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Recently we reported on the very important Supreme Court 2011 legal judgement on Autoclenz Ltd v Belcher and Others and how this may affect freelancers and contractors who have IR35 concerns. As this case is so important for all employees, workers and freelancers in deciding their employment status, at Workline we thought we’d explain this in more detail.
The case highlights the importance the Courts now give to finding clarity in employment relationships, not by looking at what is written down in a contract, but what is actually happening in the working relationship.
The case first came to Employment Tribunal in 2007. Autoclenz Ltd offer car valeting services to motor retailers and auctioneers and employed 20 valeters on what the company considered to be sub-contractor (freelance) contracts. The valeters, however thought they were workers and were so entitled to (at least) the National Minimum Wage and holiday entitlements under the Working Time Regulations (which they did not receive).
The case was complicated by the fact that two written contracts existed, the first signed by the valeters which described them as sub-contractors but did not contain any clause permitting the individual to provide a substitute to perform their services, nor did it have an obligation for them to perform work that was provided or that Autoclenz was or was not obliged to provide work (we’ll explain why this is important later).
The second contract issued in 2007 was different and said:
It was not felt by the Courts, however, that all the valeters had actually read this new contract or understood it properly (they did not receive a copy and were not involved in the negotiation of its terms). The Supreme Court felt that “the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed.”
The first Employment Tribunal found that the valeters were employees, regardless of what their contracts said, because they had no real control over:
And also found they were employees because they:
The Court of Appeal agreed and said ‘the elaborate protestations in the contractual documents that the men were self-employed… bore no practical relation to the reality of the relationship’. The Supreme Court agreed with these judgements and held the valeters were employees.
Deciding someone’s employment ‘status’ is always complicated and can only ever be fully decided by a Court. There are tests that are used which are:
However, none of these on their own will decide someone’s status – one judge said you need to ‘paint a picture’ of all the details and look at it from a distance.
What is important about this case is that the Courts looked at how the working relationship between the ‘employee’ and employer actually operated and not what the written agreement/contracts described.
Therefore, for example, if a Recruitment Agency agrees a contract with a client to supply someone as a Contractor to the client, rather than as an employee where this is not true, the contract will be disregarded by the Courts if it is clear that an actual different relationship is in place.
This judgement is important for:
And in Summer 2014 an employment tribunal considered what ‘control’ means – in the context of the old ‘false’ self-employment legislation – in the case of Oziegbe V HRMC. You can read the details here.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
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