In a judgment given on 27 July 2011 the Supreme Court has confirmed that a group of car valeters were employees, in spite of the terms of their written contacts which stated self-employment. HMRC had previously confirmed in a PAYE review that the workers were self-employed.
In Autoclenz v Belcher and ors [2011] EWCA Civ 1046, a group of car valeters took their engager to the employment appeal Tribuunal: they claimed that they were employees. Autoclenz was the engager. Their contacts with the company contained all the standard “employment proof” clauses: namely that the workers:
- Were engaged as sub-contractors on a self-employed basis.
- Were under no obligation to accept work and the company was under no obligation to offer it.
- Were able to provide their own substitutes.
The court found that the valeters tended to work solely for the company and the engagements were all long-term. In reality there was very little flexibility for the valeters, this indicated that they were workers and under control of the company:
- There was no scope for making profits or losses from the working arrangements.
- They did not provide substitutes.
- They were always offered work and they always took it up.
The court found for the valeters.
Was there a sham?
IR35 expert Anne Redstone pointed out that the written contact also stated that the valeters should be liable for any tax and NICs. As the decision is effective for tax as well as for employment law the consequence of this decision in terms of which party now shoulders the potential Employer’s National Insurance bill is unclear. The valeters we presume, will either be required to prove that the whole of the written contact is a sham (designed to mislead HMRC too) or that the variations made in reality were such to overrule the whole of the contact.
What now?
The decision confirms the fact that in employment status cases if the reality of the situation is contrary to the written terms then the express terms of the written contact may be set aside. The court trod some new ground by explaining that when examining what the parties had written and what they subsequently agreed the relative bargaining power of each party should be taken into consideration. In Autoclenz the workers were the weaker party and it seems they had accepted the company’s written terms because they had not ability to change them.
Businesses who use self-employed workers/subcontractors should pay heed: the Autoclenz judgment provides a wake up call to review the terms of existing contacts and to continue to review their working practices.
Several commentators claim this is a landmark ruling affecting both employment status and IR35. The landmark, if there is one, here is that this is a decision from the Supreme Court, this is the highest court in our land and its output takes priority over that of any lower court. Autoclenz is really about contracts, and as it is about employment contracts also affects employment rights and the National Minimum wage too. The decision has scant effect on IR35 as it is an imaginary contract that counts in IR35 so the reality of any arrangement is always considered over any written terms.
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