In Autoclenz Ltd v Belcher & Ors  UKSC 41, the Supreme Court clarified that a written contract of employment which expressly states an individual as being a contractor and not an employee may be disregarded, if the evidence shows that the written contract does not reflect the actual reality of the agreement between the parties.
Previously, as long as the written contract is not a ‘sham’, the written terms prevailed. The Supreme Court has now ruled that this approach is too narrow. Tribunals and courts will be able to set aside express contractual terms which are inconsistent with the reality of the relationship of the parties, without having to establish a common intention of the parties to mislead.
The risk for recruitment agencies and end-users is that a written contract drafted with the specific aim of making someone a contractor and not an employee, will be disregarded if there is evidence that a different agreement is actually in place between the parties in practice. Agencies and end-users will therefore no longer have the comfort of hiding behind specifically worded contracts which provide every indication of a contractor relationship if in reality an employment relationship exists.
Autoclenz Limited had a contract to valet cars. Twenty valeters signed contracts with Autoclenz to provide car cleaning services. The contracts contained the following clauses indicative of a contractor relationship:
- There was no duty to accept work
- There was a right of substitution (to send the work elsewhere)
- They expressly described themselves as self-employed
- They paid their own tax
- They purchased their own insurance, uniforms and some materials.
In reality, Autoclenz Limited provided all the cleaning products and equipment and arranged group insurance cover. The valeters submitted weekly invoices to Autoclenz Limited for their work. Autoclenz Limited deducted a fixed sum for the provision of cleaning materials and insurance from the payment due each week. The valeters were responsible for payment of their tax and NIC.
The valeters brought claims to a Tribunal seeking a declaration that they were workers and an order for Autoclenz Limited to pay them the National Minimum Wages and unpaid holiday pay under the Working Time Regulations 1998. Autoclenz Limited argued that the statutory rights were not available to them as they were contractors.
The Tribunal found that the valeters were employees and, in the alternative, that they were workers. The Judge held that the degree of control exercised by Autoclenz Limited fully integrated the valeters into its business and that the contract terms permitting the valeters to provide substitutes and suggesting a lack of mutual obligations did not reflect the reality of the situation. In practice, the valeters were required to turn up for work every day and to notify Autoclenz Limited in advance if they were unable to work. Autoclenz Limited appealed.
The EAT allowed the appeal in part and held that the valeters were not employees but that they were workers. Autoclenz Limited appealed against the decision that the valeters were workers and the valeters cross-appealed against the decision that they were not employees.
The Court of Appeal reinstated the Tribunal's decision, dismissing Autoclenz Limited's appeal and allowing the valeters' cross-appeal. The Court of Appeal held that, when determining an individual's status, Tribunals should look at the actual legal obligations of the parties. It was not necessary to show a common intention of the parties to mislead. Autoclenz Limited appealed to the Supreme Court.
Supreme Court’s Decision
The Supreme Court unanimously dismissed Autoclenz Limited's appeal and upheld the decision of the Court of the Appeal that the valeters were employed under contracts of employment and thus entitled to receive the national minimum wage and statutory paid annual leave.
It was found that the valeters were always expected to attend work and undertake the work themselves. They had no control over the way in which they did their work or the hours they worked. They were therefore employees.
Agencies and End Users alike should review their commercial terms to consider whether the contractual terms reflect the reality of the working relationship at the time the contract was entered into, including any subsequent variation of those terms.
Upon analysis of the relationship, if it is clear that the individual is in fact an employee, then the Agency/End-user must ensure they are complying with their statutory obligations in respect of that employee to avoid any future claims.