MS Writes: I’m thinking of retiring however none of my staff would be in a position to buy the company from me. I don’t want to have to pay redundancy pay either because they are all long serving. Could I ask them to go self-employed and, if so, would this remove all liability?
Writes Peter Done… The reality of employment coming to an end is a sensitive time for both employers and employees. It is not unusual to explore all available alternatives to try and avoid a redundancy situation, however, the action that employers must take has to be lawful.
The status of members of staff will not be determined by the label placed on them, whether this is by the employer, the contractual documentation or the individual themselves. The leading case on this area is Autoclenz where the Supreme Court decided that the terms of a written agreement between the parties, which classed the individuals as self-employed contractors, could be disregarded because they didn’t reflect what was actually agreed or how the relationship between the parties was conducted in reality. Therefore, in order to be self-employed, this needs to go deeper than simply placing this label on them and they need to be treated as self-employed in reality.
There are various ways of proving whether a person is self-employed in reality or not. An important factor is whether the person has the unfettered right to substitute themselves; can another person turn up and carry out the work without prior approval or scrutiny from the employer. If not, and personal service is required, the individual is likely to be found a worker. Another area which has been highlighted in recent status cases is whether the individual is in business on their own account. There are various ways of looking at this but an important point is who takes the financial risk of the arrangement.
Wrongly classing individuals as self-employed, when they’re not in reality, will leave the business open to staff members bringing claims to determine their correct status and what rights they should be receiving. The extent of employment rights will depend on whether the individual is self-employed, a worker or an employee and rights such as receiving the National Minimum Wage or paid holiday are expensive to get wrong. Additionally, the staff could view the reclassification as conduct which breaks their contract of employment and entitles them to resign and claim constructive dismissal at tribunal. Where this is a true redundancy situation, the employees may also be able to make a claim for a failure to consult and for any redundancy payment they would be due if the proper redundancy process was followed.