Are your employees learning the ropes as they work? Do you consider them an apprentice?

All workers are entitled to the national minimum wage, but different rates apply depending on the age of the worker and whether they are an apprentice.

It is important to pay the minimum wage at the right level, otherwise you risk having an employment tribunal claim brought against you, or being served with a notice from HMRC requiring arrears to be paid and imposing financial penalty at 100% of the underpayment (up to a maximum of £20,000.)

A recent case from the Employment Appeal Tribunal ("EAT") has given fresh guidance on what constitutes an "apprentice" for the purpose of the national minimum wage.

In The Commissioners for HM Revenue and Customs v Jones and others (trading as Holmescales Riding Centre), the EAT held that livery stables trainees were employed under contracts of service and were therefore entitled to be paid the full rate of minimum wage.

Facts

Holmescales employed a number of workers at their riding centre. The workers were referred to in various contractual documents as "Trainees/Employees", "Equestrian Trainees" and "a training position working towards BHS qualifications". They were provided with training and funding towards recognised professional qualifications, with Holmescales receiving the livery fees and tuition fees, and in return the workers performed various duties around the livery yard, including teaching riding lessons and general yard and horse maintenance.

There were no vacancies for a high level instructor at Holmescales and the workers would usually leave Holmescales after they had attained BHS Stage 3 (meaning they were now competent and able to look after up to four horses in stables and at grass).

Decision of the EAT

The EAT overturned the decision of the Employment Tribunal and held that the workers were not apprentices but employees working under a contract of service, and that Holmescales were therefore required to pay them the higher rate of minimum wage.

The EAT explained that the defining characteristic and essential purpose of a contract of apprenticeship is training, and that the execution of work for the employer must be secondary. In this case, the EAT considered that the contracts were very much for the benefit of the employer, and that the training aspect was merely incidental and subsidiary.

Although the workers obtained a BHS Stage 3 qualification they did not undertake a prescribed course of qualification, and there was no fixed contractual term in which the workers were to train and qualify. This, combined with the fact the contract included notice provisions and the power to dismiss for gross misconduct (both of which were inconsistent with a contract of apprenticeship), led the EAT to hold that the workers were employees and not apprentices, and were therefore entitled to be paid the national minimum wage standard employee (rather than apprenticeship) rates.

Thoughts for employers

The EAT has provided useful guidance on what is relevant when deciding whether an individual is an apprentice for the purposes of the national minimum wage, and this case serves as a reminder to not lose sight of the primary purpose of a contract of apprenticeship, which is training.

Employers need to consider all terms of engagement with individuals carefully, including the termination provisions. Apprentices are entitled to enhanced rights of termination and can only be terminated following a repudiatory act that has the effect of fundamentally undermining the ability to teach them - this is a much narrower test than merely establishing gross misconduct.