Weekly Employment Update - 30th November 2011

Reality of relationship key to determining employment status

Welcome to Ashfords' Weekly Employment Update, where each week we consider recent developments in Employment and HR issues. This week, we consider a recent Upper Tribunal decision on determining employment status for tax purposes.

Determining employment status can have important implications both for individuals and the businesses that engage them.  From a tax perspective, where responsibility lies for National Insurance contributions and income tax will depend on whether the individual is employed or self-employed.  Employees will also be entitled to various employment rights, such as the right to redundancy payments or to bring a claim after being unfairly dismissed, that are not available to the self-employed.

Unfortunately, it will not always be possible to be certain as to employment status, even where this is set out in the contractual documentation between the individual and the organisation. In the recent case of Weight Watchers (UK) Limited v HMRC, the leaders of Weight Watchers meetings were engaged under agreements that stated they were independent contractors, responsible for dealing with their tax affairs as self-employed individuals.  In spite of this, the Upper Tribunal found that they were, for tax purposes, employees of Weight Watchers.  Similarly, we reported earlier this year on the case of Autoclenz Limited v Belcher and others (http://www.ashfords.co.uk/news/employment_update_3aug11), in which a group of car valeters were found to enjoy employment rights, despite their contracts stating that they were self-employed.

It is clear that, when considering the question of employment status, courts and tribunals will focus on the practical reality of the relationship between the individual and the business, even if this differs from that set out in the contracts.  In particular, to find genuine self-employment, they will be looking for evidence that the individual has freedom to decide how and when he or she works and the option to substitute himself or herself for another person.

In the Weight Watchers case, the Upper Tribunal took the view that, in theory, the leaders were entitled to substitute themselves and had "absolute discretion" to determine how the meetings were run.  In reality, however, the fact that they were required to follow a detailed meeting timetable appeared to suggest that the company exercised a high degree of control over the leaders.  The Tribunal also inferred that there was an unwritten requirement that leaders needed to have a good reason for not taking a meeting, limiting their freedom to substitute.  

This decision shows that where businesses wish to engage individuals on a self-employed basis, drafting contracts that state this to be the case is only the start of the process.  They also need to prepare and apply working practices which make this intention a reality.

Weight Watchers (UK) Limited v HMRC (2011) FTC/57-59/2010

Ashfords LLP is Authorised and Regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.