Employee or self-employed and

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Employee or self-employed and “sham” contract terms

<< News archive October 2009

15th October 2009

In Autoclenz Ltd v Belcher and ors the primary concern the vexed question of employee/worker status.

The facts

Autoclenz cleaned vehicles for car auctions. It provided all cleaning equipment at a flat-rate charge to valeters such as Mr Belcher. The valeters were paid on a piecework basis, submitted weekly invoices for payment, paid their own tax and NI, and had written agreements stating that they were self-employed sub-contractors. In 2004 the Inland Revenue had agreed that the valeters were self-employed. In 2007 Mr Belcher and his colleagues claimed unpaid wages and holiday pay (under National Minimum Wage Act 1998 and the Working Time Regulations 1998). At a preliminary hearing an employment judge decided that they were in fact employees of Autoclenz and, if not, workers. Autoclenz appealed.

The Court of Appeal has held that the group of car valeters were, in fact, employees. In so doing, the Court has overturned the EAT's decision and brought the law on sham terms in the employment context into line with the other recent Court of Appeal judgment in Firthglow Ltd (t/a Protectacoat) v Szilagyi.

The case concerned a group of 20 valets who had been recruited through advertisements asking for self-employed people and engaged under agreements that described them as 'subcontractors'. The contracts contained substitution clauses providing that the valets would be able to supply suitably qualified substitutes to carry out valeting on their behalf. The contracts also provided that no valet was under an obligation to provide his or her services on any particular occasion, and offered no guarantee of work. When the valets lodged claims seeking a declaration that they were workers or employees of A Ltd and claiming unpaid wages and holiday pay, the employment tribunal found that the substitution and obligation clauses did not reflect the reality of the relationship. It decided that the valets were fully integrated into A Ltd's business and subject to its control. Consequently, they were employees.

However, on appeal, the EAT disagreed (Brief 861), holding that the tribunal had not been entitled to go behind the terms of a written agreement that defined the claimants as self-employed subcontractors. It noted that the EAT's judgment in Consistent Group v Kalwak and ors - on which the tribunal had relied to look behind the terms of the written agreement on the basis that it did not reflect the true nature of the parties' relationship - had subsequently been overturned. Instead, the EAT's view was that a tribunal can look behind the express terms of a contract only where both parties intend the contract to paint a false picture, following Snook v London and West Riding Investments Ltd. The claimants appealed to the Court of Appeal.

Overturning the EAT's decision, the Court of Appeal concluded that the difference between the Court of Appeal's and the EAT's approach in Kalwak was essentially one of form and not substance, and that the only reason for the Court of Appeal's remission in that case was that the employment judge had given insufficient reasons for his decision. The law on sham terms had been recently set out in Firthglow Ltd (t/a Protectacoat) v Szilagyi (Brief 875). Following that case, a tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties, not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them. In the instant case, the facts supported the tribunal's original conclusion, in particular that no one seriously expected the valets to provide a substitute and that the valets were expected to turn up every day and do the work provided. Thus, the Court of Appeal concluded that there was the necessary mutuality of obligation to conclude that the claimants were workers and, furthermore, the necessary control to establish that they were employees.

On this issue, the case is authority for the proposition that:

1. the practice of requiring car valeters to notify the company if they were not going to turn up for work was capable of being characterised as 'wholly inconsistent' with an express written term that there was no obligation for them to perform any work, such that the written term did not reflect the true agreement between the parties;

2. it was not necessary to find that the express written terms were a Snook sham (both parties intending to mislead others), as Rimer LJ had stated in Consistent Group v Kalwak [2007] IRLR 560; and Rimer LJ's reasoning was "not strictly necessary to the decision"; [para 48]

3. the Tribunal was "entitled to infer from the evidence recited that the substitution clause did not genuinely reflect the rights and obligations of the valeters", on the basis no real substitution had actually taken place [para 61] (with some hesitation - per Smith and Aikens LJJ).

As to perversity challenges to the decision of the Employment Tribunal, the case is authority for the proposition that:

4. although, as a general rule, it is not possible to mount a perversity challenge unless the court is provided with the evidence which was before the fact finder (usually agreed notes of the relevant evidence or the EJ's notes), it may be possible to mount a perversity challenge simply on the basis of the evidence recited and facts found in the judgment itself. [para 41]

Source: IDS Brief & Daniel Barnett