Common employment law misconceptions: So long as you agree in writing that an individual is self-employed, you are free from employment law obligations
The question of whether any given individual satisfies the definition of an employee is often the starting point in many employment disputes. It is a common misconception that the wording of a contract or agreement is definitive in deciding whether someone is an employee, a worker, or genuinely self-employed. In order to decide this the employment tribunal will look at how the relationship works in practice.
Factors which point towards employee status include:
- mutuality of obligation (an obligation to offer work and an obligation to accept once offered);
- an agreement that the individual will personally carry out the work;
- a degree of control exercised over the individual.
The rights of employees are set out in statute and include, amongst other things:
- the right not to be unfairly dismissed;
- maternity leave;
- redundancy pay;
- a right to transfer to a new employer under TUPE legislation;
- entitlement to the national minimum wage; and
- entitlement to rest breaks and paid holiday.
Even if the relationship doesn’t, on the face of it, look like one of employee/employer, the individual may still be a worker. For workers, the relationship with the employer is not as ‘rigid’ as with an employee but there still remains an obligation where the employer has offered work and it has been accepted for the worker to do the work personally. In addition, the degree of control exercised by the employer over a worker tends to be higher than with a self-employed individual.
Workers do not enjoy protection from unfair dismissal, or the right to maternity leave, redundancy pay, or the right to transfer pursuant to TUPE, but they still have a number of statutory rights including the right to the national minimum wage, rest breaks and paid holidays.
There are definitions for an ‘employee’ and a ‘worker’ contained in statute, but the position is not always clear and the current position has been substantially defined through case law.
CASE LAW
Over the years there have been a number of cases concerning the issue of employment status and the position has evolved over time. In 2018, the Supreme Court determined that an ostensibly ‘self-employed’ plumber was in fact properly classified as a worker, a status that has also been applied to salespeople, delivery drivers and taxi drivers despite the fact that they were described as self-employed in their contracts.
With respect to employee status, the case of Gorman v Terence Paul (Manchester) Limited could have significant consequences for many working in the beauty and hairdressing industry.
As with most hairdressers, Ms Gorman entered into a contract with the salon under which she worked as an independent stylist, it stated that she was self-employed. Ms Gorman was obliged to work set hours, was provided with products to use by the salon, and pricing was determined by the salon. Although Ms Gorman had regular clients, the salon kept client lists private and she had to ask for client details should she need them. Ms Gorman received one third of the price charged to the client with the rest going to the salon to cover ‘overheads’ (commonly referred to as an amount to ‘rent a chair’ in salons). In reality, the only thing that Ms Gorman had control of was payment of her own taxes.
The tribunal determined that on the facts, Ms Gorman was an employee, not self-employed. In particular it referred to the significant degree of control the salon exercised over Ms Gorman which led to it concluding that she was an employee.
This year we will see the decision of the Supreme Court in Uber BV and Others v Aslam and Others which is a high profile case regarding employment status. The question is whether Uber taxi drivers are self-employed as described in their contracts, or whether in fact they are workers because of how the relationship between the drivers and Uber works in practice. The potential cost to Uber if the decision goes in favour of the drivers is likely to be huge and demonstrates that businesses should reassess their risk sooner rather than later.
The cost to an employer in respect of holiday pay, the national minimum wage and payment of income tax and national insurance can lead to an employer artificially seeking to ‘set up’ a self-employed relationship when in reality, the relationship is one of employer/employee or employer/worker. However, if challenged the costs of paying backdated holiday pay, wages, tax and national insurance as well penalties and legal fees trying to defend the claim are likely to outweigh any short-term benefit. Whilst it has long been the case in the hairdressing industry that many individuals ‘rent a chair’ and are considered self-employed this case demonstrates that it may be time to review the nature of working relationships and make sure that the contract accurately reflects how things work in practice as well as the appropriate legal rights and obligations.
Would be employees or workers subject to self-employed contracts should consider how their relationship works in practice if they wish to challenge the status of the relationship. For example :
- what type of contract exists in writing;
- who is responsible for paying tax and national insurance;
- who decides the rate of pay;
- whether there is an expectation of ‘normal working hours’;
- how much control the ‘employer’ has; and
- who is responsible for bringing in work/customers and marketing.
Please note this article should only be considered as guidance and should not be taken as specific legal advice.
0 Comments