In Chris’ latest Coffee Break Briefing, he explores the different types of statutory leave, highlights the key enforcement risks and potential claims and outlines the latest changes and new entitlements employers need to be aware of.
The Court of Appeal has concluded that two workers who had been wrongly treated for tax purposes as self-employed were in reality employees and could bring claims for unfair dismissal. In reaching this decision, the Court of Appeal rejected the employers’ arguments that the contracts were void for illegality and therefore could not be relied upon by the employees.
In Enfield Technical Services Ltd v Payne, Mr Payne began working for ETS in 1998 under what was termed a sub-contractor’s contract. The contract contained an undertaking that he would work exclusively for ETS and would receive no sickness or holiday pay. HM Revenue and Customs (HRMC) accepted that Mr Payne was self-employed. In 2006, ETS dispensed with Mr Payne’s services and he brought a tribunal claim for unfair dismissal, asserting that he was an employee. The Employment Tribunal agreed that Mr Payne was an employee and rejected the employer’s argument that incorrectly representing Mr Payne to HMRC as self-employed rendered the contract void for illegality. ETS appealed and this matter was heard by the Employment Appeal Tribunal (EAT) and the Court of Appeal together with a further case on the same issue.
The facts of the other case, BF Components Ltd v Grace, are as follows. Mr Grace started working for BFC in 2002 on a self-employed basis. He was paid a daily rate for which he invoiced BFC and received no sickness or holiday pay. Mr Grace worked only for BFC during this time and paid his own tax and National Insurance contributions. Soon after Mr Grace started, BFC offered him a permanent contract with an annual salary but he refused, preferring to maintain his self-employed status. In 2003 however, BFC insisted that Mr Grace sign a contract of employment as he was to all intents and purposes an employee. Mr Grace eventually agreed and signed the contract in September 2003. His employment was terminated in January 2004 and he brought an unfair dismissal claim. In order to establish the requisite one year’s service, Mr Grace argued that his arrangements with BFC before September 2003 amounted to employment. The Employment Tribunal found that until September 2003, the parties had represented to HMRC that Mr Grace was self-employed when he was in fact an employee. He was therefore engaged under an illegal contract which could not be relied on to establish continuity of employment.
On appeal, the EAT and Court of Appeal concluded that both employees should succeed in their claims. In order for the contracts to be illegal, meaning that the employees could not rely on them, some misrepresentation of facts was necessary. It was not enough that the arrangements had the effect of depriving HMRC of tax. There must be some attempt to conceal the true facts of the relationship before the contract can be rendered illegal. The Court of Appeal made it clear that the fact that the relationship had been wrongly characterised did not necessarily prevent an employee from subsequently claiming the advantages of being, or having been, an employee.
A decision as to whether a relationship is one of employment or whether the person is genuinely self-employed will often be very difficult. A number of different factors will be involved and the weight to be given to each of them in the particular case will need to be assessed. Predictions as to which side of the line a particular relationship will fall are notoriously difficult to make. However, these cases should serve as a warning to employers that even if an individual is said to be self-employed, he may in reality be an employee and may therefore be able to bring a claim for unfair dismissal if the arrangement is terminated.
Read the other articles in this newsletter:
48-hour week opt-out to remain
Consultation regarding new right to request training
Keeping a written record does not amount to a detriment
Q and A - The 48-hour week
STOP PRESS - New Equality Bill
Employment Law News and HR Training in Bournemouth, Christchurch & Ringwood
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