Tribunal claim that exposes the myths of employment status

At Chartergates we are at the forefront of the employment status discussion by representing our clients on a daily basis in the tax and employment tribunals.  We don’t generally make a habit of commenting on the cases we undertake for our clients but a recent employment tribunal victory of ours is of particular interest.  The reason it is of interest is because the facts of the case and the eventual result provide a reminder to us all that some of the myths perpetuated about employment status are just that and no more.

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Our client ‘The Company’ is a construction firm of some standing engaging in ground works and civil engineering projects.  In order to service these projects our client engages self-employed subcontractors who supplement their core workforce.  The Claimant was one such subcontractor.  Given that the facts of this particular case are central to this article they are listed below:

  • The Claimant was engaged by The Company as a self-employed subcontractor.
  • The Claimant was not incorporated.
  • The Claimant agreed and signed a self-employed contract for services on numerous occasions.
  • The agreed contracts contained the right of substitution, gave The Claimant discretion as to how the services were provided and were clear that The Company was not obliged to provide The Claimant with work and that The Claimant was not obliged to do any work.
  • The Claimant was engaged continuously for over 17 years.
  • The Claimant was engaged in various capacities including, ‘site operative’, ‘ground worker’, ‘foreman’, ‘site supervisor’ and ‘project manager’.
  • The Company provided a vehicle for The Claimant which could also be used for personal use.
  • The Company provided The Claimant with a company fuel card.
  • The Company provided The Claimant was a company laptop and mobile phone.
  • The Claimant has a company email address and was referred to as ‘staff’.
  • The Claimant was covered under The Company’s public liability insurance.
  • The Claimant was paid for holidays by The Company.
  • The Claimant was reimbursed by The Company for the costs of travel and accommodation when away for work.
  • The Company paid The Claimant a bonus from time to time.
  • The Claimant was paid a daily rate for work undertaken.
  • The Company paid for The Claimant to undertake a variety of training courses.
  • The Claimant was registered as self-employed with HMRC on the various incarnations of the CIS scheme for the entirety of the 17 years.
  • For a brief period The Claimant achieved CIS6 status although this was later withdrawn.
  • The Claimant utilised the services of an accountant and claimed deductions for use of his home, telephone, printing, postage and stationery.
  • The Claimant engaged his partner for admin duties (presumably to utilise her tax free allowance) although on cross examination these duties appeared fairly sparse.
  • The Claimant did not invoice The Company for the services provided other than VAT invoices when it became apparent The Claimant was earning above the relevant VAT threshold.
  • There was no evidence that The Claimant provided services to any party other than The Company for the entire 17 years.
  • The Claimant asked on a number of occasions to become an employee but was told he was better off as he was.

After over 17 years providing services The Company informed The Claimant that there was no work for him and the contract for services was terminated.  In response The Claimant made an employment tribunal claim for unfair dismissal, breach of contract, holiday pay, failure to provide a written statement of employment particulars, failure to provide written reasons of dismissal, unlawful deductions from wages and interest.  Just prior to the hearing The Claimant’s claim was for a total of £90,000.

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At the hearing counsel on behalf of The Claimant argued that The Claimant was an employee in the first instance and so entitled to bring the entirety of his claim.  In the alternative they argued that The Claimant was a worker and therefore entitled to pursue the holiday pay and unlawful deductions from wages claim.  On behalf of The Company we argued that at all times The Claimant was not an employee or a worker and that therefore the tribunal did not have jurisdiction to hear the claims.

The matter was listed for a two day hearing.  At the hearing The Claimant was keen to focus on the length of his contract, on the fact that the multiple contracts signed by both parties contained inconsistencies with the reality of the arrangements, that these contracts were a ‘sham’, and that The Company paid for insurance, training, travel, a phone and a laptop.  In support of his contention that the contracts were a sham counsel for The Claimant highlighted that in the 17 years that The Claimant was engaged by The Company he never once sent a substitute and was for the entire period provided with work which he undertook.  Counsel argued that this was evidence that the substitution clause was a sham (surely in 17 years if the clause was genuine he would have once sent a substitute?) and that the continuity of work equated to an obligation to offer and accept work.

On behalf of The Company we argued that the various ‘benefits’ received by The Claimant were in fact commercial arrangements that had been entered into by the parties due to market forces rather than for any employment status reasons.  On the issue of the contract we argued that the contracts were all agreed without issue and that simply because The Claimant had chosen not to a send a substitute it did not mean that the right was a sham.

