The recent case of Autoclenz Ltd v Belcher is important for all HR professionals to understand. It highlights the importance of clarity around the employment status of those they engage. Most importantly, it makes it clear that the courts will focus their attention on the actual reality of the working relationship, rather than rely on contractual documentation.
As a quick reminder, the Autoclenz Ltd case started in the employment tribunal in 2007 and eventually found its way to the Supreme Court. The question was whether or not 20 individual car valeters were employees for the purpose of the national minimum wage. The contracts indicated that the company had no obligation to offer work and the valeters had no obligation to accept work if offered.
However, the courts decided that the written contracts did not reflect the true agreement between the parties and in reality the essential contractual terms were that the valeters:
- would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner;
- would be paid for that work;
- were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and
- must personally do the work and could not provide a substitute to do so.
The Supreme Court decided that the individuals were employees.
Q How do courts and tribunals determine whether someone is employed or self-employed?
The question of whether someone is employed or self-employed is determined by the application of the case law that has developed over the last 100 years or so to the facts of the case under review.
The main tests laid down in the case law are as follows:
- Mutuality of obligations. In simple terms: was the “employer” under an obligation to offer work and was the “employee” under an obligation to accept the work if offered? If there are no mutual obligations there can be no contract of employment.
- Master/servant relationship. Can the “employer” tell the “employee” how to do the work?
- Integration. Is the “employee” operating as part of a team? For example someone who manages a team of employees is likely to be an employee.
- Economic reality. Does it look like the person is self-employed, for example do they provide all their own tools and do they work for a number of customers?
- Painting a picture. All of the above tests need to be considered; none will decide a case on its own. One judge said that it was necessary to “paint a picture” with all of the details and then stand back to look at the picture from a distance.
Q What if the agreement between the parties is that the individual is a sub-contractor?
Regardless of the agreement, the courts will look at how the working relationship actually operates, using the tests above to assist them. This means that employers should review all sub-contractor arrangements to make sure that they are not at risk of creating employment relationships unintentionally.
Q What does this mean for HR professionals?
HR professionals should take time to review contractual arrangements, and to assess the risk that some sub-contractor or consulting arrangements may well be giving rise to employment rights. If this happens, it may be better formally to acknowledge this, and make sure that those workers are properly included in your terms, conditions and policy framework. Pay particular attention to sub-contractors or consultants who work with you for longer than originally anticipated, or become more involved in the business than originally intended.
Q Are there tax and national insurance implications?
Yes, and these can be substantial. It is worth taking tax advice if you believe that you may actually be employing a group of workers who have previously taken responsibility for their own tax and national insurance payments.
Rachel Stone, people management director, and Richard Mannion, national tax director, Smith & Williamson accountancy & investment management group
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