Whether an individual is an employee or self-employed is one of those thorny questions that frequently gets employment tribunals in a lather. If the answer is 'employee' or even 'worker' then this will usually mean an individual with a broad grin on their face and a business with that grin firmly wiped off. Can you guess the expressions on the faces of the parties in the case of Autoclenz v Belcher which looked at this very issue of employment status? The case is not only an opportunity to make a bucket load of terrible cleaning related puns but a good recap of the tests for status and we heartily recommend that you ...
Autoclenz engaged a number of 'self employed' contractors to valet cars. The contracts had terms that permitted the cleaners to send a substitute in their place and to refuse work. Normally such terms are strong indicators that there is no employment relationship as employees are, of course, obliged to provide their own personal service and to accept work that is given to them. However, the contract must reflect the reality of the relationship.
Mr Belcher and his fellow valeters at times wore Autoclenz overalls and were provided with all the cleaning products and equipment they required together with insurance cover. It is not known whether they always waxed on and waxed off. They were paid on a piecework basis and submitted weekly invoices from which a fixed sum was deducted for cleaning materials and the insurance. The valeters were responsible for their own tax and, interestingly, in 2004 HMRC undertook a review and were satisfied that they were indeed self-employed - you could say they valet-dated their status <groan>.
In 2007 the valeters issued tribunal claims seeking a declaration that they were 'workers' and therefore entitled to the national minimum wage and paid holidays. The case wound its way to the Supreme Court (the court formerly known as the House of Lords) for them to wax lyrical on the question. They found that the valeters were employed under contracts of employment and were therefore entitled to the minimum wage and paid holiday. So, when can a tribunal disregard the written terms between the parties?
Where there is a dispute, the tribunal must try to discover the "actual legal obligations of the parties" from the outset and throughout the relationship. Logically this means looking at the whole picture including: the contract, the way the parties behaved and what their expectations of each other were. However, just because a contract term, for example, a right of substitution, is never exercised, does not mean that it is not genuine. Sensibly, the court also stated that the relative bargaining power of the parties must also be taken into account when deciding whether the written agreement really represents what was agreed. Finally, there was no need to find that one or both parties had, in drafting the contract, intended to mislead as to the true nature of the relationship.
It is crucial that the contractual terms reflect the reality of the situation. Whilst we can help put together a self-employed contract which makes all the right noises as to the status of the parties (e.g. right of substitution, lack of control, obligations to provide own equipment, etc.) this won't be worthy diddly-squat if the reality is akin to an employment relationship. In that situation you will be in danger of getting rinsed! The case also shows that it is possible for HMRC to make a finding on status for tax purposes that is different to the tribunal/court's finding for employment rights purposes, although this will be rare.