Employee or self employed contractor?

16 May 2012

Employee or self employed contractor? - Employment specialist Louise McAloon of Worthingtons Commercial Solicitors Belfast considers the Supreme court view

Determining whether an individual is an employee, a worker or a self-employed contractor can often be a challenging exercise, particularly where an individual seeks to dispute the status afforded to them in a written contract at the commencement of the relationship.

Recent guidance from the Supreme Court in the long awaited decision of Autoclenz Ltd v Belcher & Ors [2011] serves as a useful reminder that, where employment law is concerned, tribunals will look at the reality of the situation to determine the true employment status of an individual, irrespective of what the parties may have agreed at the outset, or indeed, the view taken by HMRC for tax purposes. This case concerned twenty car valeters who provided care cleaning services on behalf of Autoclenz Ltd at a car auction site in Derbyshire. The valeters had each signed a written contract confirming they were independent self-employed Subcontractors, responsible for their own tax and National Insurance contributions and that they were not employees of Autoclenz Ltd. The Inland Revenue had reviewed the arrangements between the parties from a tax perspective in 2004 and formed the view that the arrangement was more likely to be one of self-employment than PAYE.

Notwithstanding this, the valeters issued Tribunal claims against the Company in 2007 asserting that they were in fact ‘workers’ and therefore entitled to paid leave under the Working Time Regulations and to be paid in accordance with the national minimum wage provisions. The valeters were required to clean the vehicles in accordance with a detailed specification set by the client and generally worked in teams of four, with one valeter as a Team Leader. They were paid on a piece-work basis via weekly invoices which were in fact calculated, prepared and generated by Autoclenz Ltd. The valeters undertook responsibility for payment of Tax and National Insurance on a self-employed basis. They had to purchase their own uniform and materials but they could do so through the Company and, whilst the contracts stated that they were under no obligation to attend work and could engage others to work on their behalf, it was found that, in practice, they were expected to attend work personally.

The Employment Tribunal determined that not only were the valeters ‘workers’ under contracts of personal service but in the circumstances they were actually employees under contracts of employment, thereby attracting the highest level of statutory employment protection including unfair dismissal rights.

The Tribunal noted that the valeters had no control over the way in which they did their work or the terms upon which they performed their work. They had no real economic interest in the way in which the work was organised other than the more they did, they more they earned. They were subject to the control and direction of Autoclenz Ltd and had no other real source of work. Autoclenz Ltd appealed the decision and the case progressed through the Employment Appeal Tribunal, the Court of Appeal and ultimately reached the Supreme Court. On 27th July 2011, the Supreme Court upheld the original findings of the Tribunal that the valeters were employees. The Supreme Court found that the Tribunal was entitled to hold that the documents did not reflect the true agreement between the parties which will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part.

On the facts of this case, the reality of the situation trumped the self-employed subcontractor status as contained within the signed contracts.

Whilst it will always be advisable for parties to accurately detail the nature of the agreement between them in a written contract at the outset, for future enforceability, employers need to ensure that all contracts accurately reflect the true legal status of the parties and should seek legal advice if they have any concerns in this regard.

Louise McAloon is an Associate Partner with Worthingtons Solicitors in Belfast.

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