The Distinction Between Being Employed And Self-Employed
The line between being employed and self-employed can sometimes be a thin one and the Supreme Court has recently considered this issue in the case of Autoclenz Ltd v Belcher which considered whether an individual who is described in his contract as a self-employed contractor is really an employee.
Facts
Autoclenz Limited (Autoclenz) had a contract to valet cars for British Car Auctions (BCA). Autoclenz engaged valeters whose contracts referred to them as sub-contractors. As a sub-contractor, their contracts allowed the individual to work on a subcontract basis, to substitute someone to carry out their work or refuse work if they chose.
In the case in question, Mr Belcher and his colleagues cleaned cars at British Car Auctions (BCA) (with whom Autoclenz held a contract). They wore BCA overalls and used cleaning materials provided by Autoclenz which also arranged the group insurance cover. Each valeter was paid on a piecework basis and a fixed cost of cleaning materials and insurance was deducted from their weekly invoices. The valeters were also responsible for payment of their own tax and national insurance contributions. In 2004, HM Revenue and Customs (HMRC) undertook a review and were satisfied that the valeters were self-employed.
Following the issue of new contract terms, the valeters brought claims in the Employment Tribunal seeking a declaration that they were workers and claiming entitlement to the national minimum wage and unpaid holiday.
Decision
Employment Tribunal
An employment judge held that the degree of control exercised by Autoclenz fully integrated the valeters into its business and, even though the sub-contract terms permitted the valeters to provide substitutes, this did not reflect the reality of the situation. The true nature of the agreement was that the valeters were required to turn up for work every day and to notify Autoclenz in advance if they were unable to work. The Tribunal found that the valeters were in fact employees.
Autoclenz appealed.
Employment Appeal Tribunal (EAT)
The EAT allowed the appeal in part and held that the valeters were not employees; rather they were 'workers'.
Autoclenz then further appealed against the decision that the valeters were workers and the valeters cross-appealed against the decision that they were not employees.
Court of Appeal
The Court of Appeal reinstated the tribunal's decision, dismissing Autoclenz's appeal and allowing the valeters' cross-appeal. The Court of Appeal held that, the valeters were employees and when determining an individual's status, tribunals should look at the actual legal obligations of the parties.
Autoclenz appealed to the Supreme Court.
AND FINALLY...the Supreme Court decision
The Supreme Court unanimously dismissed Autoclenz's appeal
and upheld the decision of the Court of Appeal that the valeters
were in fact employed under contracts of employment and were
therefore entitled to receive the national minimum wage and
statutory paid annual leave.
In coming to its decision, the central issue for the Supreme Court
to decide was: in what circumstances can an employment tribunal
(or court) disregard written terms on the basis that they do not
reflect the actual agreement of the parties?
The Supreme Court decided that an employment tribunal should adopt a test that focuses on the reality of the situation, and look at "the actual legal obligations of the parties" which involves examining all the relevant evidence, including the written terms, evidence of how the parties conducted themselves in practice and what their expectations of each other were. In this case, whilst the contract indicated to the contrary, it found that the reality of the situation was that the valeters were obliged to carry out the work offered to them (as if they were an employee) and they must personally carry out that work and were unable to provide a substitute.
Practice Points
This is an important decision for employers where the services of self-employed contractors and consultants are used. The Supreme Court decision shows that despite a written agreement bearing all the hallmarks of a genuine self-employed arrangement, a Tribunal will be entitled to disregard that and look at the reality of a working relationship. Essentially, the reality of the situation will override what the contract says.
The decision is also demonstrates that it is technically possible for an individual to be self-employed for tax purposes, but an employee or worker under employment law, and vice versa. HMRC determined the valeters to be self-employed for tax purposes, while the Supreme Court decided that they were employees under employment law.
This case highlights that where employers engage the services of self-employed consultants and contractors; they must ensure their documentation reflects the reality of the working arrangement and that it is, in fact, a genuine self-employed arrangement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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