What is the legal reality?

Posted: 23rd August 2011

The Supreme Court has handed down its decision in a case concerning the employment status of 20 valeters who provided car-cleaning service to motor retailers and auctioneers (Autoclenz Ltd. v Belcher and others).

The valeters had written contracts with Autoclenz Ltd. that specifically stated that they were not employees but self-employed independent contractors. They were responsible for their own Income Tax and National Insurance Contributions and were paid on a piecework basis, submitting weekly invoices, although these were actually calculated and prepared by Autoclenz based on information provided by the valeters with deductions made for insurance and materials.

The contracts were later amended to include express terms stating that the valeters had the right to supply a substitute to carry out the work on their behalf and that there was no obligation on them to accept work nor on Autoclenz to provide it on any particular occasion. These are key factors when determining whether someone works under a contract for services and is therefore self-employed or whether they are working under a contract of service.
In 2007, Mr Belcher and his fellow workers brought claims for unpaid wages and holiday pay, claiming that they were workers for the purposes of the National Minimum Wage Regulations 1999 (NMWR) and the Working Time Regulations 1998 (WTR). The Employment Tribunal upheld their claims.
The case reached the Supreme Court, which agreed with the Court of Appeal that a clause in a contract that allows someone to send a substitute in his place will, if it is genuine, mean that the worker is not working under a contract of service for employment law purposes. However, where this does not happen in practice, the ET is entitled to find that the clause does not genuinely reflect the rights and obligations of the worker.
Furthermore, it is not necessary for both parties to a contract to have intended to mislead for express terms in the contract to be rejected as not properly representing the true position. It is up to the ET to determine whether the contract reflects the true intentions and expectations of the parties to it or whether it is a sham.
The focus of the enquiry must be to discover the true factual legal obligations of the parties based on an examination of all the relevant evidence. In this case, the Supreme Court held that the ET was entitled to hold that the written agreement did not reflect the true agreement between the parties and there is no need to show that a written agreement is a sham in order to disregard its terms.
In the Court’s view, the claimants were working under contracts of employment and were in fact employees, although it was only necessary for them to prove that they were workers within the meaning of regulation 2(1) of each of the NWMR and the WTR to succeed in their claim.
Employers should ensure that any written documentation that is intended to clarify the exact nature of someone’s employment status reflect the reality of the working relationship and the intentions of both parties.