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?
- 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.
- 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”.
Partner, Workwise Legal LLP