Supreme Court upholds Court of Appeal decision that car valeters, whose contracts described them as self-employed, were in reality employees, and clarifies approach tribunals should take to identifying real contractual relationship.

The Supreme Court confirmed that the approach should be to identify the actual legal obligations between the parties by examining all the relevant facts. This includes any written terms which appeared to govern the relationship. However, where the written terms do not reflect the reality of the situation, it is not necessary to find that both parties intended to misrepresent the contractual position in those terms. The Supreme Court agreed with the Court of Appeal’s view that “...while employment is a matter of contract, the factual matrix...is not ordinarily the same as that of an arm’s length commercial contract” and the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed.

The Supreme Court confirmed that it is open to an Employment Tribunal to make findings of fact and to conclude, based on those findings, that the written terms do not reflect the true agreement between the parties.

Implications

This decision provides the highest authority for the proposition that, when determining the issue of employment status, an employment tribunal does not have to establish an intention by both parties to misrepresent the terms of the actual agreement between them, in order to disregard the terms of a written contract.

The willingness and confidence of employment tribunals to disregard terms, such as substitution clauses and express statements as to an individual’s status, is likely to increase as a result of this decision. Therefore, any attempt by employers to rely on such terms as a device to avoid a finding of employment status is likely to fail where the reality of the relationship is inconsistent with such terms.

Background

Autoclenz provided car cleaning services to motor retailers and auctioneers. The individuals, whose status formed the subject of this case, were all valeters who provided cleaning services at a car auction site in Derbyshire.

The written contracts governing the relationship between Autoclenz and the individuals consisted of two documents. Both referred to the individual as a “sub-contractor” and the contract stated that the individuals were entitled to engage others to carry out the services on their behalf, provided the substitute complied with Autoclenz’s sub-contractor requirements.

The individuals wore the overalls provided to them by Autoclenz, and Autoclenz provided all the cleaning products and equipment. The individuals submitted weekly invoices for their work, but the invoices were prepared by Autoclenz. Autoclenz deducted sums from the invoice payments to the individuals in respect of insurance and materials costs.