contractor.
Why does employment status matter?
Employment status is important for a number of reasons. In particular, the scope of rights and protections available to an individual at work is largely dependent on their employment status. Genuinely self-employed individuals are not entitled to employment law rights against the company engaging them, although they are entitled to certain protections under discrimination and health and safety legislation. On the other hand, workers and employees are entitled to far more extensive rights, and companies are subject to more wide-reaching obligations in respect of them.
Examples of workers’ rights include: (i) paid holiday; (ii) discrimination protection; (iii) whistleblowing protection; (iv) national minimum wage; (v) right to pension contribution; and (vi) from 6 April 2020, a written statement of their terms and conditions. Employees are entitled to all of the rights of workers and certain additional rights, including: (i) protection from unfair dismissal; (ii) statutory redundancy pay and sick pay; (iii) family friendly rights, relating to both pay and leave; and (iv) flexible working and other statutory leave requests.
Personal service companies and IR35
How an individual is engaged will have tax implications as well as employment implications. Whilst employment and tax issues are governed by two separate legal regimes, the issues commonly arise in parallel. In 2000, HMRC introduced the IR35 regime to tackle abusive use of PSCs by contractors. Under IR35, a contractor providing services via a PSC but working like an employee should be taxed like an employee. An engagement will fall within this scope if, in the absence of the PSC, there would be a contract of employment between the end client and individual contractor. From April 2020, the onus to determine self-employed tax status in the private sector will shift from the contractor to the end client (as has already happened in the public sector), which marks a substantial reform in the regime. This will affect all medium and large businesses in the life sciences sector that engage contractors through PSCs.