Is the parties’ intention decisive in determining an individual’s employment status?

The case of Richards v Waterfield Homes Ltd and Unity Build & Repairs Ltd provides an answer to this question in their correction of the Employment Tribunal’s (ET) findings. The ET erroneously found that, in a working relationship which had numerous indicators of employment status and only one in favour of self-employment, that the parties’ intention should be determinative of the issue.

Facts

The clamant started working for the Respondent in 2010 as a carpenter. Both parties were registered under the Construction Industry Scheme (CIS).

Under CIS, contractors deduct money from a subcontractor’s payments and pass it to HMRC as advance payments towards the subcontractor’s tax and National Insurance. The use of this scheme is inconsistent with being an employee of the contractor.

In 2018 the respondent received advice that its arrangements with self-employed contractors could be open to challenge as employment relationships.  In response the respondent ‘regularised’ its employment relationships, resulting in the claimant being switched to an employment contract. The claimant objected to the new contract as it stated that he was an employee from November 2018, when he asserted a start date back in 2010.

He was dismissed in 2019 and sought to claim unfair dismissal, for which he needed two years of employment.

The tribunal judgement looked to ascertain the ‘true intentions’ between the parties and used this as the overriding factor. The parties had agreed that the legal basis of the engagement was through the CIS scheme as a self-employed contractor. Therefore, the ET ruled that the claimant was self-employed during that time.

The decision

The Employment Appeal Tribunal (EAT) found that the ET fell into error by the judge’s focus on what he considered to be an agreement between the parties, despite this being only one factor to be taken into account. The EAT stated that this was not a finely balanced case in which the description of the relationship by the parties could be regarded as a tipping point.

There was an abundance of evidence to suggest that the claimant should be considered an ‘employee’ and the label adopted by the parties was ‘manifestly’ false.

Key point for employers

• The agreement/intention of the parties engaging in a contractor relationship can be a persuasive to a tribunal. However, it does not outweigh how the relationship plays out and evidence demonstrating, for example, factors pointing to employment status (e.g. control, mutuality of obligation, integration, to name a few).
• Employers should not solely rely on a written or verbal agreement to demonstrate self-employment if the individual is treated, in principle, as an employee.
• Employers should regularly check the status of self-employed workers and if their current status is encroaching on employment status or even are being treated the same as their current employees.
• Employers can use HMRC’s online questionnaire to answer a series of questions about its arrangements with any contractor (Check Employment Status for Tax (CEST)).  This will provide HMRC’s view on whether the arrangements would amount to employment or self-employment for tax purposes.  If the correct information is inputted, HMRC will stand by the result.  It can be accessed here.

If you have any questions about this article, please get in touch with a member of the Employment team.