The People Bulletin

The definition of who is an employee and who is a contractor became even murkier on 13 October 2009 when the Court of Appeal handed down a landmark decision in Autoclenz v. Belcher & others. As a result of the judgment it will be much more difficult for employers to assume contractors are ‘self employed’ and avoid conferring employment rights on them. 

 Lady Justice Smith observed: ‘Discerning the individual's legal status is not always easy’. Which is something of an understatement. Although s. 230 of the Employment Rights Act 1996 defines who is an employee and who is a worker, it can often be hard for tribunals to decide their status. 

The background 

Mr Belcher and his colleagues were engaged by Autoclenz, cleaning cars for British Car Auctions (BCA). The company provided them with cleaning equipment for which they were charged 5% of weekly pay. It also charged them £9 per week for insurance. The valeters were paid on a piecework basis and had to pay their own public liability insurance. When working they had to wear overalls with the BCA logo. 

All the valeters worked as sub-contractors. In 2007 Autoclenz introduced revised terms of contract which stated that the valeters did not have to carry out the work personally (the ‘substitution clause’). There was no obligation on Autoclenz to provide work nor on the valeters to accept work on a particular occasion (known as ‘mutuality of obligation’). The valeters paid their own tax and National Insurance.  In November 2007 Mr Belcher and a number of his colleagues clamed that, despite these revised terms, they were in fact employees and were therefore entitled to: 

• the right not to be unfairly dismissed; 
• holiday pay; 
• national minimum wage; 
• maternity pay; and 
• redundancy pay.  

At a preliminary hearing the employment judge agreed that the valeters were employees because of the degree of control the company had over them and that the substitution clause was a sham - it did not reflect the real relationship between the valeters and the company. Unsurprisingly, the company appealed.  On 30 October 2008, the EAT disagreed with the earlier tribunal decision, maintaining that the substitution clause was genuine and there was no intention to mislead. However it did concede that Mr Belcher and his colleagues were ‘workers’ for the purposes of the National Minimum Wage Regulations and the Working Time Regulations, thus dismissing this element of the cleaning company’s appeal.

Mr Belcher and his colleagues, who were members of the trade union Unite, did not give up and went to the Court of Appeal. Here, the judge decided that the facts supported the tribunal's original conclusion; in other words that no one seriously expected the valets to provide a substitute and that they had to turn up every day and do the work specified. The Court of Appeal concluded that there was enough mutuality of obligation and control retained by the cleaning company to give the valets employee status – whatever the revised contract had said.  Commenting on the earlier decisions, the judge said: ‘The court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.’ 

Deborah Franks of Thompsons solicitors, who acted for the Unite members, observed: ‘In the past employment tribunals have paid too much attention to the written contract in deciding whether or not someone is an employee, although what goes in the written contract is completely controlled by the employer and often does not reflect the reality of the employment relationship. Following this judgment it will be much easier for employment tribunals to look at the reality of the employment relationship and to decide that workers are employees, with all the protections that gives them, even if the employer has labelled them “self-employed contractors”.’

 http://www.bailii.org/ew/cases/EWCA/Civ/20091046.