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31st July 2016

Employment Status – Just Because You Say It Is, Doesn’t Mean It Is!

A recent news story has brought the nature of an individual’s status within a business into the spotlight. Can an individual agree in the contract that they are engaged under that they are not an employee of the business?

The short answer to this is “Yes of course they can. You can agree anything in a contract.”

Whilst technically true the short answer is unhelpful in forming a view as to whether or not an employer can rely upon the terms of the agreement in seeking to show the lack of an employer/employee relationship. Such a situation may arise if the individual is attempting to assert that they are in fact an employee and have employment rights or if HMRC investigate status to identify any PAYE tax or National Minimum Wage issues.

The long answer is that the courts and tribunals can look past the written agreement. It is important to look at all the circumstances surrounding the relationship between the individual and the business, outside of what the agreement between them says, in order to determine the individual’s employment status.

The recent case of Deliveroo is helpful in giving a practical example of this.

Deliveroo and their Couriers

Deliveroo engages Couriers to pick up and deliver fast food to members of the public. Under the agreement between Deliveroo and the Couriers the Couriers are expressly stated as being “self-employed contractors”. Self-employed contractors by definition are not employees and so do not benefit from the added protections afforded to employees such as the National Minimum Wage and Holiday Pay.

In addition the contracts contain the following clause:

You…warrant that neither you nor anyone acting on your behalf will present any claim in the employment tribunal or any civil court in which it is contended that you are either an employee or a worker

The agreement goes on to state that the Courier will indemnify Deliveroo for any costs and expenses that it incurs in defending such proceedings.

Is there an employee/employer relationship?

On the face of this agreement therefore there is no employee/employer relationship and the parties have expressly agreed to this arrangement. However, the determination of employment status does not begin and end with the agreement. The Courts and HMRC take a number of factors into account when determining whether an individual is more likely to be an employee than a self-employed contractor. Firstly they will seek to identify if the 3 irreducible minimum features of a contract exist namely:

  1. Mutuality of obligation – an expectation by the employer that they employee will accept work when offered and an expectation by the employee that work will be offered;
  2. The obligation to perform work personally; and
  3. Control.

If any of the above features are missing, there will be no employment contract. If they all exist, there maybe an employment contract and the Courts/HMRC will go onto consider other factors. An example of some of these are:

  • Whether the individual is paid through PAYE or after submission of an invoice
  • Whether the individual is required to wear the business’ uniform
  • Whether the individual is entitled to carry out work for other businesses at the same time they are engaged by this business
  • The degree of financial risk
  • The degree to which the individual is integrated into the organisation
  • Whether the individual is obliged to follow the business’ policies and procedures

There aren’t a particular number of these which mean that the individual is definitely an employee but the more that can be answered in the positive the more likely this will be the case regardless of what is in the agreement.

Unenforceable

Once it has been established that the individual is more likely than not an employee, any clause within the agreement which confirms that the individual has “contracted out” of any employment rights or attempts to limit such rights would be unenforceable by the business. Statutory employment rights cannot be contracted out in any agreement between the two parties. The only way to do this is either through agreement with ACAS or by way of a settlement agreement which generally will only be relevant once the relationship between the two parties is coming or has come to an end.

Routinely review the status of self employed individuals

Businesses should be aware of the factors which can give rise to the creation of an employer/employee relationship. The employer cannot rely on any protection under any agreement between the parties if the facts are sufficient to make out such a relationship.

Employers who fall foul of this may be subject to claims for back-pay under the National Minimum Wage Regulations 2015 and the Working Time Regulations 1998 by the employees as well as fines and sanctions from HMRC up to a maximum of £20,000 per employee per financial year. In the worst-case scenario the individual directors/trustees/partners of the business can be subject to criminal proceedings and/or disqualification from holding their positions.

All businesses are encouraged to routinely review the true status of self employed individuals, casual workers and independent contractors working in their business on a frequent basis.

 

*All information is correct at the time of publishing

Oliver McCann

Napthens LLP – Employment Law Specialist

A highly experienced employment lawyer, Partner Oliver McCann acts for employers across all industry sectors, from owner-managed business through to large PLCs, as well as education establishments and charities. He has particular experience in advising employers in domiciliary care, leisure, retail, security, manufacturing, marketing, and the IT sectors. Read more

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