With regards to mutuality of obligations we submitted that the fact that work had been offered and accepted for 17 years was not tantamount to an obligation to offer and accept work.  The continued work was due to commercial factors rather than any obligation and that this was evident by the fact that once there was no more work The Company was not compelled to find any work for The Claimant.

On the issue of the minor inconsistencies in the agreed contracts and what actually occurred we contended that these were only minor, that they were addressed in subsequent contracts and that they did not affect the validity of the substitution clause or the mutuality of obligations clause.  The Company was also able to point to other subcontractors (engaged on the same terms as The Claimant) who had engaged hired assistants in the past and this was highlighted as an example of the lack of personal obligation on The Claimant.

We also argued that the presence of an accountant, the claiming of business expenses, The Claimant’s use of his partner as an admin assistant and the fact that for a period he was CIS6 and VAT registered all pointed to a genuine business and a self-employed arrangement.

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The hearing and the submissions took the full two days and therefore judgment was reserved and sent to the parties at a later date.

When the judgment was issued the Tribunal was unequivocal in its findings; The Claimant was not an employee and was not a worker of The Company.  In reaching this conclusion the Tribunal highlighted the following factors:

  •  The Claimant had a genuine right to send a substitute.  The fact that The Claimant chose not to utilise the right did not diminish the right’s validity.  It was not an illusory right, others had utilised it.  Therefore the personal obligations necessary for The Claimant to be an employee or a worker were missing.
  •  There was no mutuality of obligation between the parties for the entire 17 years.  The fact that The Company consistently offered work and that The Claimant consistently accepted for a considerable period did not create an obligation on The Company to offer the ‘next’ job.
  • On the issue of control the Tribunal found that whilst The Company exercised ‘limited’ control over how The Claimant provided the services this was due to the nature of the construction industry, health and safety requirements and The Company only exercised sufficient control to adhere to its contractual obligations to its clients.
  • On the issue of the fact that parts of the contract did not accurately reflect the practicalities the Tribunal found that these were minor and that they were addressed in later drafts of the contract.  The Tribunal were satisfied that these inconsistencies did not alter the fact that the irreducible minimum necessary to form a contract of service was missing.
  • With regards to the fact that The Claimant received a number of ‘benefits’ like holiday pay the Tribunal found that these were purely contractual benefits negotiated by The Claimant because of the strong position he was in and that they were not given because The Claimant was an employee or a worker.
  • Interestingly, the Tribunal noted that whilst in itself it was not determinative The Claimant was more than happy to be self-employed and had ensured that he was ‘better off’ as self-employed by presenting himself to the outside world and the tax authorities as a business.

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So what is the moral of this story?

There are a number of points that can be taken from this judgment:

  • Don’t let ancillary factors deflect you from the actual law.  Despite what appears on the face of it to be a number of compelling factors pointing towards employment the irreducible minimum was missing and those other factors cannot dissuade from that.
  • You must consider personal service, mutuality of obligations and control before considering other factors when looking at employment status.  All three were missing in this case and that is ultimately why The Company was successful.
  • ‘Length of service’ is not a determinative factor when considering employment and/or worker status.  The fact that The Claimant had been engaged continuously for 17 years did not alter the fact that the irreducible minimum was not present in this case.
  • The receipt of employment style ‘benefits’ like holiday pay did not automatically mean The Claimant was an employee or a worker.  The key terms concerning substitution and mutuality of obligations were genuine and these override the other factors.
  • The facts from each particular case will have their own bearing on the result, as will the quality of the witnesses.  In this case the witnesses for The Company gave cogent, consistent and honest evidence.  This came across loud and clear in the Tribunal.
  • Don’t think that simply putting contracts in place and forgetting about them will be sufficient.  In this case The Company took the contractual process seriously and revisited the contractual arrangements on a regular basis.  Not only did it highlight to the Tribunal that this was not merely a paper signing exercise but the regular review of the terms allowed The Company to correct errors in previous terms which was noted by the Tribunal.

and finally…

We would like to thank our client (you know who you are!) for the determination they showed in facing up to this claim and the admirable way in which they gave evidence at the hearing (oh, and for taking our advice from the start!).

Published: 06.18.14 - Posted In: Case Studies