Monthly Archives: November 2015

“It’s behind you!” How a self-employed contractor can become an employee

Pantomime season is nearly upon us. Whether it’s Cinderella or Aladdin, there’s bound to be at least one scene in which the entire junior audience screams “it’s behind you”, whilst the nice but slightly misguided character persists in “oh no it’s not”, seemingly oblivious to the blindingly obvious.

Now transfer that into the employment context and an argument about whether a self-employed contractor is really that, or is in actual fact a ‘worker’ (as defined in the Working Time Regulations) or an ‘employee’ (as defined in the Employment Rights Act). Whilst a great deal more nuanced, a well-intentioned employer could genuinely believe and persist in an argument that it worked only with self-employed consultants, rather than with workers or employees, whilst a Tribunal considering the reality of the situation could see something quite different.

When might this arise and what would be the consequences? Well, those kind of arguments about worker or employee status tend to be raised when something has gone wrong. For example, if a consultant’s contract is terminated in less than friendly circumstances or if the working relationship becomes difficult in other ways. At that point they might argue that they were actually an employee and therefore entitled to bring an unfair dismissal claim and/or that they were a worker and owed unpaid holiday pay. The risk of a Tribunal agreeing that they were an employee would also have potential consequences in terms of tax and NI contributions owed by the employer to HMRC.

So how does an employer make sure that its self-employed consultants really are just that, and don’t turn into workers or employees while nobody’s looking?

  1. Have the right contractual documentation in place. Contracts for self-employed contractors require careful drafting to ensure that they have the best chance of standing up to scrutiny by an Employment Tribunal. Mistakes can be made by including clauses which are more likely to point towards an employee/employer relationship, or by failing to include clauses which are more likely to point towards self-employed status.
  2. Pay attention to the reality of the situation, not just at the start but as the working relationship develops. A Tribunal faced with an argument about self-employed or employee status will look at the contractual documentation, but will pay greater attention to the reality of the situation, in terms of how the relationship works in practice (notwithstanding what the contract says).

Remember: even if someone started off as a genuinely self-employed contractor (with the greater flexibility and freedom usually associated with that) it may be that your needs and the reality of the situation have gradually changed. For example it might be difficult to persuade a Tribunal that someone doing an office-based job and who is now working on your premises, doing set hours and using your equipment, is not an employee (regardless of what their original contract calls them or how their role started off).

Although working with self-employment contractors rather than employing people can be an attractive option for businesses, particularly new businesses, it doesn’t always provide the comfort anticipated. The self-employed can still pursue discrimination claims. They can also present a risk to employers who relax into a false sense of security and fail to see the ‘new’ employee or worker tiptoeing up behind them. “An employee? Oh no it’s not” says the employer; “oh yes” says the Tribunal, “in reality, it really is”.

Claire Collinge
Partner, Workwise Legal LLP

Case law take-away: Greenfield v The Care Bureau Ltd

This aims to be a bite-sized summary of the headlines to take away from the recent ECJ case of Greenfield v The Care Bureau Limited. Minimum case detail is intended.

The alarm bell:

Workers who have changed their pattern of working from part-time to full-time, full-time to part-time or who have otherwise increased or decreased their pattern of working hours during the holiday year.

The take-away:

When calculating the holiday accrued by a worker who has moved from part-time to full-time, or has moved from full-time to part-time or otherwise increased or decreased their contracted hours during the holiday year, each period of work must be looked at separately and the holiday entitlement calculated for each period separately. That applies whether you are calculating holiday accrual during employment, or calculating it at the end of employment to see whether payment in lieu of untaken holiday is to be paid.

In practice:

  1. It is not permissible to reduce holiday entitlement already accrued if the worker moves to a pattern of part-time work or less hours than previously. They remain entitled to what has already accrued, but the accrual of new holiday entitlement going forward, however, should be calculated by reference to the new number of hours worked.
  2. It is not permissible to treat the worker as having exhausted their entitlement to accrued holiday calculated by reference to their part-time working hours, if they then change to full-time hours or otherwise increase their hours. Again, the exhausted entitlement in the first period must be ‘parked’ and holiday accrual going forward must be calculated with reference to the new number of hours worked.
  3. If a part-time worker increases their hours, the employer does not have to recalculate their entitlement to holiday retrospectively for the whole holiday year. Their entitlement for each period is based on the contractual working pattern in each period.
  4. All of the above is on the assumption that the worker’s contract does not provide a more favourable entitlement in the circumstances described.

The consequence:

Errors in calculating holiday accrual and/or pay can result in potential Tribunal claims, including breach of the Working Time Regulations 1998, indirect sex discrimination and claims under the part-time workers (Prevention of less favourable treatment) Regulations 2000.

Claire Collinge

Partner, Workwise Legal LLP

“The force is strong with this one” (Star Wars lessons of performance management)

After months of merchandising and the now imminent replacement of the royal head with Chewbacca and gang on first class stamps, the wait for the new Star Wars film is nearly over. I wonder whether the performance management issues of the original trilogy and prequels will make a reappearance. Don’t remember that part of the story? Here’s a quick recap:

1. Boy with huge potential is recruited by large organisation
2. Boy is given induction training and mentored by senior manager
3. Boy’s performance and dedication to the job begins to waiver
4. Senior manager fails to respond to the warning signs and manage the situation effectively
5. Boy turns into Darth Vader, joins a competitor and seeks to destroy the organisation.

Whilst employees are unlikely to turn into Darth Vader, the possibility of an employee with potential becoming an obstacle to the success of a company, in terms of performance issues, is a real one. An employee who is dedicated, good at their job and keen to develop can be a real asset to a business, whereas an employee who regularly makes mistakes, is rude to clients or is unwilling to do certain tasks, can slow you down and hamper your business development.

So what did Obi Wan do wrong in the Star Wars prequels?

1. He failed to note the warning signs (irrespective of the sinister tones of the Darth Vader theme tune accompanying the wayward Anakin)
2. He failed to have “difficult conversations” early enough
3. He failed to manage performance effectively.

It goes without saying, but in terms of spotting the warning signs, employers need to observe their employees. Is the employee starting to regularly turn up to work late and always be the first out of the door at the end of the day? Is the employee starting to make mistakes? Is the employee failing to notice and act on tasks that need doing? Is the employee being unprofessional when dealing with clients?

If yes, a conversation needs to be had with the employee in order to try and nip the problem in the bud. Ignoring the situation is unlikely to make it go away and more likely to result in grumpiness in your dealings with the employee and a less effective working relationship. This can be done informally, in terms of simply having a closed door conversation regarding your concerns, exploring any reason behind the behaviour and reminding the employee of your realistic expectations (being careful to keep a note of that conversation).

Alternatively, or if that doesn’t achieve the desired improvement, you can put in place a performance improvement plan (PIP) or attendance improvement plan (AIP), depending on the issue. This doesn’t need to be complicated, but should involve a process of addressing concerns, setting realistic target for improvement and then reviewing whether the target has been met, with reference to evidence gathered.

Sanctions for non-achievement of the targets can move through different warning stages, but care must be taken to use a fair procedure, including a reasonable investigation, a meeting and the right of appeal at each stage. Handled badly, performance management could give grounds for constructive dismissal or even discrimination in certain situations. However, fail to handle it at all, and you could turn an Anakin asset into a Darth Vader of an employee.

If you have any queries or concerns regarding performance management issues or need a performance improvement plan putting in place, please contact us.

Claire Collinge
Partner, Workwise Legal LLP