15 January 2019

Establishing an individual’s employment status is significant for both employment and tax law purposes. While the self-employed are subject to less stringent tax rules, employees enjoy more statutory rights than the self-employed and contracts of employment usually provide contractual benefits (e.g. contractual sick pay) which do not normally apply to those who are self-employed.

It is not always clear whether an individual is an employee or not. Disputes tend to arise when one party is trying to enforce their rights and the other denies that they apply (e.g. when the individual claims they have been unfairly dismissed and the employer asserts that they were self-employed rather than employed). 

Often disagreement arises where there is no written contract and the parties disagree as to its interpretation or effect.

Case law has evolved over the years to provide guidance on how to distinguish between those who are employed and those who are self-employed. Essentially, the following requires to be satisfied for an employment relationship to exist:-

• There must be a contract, either written or oral, between the employer and employee, signifying mutuality of obligations relating to work;
• The individual must be subject to the control of the employer;
• The work must be personally performed; and
• The worker must not be in business for their own account.

In a recent case, Chatfeild-Roberts v Phillips & Universal Aunts Limited UKEAT/0049/18/LA, the Employment Appeal Tribunal examined whether the right to use a substitute is consistent with employee status, given the requirement that work must be personally performed.

In this case, the Claimant was a live-in carer for the first Respondent’s uncle. The second Respondent was an agency which introduced the Claimant to the family. The Claimant worked for the first Respondent for 3 years, from June 2013 until she was issued with a letter of termination on 6 August 2016.

When the relationship came to an end, the Claimant sought to raise proceedings. A preliminary issue arose, namely whether or not she was employed by the first Respondent.

The Employment Tribunal found that the Claimant was an employee of the first Respondent. The Claimant had originally been engaged for a period of 6 months, which was extended. She had stopped preparing invoices and was instead paid by standing order. While the second Respondent’s carers normally operated a rota system whereby carers would move on every 3 or 4 weeks, she did not. The Tribunal accepted that there was mutuality of obligations between the parties and sufficient control. On some occasions, the Claimant had approached the second Respondent to arrange a substitute instead of providing a substitute for herself.

On appeal, the EAT considered the issue of substitution. It noted that substitution only happened on the Claimants days off, when she took annual leave (when she was paid in full) and when she was on jury duty. Following the decision of the Court of Appeal in the Pimlico Plumbers case, the EAT held that the right of substitution only when a contractor is unable to work can still be consistent with personal performance. The EAT therefore agreed with the Tribunal that the Claimant held the status of an employee, notwithstanding that she was paid gross and accounted for her own tax and national insurance. The appeal was therefore dismissed.

This case serves as a useful reminder to employers to give consideration as to the types of staff providing services to their organisation and whether their written terms accurately reflect the reality of the working situation.

See: Chatfeild-Roberts v Phillips & Universal Aunts Limited UKEAT/0049/18/LA

For further information, please contact your usual BTO contact.

Contact: Lesley Grant Associate ljg@bto.co.uk T. 0141 221 8012