Working Out Who Your Workers Are?

Peninsula Team

October 24 2012

Organisations often include “status – avoiding terms” in their agreements with individuals, who provide them with a service. This is done to avoid assuming the sorts of obligations that are owed to either employees or workers. For example, employees have the right not to be unfairly dismissed and the right to a statutory redundancy payment, along with many other employment rights. Similarly, workers have the right to be paid in accordance with the NMW, and also have the right, for example, to holiday pay, along with other rights. Tribunals can therefore be faced with an agreement, that on the face of it, clearly states that the individual is not either a worker or an employee. Such terms can include the following:-
  • “The subcontractor hereby confirms that he is a self-employed independent sub-contractor”.
  • “Both parties acknowledge and agree that it is their joint intention that the sub-contractor should not become an employee”
  •  “For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the services on your behalf, provided that such an individual complies with the organisations’ requirements for sub-contractors as set out in this agreement”.
  • “You will not be obliged to provide your services on any particular occasion nor, in entering into this agreement, does the organisation undertake any obligation to engage your services on any particular occasion”.
The independent sub-contractor very often is also responsible for their own tax affairs, and often vacant positions will be advertised as available for “self-employed” applicants. Questions to be answered To what extent therefore, can an employer rely upon these types of express written and agreed terms of a contract to (1) limit their exposure to the statutory protection afforded to employees and workers, (2) reduce their costs and tax liabilities and (3) avoid other potential liabilities? And where these legitimate rights (such as protection from unfair dismissal or an entitlement to be paid in accordance with the NMW) are afforded to employees and workers, can someone be deprived of these benefits, simply because the written express contract which they signed, at the outset of the relationship, expressly denies that they are either a worker or an employee? At the end of last year, the Supreme Court handed down an important judgement, in an effort to help answer these questions, and give guidance to both organisations and their contractors. Autoclenz Limited v Belcher [2011] UKSC 41 – The Facts
  • Autoclenz provides car cleaning services to motor retailers and auctioneers.
  • The Claimants were 20 individuals, who all worked as car valeters.
  • The Claimants all signed similar contracts which contained these “status - avoiding terms”; the valeters were regarded as self-employed and were taxed on that basis.
  • The Claimants brought a claim in the Employment Tribunal seeking a declaration that they were workers, as defined under the WTR and the NMWR, and as such, were entitled to holiday pay and to be paid in accordance with the NMW.
It was common ground between the parties that if the terms of the written contract were valid and binding, then the valeters could not be said to be workers or indeed employees. The Relevant Definition – Worker ERA Section 230 “An individual who has entered into or works 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”. The Various Decisions The Employment Tribunal held that these contractual terms did not reflect the true agreement between the parties, and could therefore be disregarded, so that the valeters could be regarded as employed under contracts of employment (limb a). The EAT allowed Autoclenz’s appeal, but then held that the valeters were workers (under limb b). The Court of Appeal restored the Judgement of the Employment Tribunal, holding that the valeters were workers under limbs (a) and (b). The Supreme Court unanimously dismissed Autoclenz’s appeal, and held that the Employment Tribunal had been entitled to find that the valeters were workers, because they were working under contracts of employment within the meaning of the WTR and the NMWR. The Reasons for the Judgement The Supreme Court held that that the Employment Tribunal had been entitled to disregard the terms included in the written agreement, between Autoclenz and their valeters, on the basis that the document did not reflect what was actually agreed between the parties. In deciding what their actual status was, the Supreme Court said that an Employment Tribunal could disregard the written agreement, if the course of dealing between the parties themselves demonstrated that the written agreement did not truly and properly reflect what had actually been agreed. It said that Employment Tribunals must be alive to the possibility that written documentation may not accurately reflect the reality of the relationship:
“The concern to which Tribunal’s must be alive, is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship”.
