Claimant was in business on his own account and not entitled to holiday pay or notice pay.

There have been a number of high profile cases dealing with employment status and associated rights in the last few years. Not least of these is the long-running case of Smith v Pimlico Plumbers,  on which we recently reported the latest Supreme Court judgment:  Self-employed contractor found to be a worker can claim for all unpaid holiday pay on termination (available from our website). 

Key questions for courts and tribunals in these cases include the following, based on the statutory definition of a "worker":

  • Whether the individual undertakes under the contract to perform work personally (rather than being able to send a substitute to carry out the work); and if so
  • Whether the other party to the contract is a client or customer of a profession or business undertaking carried on by the individual.

Employment status is a fact-dependent question, and the courts must consider the whole picture, including the written contract and the reality of the working arrangements. Case law on this question focuses on the extent to which the individual is controlled on a day to day basis by the purported employer and integrated into its organisation. It also considers whether the contract includes mutuality of obligation: an obligation on the employer to provide work and an obligation on the individual to accept it when offered. Having a requirement for a minimum number of hours' work each week will be one factor weighing against self-employment.

Many recent cases have determined that the claimant had worker status, even though the contract expressly stated otherwise. This can also be the case where the individual is providing their services through their own company. See for example our case report from September 2019: Can someone who is paid through their own limited company be a worker or employee? (available from our website).

By contrast, a recent case heard in the EAT upheld an employment tribunal decision that an individual was not a worker or employee and was not entitled to paid holiday or statutory minimum notice on termination, even though the contract required him to carry out some of the work personally.

Case details: Waters v The Mote Cricket Club

The claimant, Mr Waters, had a long association with the Mote Cricket Club, as player, member, committee member and volunteer. He occasionally carried out paid casual work for the club, assisting the directly employed groundsman.

Mr Waters set up his own business, Green Hand Gardens (GHG), in 2011 and took out a shorthold tenancy on property at the club to store his equipment and from where he carried on his business. GHG carried out gardening work and maintained a cricket pitch for another club.

Following the employed groundsman's departure, the club engaged a contractor, but this arrangement was short-lived. GHG then entered a contract with the club. The contract set out in detail requirements for the upkeep of club's cricket pitches. As well as some off-season work, the contract required GHG to provide a minimum of 60 hours' work per week from March to October each year, and for Mr Waters personally to work for 40 of these weekly hours. The club's equipment was to be used in the first instance, and GHG equipment only with club authorisation. GHG was to submit monthly invoices for an agreed fixed amount. Additional hours were not remunerated.

During the contract, Mr Waters expressed his discontent with the terms of the contract and asked that the requirement for work to be carried out personally be reduced. He also asked the club to take him on as an employee rather than a contractor. The club gave notice to terminate the contract just over two years after it commenced.

Mr Waters brought claims to an employment tribunal for holiday pay and notice pay, and sought to amend his claim to include a claim for unfair dismissal. At a preliminary hearing, an employment tribunal found that Mr Waters was not a worker or an employee and so dismissed his claims. On appeal, the EAT agreed.

The EAT noted that the tribunal had carefully considered the requirement on the claimant to carry out work personally under the contract, as this was a factor weighing against self-employment status.  However, it made clear that a person will not meet the statutory definition of a worker if they are obliged to carry out work personally, but the other party to the contract is in the position of a client or customer of their business.

The tribunal had made several findings which indicated that the club was a customer of GHG:

  • the claimant was not under any control or supervision as to how and when he performed the work;
  • he was expected from time to time to provide his own equipment;
  • the claimant was already running a business of a similar kind and the work which he engaged to perform for the club could be incorporated within that business (turnover for the business was in the region of £40,000 per annum, which included £22,000 from the club);
  • the claimant was not integrated into the club's organisation;
  • there was a requirement of personal service, but the claimant was clearly expected to provide someone else to perform the additional work;
  • the claimant did in fact engage others to provide work under the contract;
  • there was no evidence that the club ever checked that the claimant was in fact carrying out the minimum hours; and
  • the claimant was able to carry out work for others and wished to reduce his personal commitment so that he could increase these opportunities.

In the light of these findings, the tribunal concluded that Mr Waters was self-employed as the club was "genuinely a customer or client of the claimant's business, albeit a very significant one".

Comment

Given the fact-dependent nature of decisions on employment status, it is helpful to note the factors the tribunal took into account when deciding against worker status in this case.

When entering into contracts with self-employed individuals, it is important to appreciate that a requirement to provide personal service can strongly indicate worker status. For this reason, parties entering such contracts will often avoid a requirement for personal service, including a substitution clause which allows the individual to send someone else to carry out the work when they are unwilling or unable to do so. They may also avoid stating any minimum working time requirement and focus instead on the level of service, tasks or project which must be completed.

However, as the EAT highlighted in this case, a requirement for an individual to perform work personally can be a feature of a contract for services, as long as the relationship between the parties is found to be one of contractor and customer. In assessing whether the individual is genuinely in business in their own account, a tribunal will consider factors such as whether they have bargaining power over the contractual terms, whether they market their services to others or carry out work for others, and whether they take a financial risk in the arrangement.

There are significant risks in mislabelling a worker or employee contract as self-employment and organisations should take professional advice at the outset to mitigate these risks. The risks include unbudgeted demands for unpaid PAYE, National Insurance Contributions, enforcement action relating to pension auto-enrolment, and employment tribunal claims relating, for example, to statutory paid holiday, working time and rest breaks, statutory sick pay, National Minimum Wage, notice pay and unfair dismissal.

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.