LRD guides and handbook June 2014

Law at Work 2014

Chapter 2

Obligation to carry out work personally

[ch 2: pages 47-49]

Another requirement common to both workers and employees is the need for the individual to personally carry out the work. A person who is genuinely free to provide a substitute to carry out the work will almost certainly be self-employed rather than a worker or employee.

In Real Time Civil Engineering Ltd v Callaghan [2006] All ER (D) 222 , the EAT held that a lorry driver was not an employee because he had signed a contract 18 months previously that said he could send in a substitute, even though he had never exercised that right. However, if the contract says that you can arrange for a substitute but only with the employer’s approval, this does not give you a blanket right to send someone else to do the work. In these circumstances, you can still be a worker ( Byrne Brothers (Formwork) Ltd v Baird and others [2002] IRLR 96 ):

Fake “substitution” clauses are sometimes used, especially in the construction sector, to present a false picture of self-employment, in order to avoid statutory employment obligations and tax. Often, workers do not read contract documents before signing, because they know that a refusal to sign will mean no work. When analysing the employment relationship, employment tribunals are required to take account of the inequality of bargaining power between employer and employee and to look at the whole context, not just the written contract documentation, to ensure that the documentation genuinely reflects the parties’ intentions as to the nature of that relationship.

When looking at contract documents to see whether they accurately reflect the employment relationship, there is no need to prove that the employer intended those documents to be positively misleading — i.e. that the documentation is a sham. It is enough to show that the documentation does not accurately reflect the parties’ contractual intentions. This was confirmed in a landmark Supreme Court decision in 2011:

Autoclenz entered into written agreements with individuals to clean cars for British Car Auctions. The agreements contained all the clauses you would expect to see in a typical contract for self-employment. For example, valeters were paid on a piecework basis and were responsible for their own tax and National Insurance. In theory, they were obliged to provide their own equipment, but in reality the company supplied all the cleaning materials as well as group insurance (deducting the costs from their pay). Branded uniforms were provided.

The valeters claimed the National Minimum Wage and holiday pay, but Autoclenz argued that they were self-employed. In an important judgment, the Supreme Court said that the key to establishing whether someone is genuinely a worker or self-employed involves looking at the whole context, not just the written terms of the signed contract documentation, taking into account, in particular, the relative bargaining power of the parties.

Whatever the documentation might have suggested in this case, an examination of the surrounding facts revealed that these valeters were not self-employed business people operating on their own account. They had no control over how they did their work or their working hours, they had no economic interest in the way work was organised, they were not free to source materials for themselves, they worked throughout under the direction and control of Autoclenz, their invoices were prepared by Autoclenz, their rates of pay were determined by Autoclenz, and even though the contract documentation allowed them to work for other companies or to send substitutes to do their work, in practice this very rarely happened.

The Supreme Court concluded that the men were employees working under contracts of employment and their claim for the National Minimum Wage and statutory holiday pay was successful.

Autoclenz v Belcher [2011] UKSC 41

www.bailii.org/uk/cases/UKSC/2011/41.html

The Autoclenz ruling continues to make waves in the employment tribunal. It was followed most recently in Boss Projects LLP v Bragg UKEAT/0330/13/SM . In this case, “watertight” contract terms were signed by a scaffolder with sub-contractor Boss, designed to categorise Mr Bragg as a self-employed worker. In particular, he was allowed to supply a substitute to do the work in his place. However, main contractor Mears confirmed in a letter to the tribunal that in reality, they would never have accepted a substitute for such a specialised and important job. Bragg had been personally selected because of his skills. He was a worker entitled to statutory holiday pay. “In circumstances such as these”, said the EAT, “written contractual terms, however watertight, do not provide a complete or reliable definition of the nature of the relationship between the parties to the contract.”

The Autoclenz ruling only allows tribunals to look at all the surrounding circumstances to work out what the parties must have intended when the contract was entered into. It does not entitle the tribunal to rewrite the parties’ agreement ( Smith v Carillion (JM) Limited [2014] UKEAT 0081/13/1701).