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Sham employment documentation
[ch 2: pages 38-40]Some employers go to great lengths to create documentation that does not look like a standard employment relationship, so as to avoid employment and tax obligations, and tribunals are expected to recognise this. When interpreting the employment contract, tribunals must take into account the unequal bargaining power in the relationship and must look at the whole context, not just the written contract documents, to make sure the documents genuinely reflect what the parties intended. This was established in this landmark Supreme Court ruling:
Car valet-operator Autoclenz entered into written agreements with individuals to clean cars for their client, British Car Auctions. The agreements were drafted to look like 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. In reality the company supplied all the cleaning materials and 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. The Supreme Court said that establishing someone’s employment status involves looking at the whole context, not just the written contract terms, taking into account, in particular, the relative bargaining power of the parties.
Whatever the documentation might have suggested, it was clear 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 under the direction and control of Autoclenz who prepared their invoices and decided their rates of pay, and even though the contract documentation allowed valeters to work for other businesses 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 claims for the national minimum wage and statutory holiday pay were successful.
Autoclenz v Belcher [2011] UKSC 41
Although tribunals must take the inequality of the parties into account, they are only allowed to work out what the parties must have intended to agree when the contract was entered into. They are not allowed to rewrite the terms of the agreement, no matter how unequal the parties’ relationship (Smith v Carillion (JM) Limited [2015] EWCA Civ 209).
In the following recent ruling, the EAT ruled that “self-employed” plumbing operatives at high profile plumbing business Pimlico Plumbers are workers entitled to the national minimum wage and holiday pay. The firm has appealed to the Court of Appeal, and a decision is expected in May 2016. The ruling shows how employers who engage in high levels of monitoring and control of their workforce (such as use of GPS tracking) are more likely to struggle to show that workers are genuinely self-employed:
A plumbing operative at Pimlico Plumbers Limited (PPL) brought a tribunal claim in which he claimed to be employed, rather than “self-employed”, as claimed by PPL. The EAT found that PPL “choreographed” its contract documentation to make it look as if its workforce was self-employed, while at the same time holding out to its customers that they were direct employees.
PPL’s contract terms were “non-negotiable.” It was a case of take it or leave it. The business model adopted required operatives to assume all the financial risk of each transaction, only getting paid when the customer paid PPL. They were also required to take on contractual responsibility for the quality of the work and to take out insurance to cover the risk of claims. They had to fund the purchase of equipment and materials, were VAT and CIS registered and paid their own tax and national insurance.
However, at the same time, the evidence showed that when carrying out their duties for PPL, operatives were tightly regulated. Their hours of work were controlled with extensive use of GPS tracking, they had to wear a company uniform with logo and could use only branded vehicles and company mobile phones, all charged for as deductions from “wages”, they were banned from giving out their own mobile number or working privately for prospective PPL customers, and the sanction was immediate “dismissal” for anyone caught breaking rules, especially the ban on private work. There was an “unwritten rule” that anyone refusing work would be “parked up”, meaning that no work would be allocated for a period of time. Operatives were not allowed to send a substitute.
The EAT ruled that the claimant was a worker, fully integrated into PPL’s organisation. He was not an employee because the relationship “simply [did] not look anything like a contract of employment”, in particular since the claimant took advantage of the tax advantages of "self-employment” and took the whole financial risk of non-payment.
Pimlico Plumbers Limited & Charlie Mullins v Smith [2014] UKEAT/0495/12/DM
At the end of 2015, Uber taxi drivers, with the support of general union GMB, issued tribunal claims for the national minimum wage and holiday, rest breaks and working time protection, and discipline and grievance, and in one case for dismissal for complaining about the risk of drivers using false insurance papers. The taxi firm argues that its drivers are self-employed “partners” who use the Uber app on their own terms, but the GMB points out that Uber controls the charging rate and the route, and uses a “rating” system to assess performance. The claims are likely to be heard during 2016.