It’s time to dig out your contracts, revisit what they say and scrutinise how you are working or engaging with the people who carry out work for you, who you would describe as self-employed.
Three recent employment cases Uber, CitySprint and Pimlico Plumbers have identified that classing or treating someone as self-employed may not mean that they are self-employed. These cases have shown that the courts have become much more robust in looking behind the contract label to determine the true employment status of an individual.
The distinction between worker and self-employed is an important legal consideration as workers are entitled to a number of legal benefits which do not apply to those who are truly self-employed, including:
- 5.6 weeks of paid annual leave each year
- 48 hour maximum working week
- protection from unlawful deduction from wages
- national minimum/living wage
- protection against unlawful discrimination
The first of these 3 cases considered by the court was the Uber case. The claim was brought by Uber drivers who considered themselves as employees of Uber and therefore felt they should be entitled to a number of employment rights. The court found that despite the company attempting to define the drivers as ‘self-employed’, the claimants were in fact workers as the reality of the working relationship was more akin to that of an employer / employee relationship. This was a significant ruling which demonstrated the court’s willingness to look behind a written contract and into the reality of the working relationship.
The CitySprint case which followed allowed the courts to further consider the employee / self-employed distinction. In this case, the Employment Tribunal looked beyond a ‘self-employed contractor’ label and followed a similar line to the Uber case, focusing on the reality of the working relationship. The claimant, a bicycle courier, had signed a document which had stated clearly that she was ‘self-employed’ and also contained a list of terms excluding any factors that might have suggested the worker was an employee. There was no obligation on the courier to provide services and no obligation for the company to provide work, while the worker agreed to no holiday, maternity or sick pay entitlement so on the face of it. It definitely appeared to be a contract for services. The court found however that the courier typically worked 4 days a week for 9 hours a day while being tracked by the company’s tracking system. She wore a company uniform, was told to smile at customers and her right to send a substitute was heavily qualified to the point that in reality she was only able to send another CitySprint worker in her place. The court was satisfied that the claimant fitted the definition of ‘worker’ and thus was an employee and was entitled to claim holiday pay.
The Pimlico case presents the latest legal ruling on the employment status. What is also interesting in this case was that Mr Smith was not a low-paid or unskilled worker. He was a highly paid and skilled tradesman and he benefited immensely financially and otherwise, from his self-employed status. In this case, the claimant had a written contract with Pimlico Plumbers, which described him as ‘self-employed'. The Court of Appeal, however, found the relationship to be more akin to that of an employee-employer, ruling that the reality of the working relationship was in fact different to how it had been falsely labelled on the employment contract. The court looked at various factors when coming to its conclusion, the first being that the claimant only had a very limited entitlement to send a substitute to do work on his behalf who had to be another Pimlico plumber, much like the courier in the CitySprint case. On top of this, the claimant’s written contract stipulated that he had to work 40 hours a week across 5 days, which effectively prevented him from working for anyone else. Pimlico also required the worker to wear a uniform, use a company mobile phone and drive a company van.
Impact for those who are self-employed
If you are a self-employed you should consider carefully whether your working relationship is more akin to that of an employer / employee relationship.
It is important to consider how restrictive the conditions imposed on your services currently are, including the hours you are expected to work and the degree to which the company dictates the way you provide your services. Often such conditions will have the practical effect of resulting in you having to work solely or predominantly for just one company.
If you believe you are a worker, you would be entitled to the employment rights that workers enjoy, including a right to paid annual leave and protection from unlawful deductions from your wages.
The important point to stress following the above cases is that even though on the face of a contract you may be labelled as ‘self-employed’, the courts are much more willing to look beyond this and will look instead at the reality of the employment situation.
Impact for Company’s using self-employed individuals
If your company makes significant use of self-employed individuals such as consultants and contractors, these cases present a warning that you must be very careful in how you draft the terms of your contracts for services and how you treat these individuals, as the courts are proving to be increasingly willing to scrutinise the practical impact that particular terms have and may take little or no consideration of the contractual documentation, focusing instead on how you treat the self-employed individuals you are working with
The more obvious terms that will lead a court to find an employer / employee relationship are those that impose set working hours, dictate where and when the work is to be done, hold the individual accountable to internal procedures and processes and do not in reality allow them to substitute their services if they are not available to do the work personally. Other terms can also suggest that a person is an employee, for example a term that provides for a consultant to be paid through the company payment system instead of submitting invoices.
There can be a significant financial cost to getting this wrong. A finding that your self-employed contractors fall within the legal definition of ‘workers’ or ‘employees” would potentially expose a business to providing numerous employment benefits, payment of employer national insurance payment etc.
Definition of a worker:
An individual who must:
- be in a contractual relationship with someone who gives them work to do
- do the work or services personally;
- not have a relationship with the person/organisation that gives them the work whereby they could be considered to be a customer of the individual’s profession or business undertaking.