The long standing contractor had always worked for our client on a self employed basis. However after his engagement was terminated by our client, the contractor made an employment tribunal claim, arguing that he had employee status and was unfairly dismissed when his contract was terminated.
We advised that the primary claim would fail and so no unfair dismissal compensation would be due from our client. But we explained that there would be a residual liability for the client to pay outstanding holiday pay accrued over a number of years.
The outcome at the employment tribunal hearing was as per our advice, and the firm helped the client to avoid significant liability had the claimant been deemed to have employee status.
This case serves as a lesson for any other organisations who engage individuals on a self-employed basis. Have you recently reviewed whether their self-employed status would stand up to scrutiny if challenged by the individual themselves in an employment tribunal or following an enquiry by HMRC into their tax status? A failure to do so could be expensive.
Even if a self-employed contractor leaves on good terms, if they become aware that in fact they could make a claim for unpaid holiday pay for every year of their engagement, this may lead them to submit a claim. For tax purposes, if HMRC deem that they should have been treated as an employee, then the company is exposed to liabilities for unpaid tax, national insurance, penalties and interest going back throughout the engagement.
The number of employment status-related claims such as the above has rocketed in the last few years due to increased awareness about the ability to challenge self employed status, as highlighted by high profile cases involving Pimlico Plumbers, Uber and others.