The guidelines for identifying whether a relationship is one of employment or selfemployment are well-established, dating from Ready Mixed Concrete (SE) Ltd v Minister of Pensions and National Insurance in 1968. This case identified three key tests: mutuality of obligation (ie the obligation to give work when it is available and to accept work when it is offered); control and whether other factors are consistent with a contract of service. The Supreme Court reconfirmed these tests recently in Autoclenz Ltd v Belcher, which also ruled that tribunals should look at the obligations of the parties in practice, not just at written terms which may fail to reflect the genuine position.
In Weight Watchers (UK) Ltd & Others v HMRC the tax tribunal held that “Leaders” engaged to arrange and conduct meetings of Weight Watchers’ members were employees, despite detailed documentation describing them as independent contractors, and despite many years’ prior practice of treating them as such. Weight Watchers and several Leaders appealed on the grounds that the three tests for employee status listed above had not been correctly applied. Their appeal was rejected on all points.
In relation to the mutuality of obligation test, there was considerable discussion on the right of substitution which appeared in the Leaders’ agreements. Generally, an independent contractor will have the right to provide a substitute worker to perform his obligations, so that there is no real mutuality of obligation. In this case, although there was a substitution clause, the tribunal considered that it was fettered by fairly detailed alternative arrangements set out by Weight Watchers as to how meetings were to be conducted if a Leader was absent. In reality, therefore, the Leaders could not discharge their contractual obligations simply by providing another person. There was therefore sufficient mutuality of obligation for the relationship to be one of employment.
In relation to the control test, the Leaders’ contracts stated that they had “absolute discretion” in conducting meetings. However, it was held that the various requirements and restrictions set out in contractual and other documentation, in addition to the practical realities of the relationship, meant that Weight Watchers had sufficient control for them to be classed as employees.
The appeal tribunal also confirmed that the third “other factors” test does not require a detailed balancing exercise but is a check to ensure there is nothing which points away from the conclusion reached as the result of the first two conditions being satisfied. Therefore it was not relevant in this case.
This case highlights the importance of ensuring that the practical realities of relationships with employees and independent contractors reflect all relevant documentation.