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Employment status: Are they employees or not?

Employment status has been the subject of a number of high profile cases in recent years and, as a business, it is your responsibility to be clear about the employment status of those working for you.

Different employment law rights will apply depending on whether an individual is an employee or a self-employed contractor and as a business, you need to know what laws apply. For example, an employee has a statutory right not to be unfairly dismissed if they have more than 12 months service, whereas, a self-employed contractor has no such right.

Tribunals and courts will take into account a number of different factors when determining employment status. These include; how you pay an individual, whether their role requires them to provide services personally and the amount of control you, the “employer”, has over them. Although cases on employment status have shown that no single one of these factors will be decisive in determining employment status, the Supreme Court’s recent decision in the case ofAutoclenz v Belcher and others has given some useful guidance on this.

Autoclenz engaged the services of individuals as car valeters. The valeters were issued with contracts which described them as subcontractors. According to their contracts, these individuals were allowed to provide substitutes (other individuals) to carry out the work on their behalf and they were under no obligation to accept work from Autoclenz.

In 2004 HM Revenue and Customs reviewed the way the valeters were paid and concluded that, for tax purposes, they were self-employed.

Despite the contracts, the reality of the relationship between Autoclenz and the valeters was somewhat different. The valeters were expected to perform their services within a reasonable time and in a good workmanlike manner. They were expected to personally carry out work offered to them by Autoclenz and would be paid for the work they did.

In 2007 the valeters went to the Employment Tribunal with a claim against Autoclenz for failure to pay the National Minimum Wage and holiday pay. These rights can only be claimed by employees. Therefore, the valeters needed to show that, regardless of what was written in the contracts, they did work under a contract of employment.

After examining the true nature of the arrangement between the valeters and Autoclenz, the Supreme Court found that this was an employment relationship and that they were entitled to employment rights as employees. If there is a dispute regarding the written terms of a contract, the focus will be to establish the “actual legal obligations of the parties” during the course of the contract.

This case shows that even where an organisation contracts with an individual to provide services as an independent contractor, that individual may still be considered to be an employee if, in practice, the true nature of the relationship between the parties is one of employment. Should this be the case, businesses need to be aware of the increased rights these employees then become entitled to.

For more information and support with employment status, please contact our Employment & HR team.

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