The extent of the legal rights available to an individual working for another will depend on their legal status. Employees have the most employment rights, including the right to claim unfair dismissal. Workers are entitled to a limited range of rights, including paid holiday and the national minimum wage (NMW). Self-employed contractors have the fewest rights, although they may be able to claim discrimination.
An employment tribunal will take into account various factors when determining employment status, including whether the individual:
- Must do work offered to him and the employer must provide it (mutuality of obligation)
- must personally do the work or can provide a substitute.
- provides his own tools and equipment. A self-employed contractor would normally expect to provide his own but not an employee.
- Accounts to HMRC for his own tax and national insurance.
- has any financial risk.
Of these, the first two have traditionally been seen as the most important.
In the recent case of Autoclenz v Belcher and others the Supreme Court had to decide whether car valeters were employees, workers or self-employed.
Autoclenz had a contract with British Car Auctions (BCA) to valet their cars. Autoclenz advertised for self-employed valeters. Successful applicants were issued with contracts, which stated that they were sub-contractors. Autoclenz issued a new contract in 2007, which provided that the valeters were engaged as sub-contractors and that they could provide a substitute to do the work. It also said: "You will not be obliged to provide your services on any particular occasion, nor…does Autoclenz undertake any obligation to engage your services on any particular occasion", i.e. there was no mutuality of obligation.
The valeters cleaned cars at BCA's premises. BCA provided their overalls. Autoclenz provided cleaning products and equipment and arranged group insurance cover. The valeters were paid per car valeted and submitted weekly invoices. Autoclenz deducted a fixed sum from their pay each week for cleaning materials and insurance. The valeters accounted to HMRC directly for tax and national insurance contributions. In 2004, HMRC undertook a review and were satisfied that the valeters were self-employed.
In 2007, the valeters applied to an employment tribunal seeking a declaration that they were workers and if successful, an order that Autoclenz pay them the NMW and unpaid holiday pay.
The tribunal held the valeters were employees and, in the alternative, were workers. The contract did not reflect the true reality of the situation. There was mutuality of obligation: in practice the valeters were expected to arrive for work everyday and to give Autoclenz advance notice if they were not able to work. Autoclenz appealed.
Placing heavy reliance on the contract, the EAT allowed the appeal in part and held that the valeters were workers, not employees. Autoclenz appealed to the Court of Appeal, which unfortunately for Autoclenz reinstated the tribunal’s decision that the individuals were employees. Autoclenz then appealed to the Supreme Court.
The Supreme Court unanimously dismissed the appeal. The valeters were employees with the full statutory rights.
Practical Tip:
The case has clarified that a tribunal may disregard a contract which states that an individual is self-employed, if the true reality of the situation suggests otherwise. The decision also demonstrates that it is possible for someone to be self-employed for tax purposes, but an employee or worker under employment law, and vice versa.