Louder than words

As our economy stumbles, it is clear for some the worst is not yet over. More companies will find times hard, leaving the spectre of job losses looming. It is at these times that employment protection becomes important, as only employees have rights not to be unfairly dismissed or be paid redundancy pay. Little wonder then, that Autoclenz Ltd took their case all the way to the Supreme Court to ascertain the status of a signed written document as determinative of employment status.

Autoclenz had asked its car valeters to sign an agreement, drafted in terms which, if determinative of their status, would have made them self-employed contractors. Many did, although a group of claimants sought a declaration from the Employment Tribunal that they were either employees or workers. The claimants were successful, being declared employees by the Employment Tribunal, and partially successful in the Employment Appeal Tribunal (which held they were workers). The Court of Appeal ([2010] IRLR 70) agreed with the Employment Tribunal, leading to the case being heard by the Supreme Court.

Lord Clarke gave the only judgment in this case, with which Lords Hope, Walker, Collins and Wilson all agreed (and can be found at [2011] UKSC 41). Lord Clarke took the view that the Employment Tribunal had been entitled to hold that the claimants worked under a contract of employment.

Where there is no written document, the question of employment status is a multi-faceted and fact-sensitive one. In Ready Mixed Concrete [1968] 2 QB 497, it was established that no single issue was conclusive and all the factors needed to be weighed up. Before that a test of 'control' had been the prevalent principle. Similarly, tax status, while a factor to be considered, was not the final arbiter of the question.

Bargaining power

However, the issue here was what the status of the written document should be. Obviously, Autoclenz wished to rely on the classical contract principles, going back to L'Estrange v F Graucob Ltd [1934] 2 KB 394, that a party will be bound by the written terms of a contract.

But employment relationships are very different from such simple commercial transactions. As noted by the Court of Appeal and Lord Clarke, there is a difference in the bargaining power of the parties in an employment contract. Lord Clarke said: 'The relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part. This may be described as a purposive approach to the problem.'

The idea that a written contract (or tax status) may not reflect the reality of the situation and therefore may require deeper analysis in employment cases is not new (see Young & Woods v West [1980] EWCA Civ 6 and Protectacoat v Szilagyi [2009] IRLR 365).

In reviewing the previous case law and the judgments of the lower courts, Lord Clarke upheld the approach that there was no necessity for an intention to mislead, that this approach has been accepted in land law (Street v Mountford [1985] AC 809) and hire purchase agreements (Snook v London and West Riding Investments Ltd [1967] 2 QB 786) and would be consistent with existing employment authority. The test is now definitively 'what was the true agreement between the parties', having regard to all the facts.

Now that the valeters are recognised as employees, they have unfair dismissal and redundancy protection, as mentioned above, but also rights under the Working Time Regulations and National Minimum Wage Regulations. For years, many of these employees had taken holidays unpaid, and they will now want their current entitlements honoured and may pursue the possibility of back holiday pay. Autoclenz will also have spent a great deal of money on the appeals in this case, depleting their financial resources.

Wider impact

So, what does this mean for companies? Employers cannot simply rely on their paperwork. They should seek advice from their lawyers, looking at all the circumstances of how work is done for them, to determine whether they are employers of employees or workers. The most important thing to consider is whether there is a mutuality of obligations. If the individuals cannot delegate work and are required to perform work themselves when it is provided, it is highly likely that employee status will exist. The level of control or supervision is a key factor; if work has to be done in a particular way and to a certain standard set by the company, again, employee status is more likely. Employers may wish to ensure they have contingency funds for paying holiday pay or redundancy pay and will need to take great care if planning job losses.

Employment lawyers must take full instructions from their commercial clients covering the wide spectrum of factors of how work is done for them and will need to advise with care. The individual factors will need to be weighed up carefully before any conclusion is presented to the client.

Anyone who has signed an agreement stating they are a self-employed contractor or who deals with their own tax may have more rights than expected. If facing threats to their income, such individuals ought to obtain advice to see if they are employees, in which case they have numerous rights under redundancy law. They may wish to make enquiries of ACAS or through the appropriate trade union.

Copyright & permissions