employee or not employee – the Supreme Court decides
Cases about whether an individual can properly
be described as self-employed, a 'worker' or an employee have come
up regularly over the last few years, with decisions sometimes
reversed and reversed back again on appeal. The Supreme Court has
now provided what ought to be the definitive answer on one
particular question: whether a clear agreement in writing takes
preference over what happens on the ground.
A group of car valets had signed contracts
specifying that they were self-employed contractors. The company
for which they carried out the work provided the cleaning equipment
and materials, but since 2007 it had charged the valets for this.
The valets were paid depending on how many cars they had cleaned,
although their invoices were prepared by the company. The valets
were required to have public liability insurance, but the company
had a group policy in place for which it charged the valets. Their
contracts also included a substitution clause, whereby on the face
of it the valet could supply a substitute to carry out valeting on
his or her behalf. According to the contracts, they were under no
obligation to provide their services on any particular occasion.
The Inland Revenue had, with some reservations, accepted in 2004
that the valets were self-employed.
The valets made a claim in the Employment
Tribunal (ET) that they were in fact employees entitled to unpaid
wages and holiday pay. The ET found that they were employees. The
case was appealed to the Employment Appeal Tribunal, Court of
Appeal, and Supreme Court, which had to decide whether the
documents, which specified that they were self-employed and
included terms consistent with this (eg no obligation to provide
services and being able to send a substitute), took precedence over
the day-to-day reality.
Previously a Court of Appeal decision had
determined that a Tribunal could only look behind the written terms
of the contract between the parties if the terms were intended to
mislead, for example, HMRC – if they were a "sham". However, the
Supreme Court found that this was not the only circumstance where a
court could disregard the written terms. It emphasised the
difference between commercial contracts on the one hand and
employment contracts on the other, where the bargaining power may
be quite unequal. The question as to what was agreed between the
parties has to be gleaned from all the circumstances of the case.
In this case the facts showed that the company expected the valets
to show up each day to work and the business would give them work
so long as there was work to do. The provisions in the contracts
entitling the valets not to turn up, and to provide a substitute if
they wanted to, did not reflect the expectations of the parties in
practice. The ET had been entitled to find that they were employees
despite the specific wording of their contracts.
The case reinforces the courts' determination
to stop, as one judge expressed it, "armies of lawyers [who] simply
place substitution clauses…in employment contracts, even where such
terms do not begin to reflect the real relationship".
