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Employed or Self employed

Published 26 March 2012

Self-employment or not and the Supreme Court decision of Autoclenz v Belcher [2011] UKSC 41 [2011] IRLR 820

The Supreme Court in Autoclenz Ltd had the opportunity to review what had been the competing arguments over the last 40 years since Snook v London and West Riding Investments Ltd [1967] 2 QB 786 CA as to sham contracts and the development of employment law principles in respect of contracts of employment. The car valeters claimed that they were either workers within the definitions of the National Minimum Wage Regulations 1999 (‘NMWR’) and Working Time Regulations 1998 (‘WTR’) reg 2 (1) (a) of the NMWR and 2 (1) (b) were employed in any event under contracts within this limb. Autoclenz also considered the definition of worker in section 230 (3) of the Employment Rights Act 1996.

The salient facts of Autoclenz were that the written contract provided for the Claimants to be sub-contractors on a self employed independent contractor basis, self employed for tax which expressly stated that the sub contractor will not become an employee of Autoclenz. The initial contract for many of the valeters did not include a provision for the sub contractor to provide a substitute to perform the services they were contracted to perform, and nor did it state that they were not obliged to perform services or that Autoclenz was not obliged to provide work under the agreement. In 2007 Autoclenz no doubt decided to tighten up the contractual basis with the valeters, and introduced a document, for car valeting services; Autoclenz wishes to engage the services of car valeters from time to time on a subcontract basis, reconfirming the arrangement that the relationship with Autoclenz was that of independent contractor and not of employer/employee. Further a substitution clause was inserted, that as an independent subcontractor, they were entitled to engage one or more individuals to carry out the valeting on their behalf, provided the individual was compliant with Autoclenz requirements for subcontractors. Overalls were to be purchased from Autoclenz and the valeter was to provide cleaning materials. Payment was based on a piece work basis. The valeters in the second document were reminded that they were not obliged to provide their services on any particular occasion.

Lord Clarke in Autoclenz approved the Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance[1968] 2 QB 497description of a contract of employment, [previously known as a contract of service]. Namely, (i) the servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with it being a contract of service.

Lord Clarke added three further propositions that emerged from the case law as in (i) Nethermere (St Neots) Ltd v Taverna and Gardiner [1984] IRLR 240 CA that there had to be an irreducible minimum obligation on each side to create a contract of service; (ii) that if a genuine right of substitution exists, which would negate an obligation to perform work personally, and so is inconsistent with a employee status Express and Echo Publications Ltd v Tanton [1999] IRLR 367 CA; and that (iii) if a contractual right say to substitute exists but is not used, it does not matter and so a yet to be enforced term can be part of the agreement, Tanton. Lord Clarke has therefore pulled together the strands of an employment contract.

Lord Clarke, approved Aikens LJ in Court of Appeal stage of Autoclenz, where he was of the opinion that cases concerning contracts relating to work and services, and the argument made that the [employment] contract does not accurately reflect what the parties have agreed, then it is not appropriate to approach this issue in employment cases with the contractual approach of rectification:

There could be several reasons why the written terms do not accurately reflect what the parties actually agreed. But in each case the question the court has to answer: what contractual terms did the parties actually agree?

Lord Clarke recognized that the employment law cases had not been consistent in providing a clear approach as to what factors would or have to been taken into account when answering Aikens LJ rhetorical question above as to what contractual terms did the parties actually agree.

Clearly, defining the preliminary approach to any sham argument in respect of employment contracts is crucial before the tribunals and court when hearing employment contract cases. Lord Clarke, after recognizing the conflicting approach of previous cases came down, unhesitatingly, in preference with what might be considered the former employee more favourable approach, with the question in every case being, what was the true agreement between the parties?

The Courts/tribunals now had to have regard to the relative bargaining powers of the parties which must be taken into account in considering whether the terms of any written agreement in truth represent what was agreed and the true agreement, which will often be gleaned from all the circumstances of the case, of which the written agreement is only part. “This may be described a purposive approach to the problem” It was therefore with no surprise that the Autoclenz valeters were found by the Supreme Court to be workers under limb (a) and if needed, the court would have found that they working under contracts under limb (b).

In light of this “purposive approach”, prospective employers wishing to consider personnel on a self employed basis will therefore have to take very careful legal advice as to the purported contracts with those whom they wish to engage and the actual working environment that prevails. The Inland Revenues view of the workers status is not conclusive to the issue of being self employed or not, initially being of the view in Autoclenz [pre –litigation] that the position leaned more towards self-employment than PAYE.

Jonathan Buckle
Regency Barristers Chambers
45 Priestgate
Peterborough.
01733 315 215
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