The question for the Tribunal in every case, where the genuineness of a contract is challenged, the Supreme Court said, is; “What was the true agreement between the parties?” An employment relationship is not a matter of choice. The Correct Approach The focus of any enquiry into an individual’s status (employee, worker, freelancer, independent sub-contractor) must be to discover the actual legal obligations of the parties. And to carry out that exercise, the Supreme Court said that Employment Tribunals are obliged to examine all of the relevant evidence, and not to confine itself to a consideration of the terms of the written contract itself. And that will necessarily include how the parties conduct themselves in practice, and what their respective expectations were, not only at the time of entering into the contract, but also during the performance of the contract as well. Back to Autoclenz Having established the correct legal principles, the Supreme Court held that the Employment Tribunal had been entitled to find that:-
  • The valeters would perform the services defined in the contract within a reasonable period of time and in a good and workmanlike manner;
  • The valeters would be paid for that work;
  • The valeters were obliged to carry out the work offered to them, and Autoclenz undertook to offer work and,
  • The valeters must personally do the work and could not provide a substitute to do so.
The Supreme Court held that the Court of Appeal was entitled to hold that those were the true terms of the contract, having regard to all the relevant factors, and that the Employment Tribunal was therefore entitled to disregard the terms of the written documents in arriving at that conclusion. In a Nutshell
  • An individual’s status is to be decided in the light of all the relevant evidence.
  • The written agreement is not to take primacy.
  • Employment Tribunals must be “realistic” and “worldly wise” when undertaking such an exercise.
Relevant Factors to Consider “No exhaustive list has been compiled, and perhaps no exhaustive list can be compiled, of the considerations which are relevant in determining an individual’s status, nor can strict rules be laid down as to the relative weight, which the various considerations should carry, in particular cases”. The best approach is to weigh those factors which point to self-employed status, as against those factors that point to employee status, and then stand back, and reflect upon the broad picture that emerges. Remembering that no one factor is likely to be determinative. It is therefore to be hoped that the following factors will be of some assistance to businesses, in determining whether or not individuals who work for them, can properly be regarded as independent sub-contractors, workers or employees:-
  • The terms of the agreement itself – although this is not necessarily determinative, especially if the genuineness of the agreement is being challenged. Is it open ended or for a fixed period of time?
  • The parties own view of their relationship – what did they think and how did they view or describe themselves?
  • The treatment of tax and national insurance contributions – are they required to be registered for VAT, and are they paid weekly/monthly?
  • The degree (or right) of control exercised by the business, over and above that which is required and/or deemed necessary by the very nature of the work that the individual is undertaking.
  • Are they obliged to do the work personally themselves, and are they obliged to accept assignments that are given to them, and is there an obligation/expectation that they will be given work? And can they send a substitute to do the work in their place?
  • When at the business premises, are they regarded as a member of staff – do they have terms and conditions similar to the employees of the business, particularly the employee handbook; disciplinary and grievance procedure etc?
  • What about the treatment of bonuses and commission, and holiday and sickness payments/notification? –And what about other benefits such as a car park space and the businesses disciplinary and grievance procedure. Does it apply to them?
  • Are they given any guarantee of work?
  • Can they reasonably be described as carrying on businesses on their own account, or carrying on the business of the organisation – particularly if they work elsewhere?
  • What about the provision (and purchase) of equipment?
  • Does their interest in the work involve any prospect of profit or risk of loss? – if so do they risk their own capital, and what about training costs?
  • And what is the traditional structure of the particular organisation and the various arrangements within it; are they part and parcel of the business? What has been previously understood historically, and what is the previous course of dealing with other individuals (and their claims)?
Conclusion In essence, the balance of the relevant factors has to be considered independently in each case, and the weight to be attached to each of them is likely to vary from case to case. These are likely to be fact sensitive cases, and precedents will not always provide a conclusive answer. However, if this exercise is done properly and diligently, then a business ought to be able to work out who their workers are, thereby providing much needed certainty for all concerned. For any further clarification, please call our 24 Hour Advice Service on 0844 892 2772.

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