Employment Status - Calling workers “subcontractors” does not make them subcontractors

Written by Ian Congreave - Filed under: Employees and Workers, Employment Law, Employment Status on October 28th, 2009

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In yet another court decision, this time the Court of Appeal in the case Autoclenz Ltd v Belcher and Others, the efforts by some employers to turn employees into self-employed subcontractors by artificially “window-dressing” the contract.

The judgement, given on 13 October 2009, restored the original employment tribunal decision that Mr. Belcher and other car valeters were employees of Autoclenz, despite the contract being carefully worded to describe them as subcontractors. Each of the three Appeal Court judges provided their individual reasoning on the issues but they were all in agreement.

It is worth restating the long-established requirements for the existence of a contract of employment, otherwise known as a “contract of service”:

“A contract of service exists if these three conditions are fulfilled.

(i) the servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.

(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

(iii) The other provisions of the contract are consistent with its being a contract of service”.

The basis for Appeal Court judges’ decision is well summed up by the comments of Lord Justice Sedley:

“Employment [Tribunal] judges have a good knowledge of the world of work and a sense, derived from experience, of what is real there and what is window-dressing. The conclusion that Autoclenz’s valeters were employees in all but name was a perfectly tenable one on the evidence which the judge had before him. The elaborate protestations in the contractual documents that the men were self-employed were odd in themselves and, when examined, bore no practical relation to the reality of the relationship.

The contracts began by spelling out that each worker was required to ‘perform the services which he agrees to carry out for Autoclenz, within a reasonable time and in a good and workmanlike manner’ - an obligation entirely consistent with employment. Notwithstanding the repeated interpolation of the word “sub-contractor” and the introduction of terms inconsistent with employment which, as the judge found, were unreal, there was ample evidence on which the judge could find, as he did, that this was in truth an employment relationship.”

As to whether the employment contract in this particular could be described as a “sham”, as the Employment Tribunal judge had suggested, Lady Justice Smith commented on contracts that make specific provision for a worker to send a substitute (in order to remove any requirement that the work be performed personally by the worker) or to refuse any work offered (in order to remove the mutuality of obligation that exists in the employment relationship). In the case Consistent Group Ltd v Kalwak, the Employment Appeal Tribunal judge, Mr. Justice Elias, in describing “sham” contracts, made this balanced statement:

“In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.”

However, in this case, Lady Justice Smith said that “the [Employment Tribunal judge] was following Elias P’s approach to the question of whether the written agreement between Autoclenz and the valeters described the true nature of the relationship between them. He was satisfied that it did not.”

Further information:

Autoclenz Ltd v Belcher and Others