Inaccurate written terms will not be allowed to disguise employment status.

29 October 2012

In Autoclenz Ltd v Belcher1 it was held by the Supreme Court that such sham contracts cannot be used to disguise employment status and thus deny 'employees' many of the important employment rights provided in the Employment Rights Act 1996. The Autoclenz case involved 20 claimants who had been engaged by the respondent as car valeters. The claimants were engaged under written agreements that described them as sub-contractors. In addition to this the contracts incorporated provisions that would supposedly counter employment status; for example a provision stating that a substitute may carry out the valet's work and that no valet was obliged to provide his or her services to the company. In November 2007 they issued Employment Tribunal proceedings to establish a declaration that despite the written agreements they were in fact employees of the company and that they were entitled to be paid in accordance with national minimum wage and receive statutory holiday pay as well as other sums. The Supreme Court unanimously held that the Claimants were employed under contracts of employment and thus entitled to receive the national minimum wage and statutory paid annual leave, and additionally the full range of rights under the Employment Rights Act. In judgment, Lord Clarke said that the original Employment Tribunal was "entitled to hold that the documents did not reflect the true agreement between the parties". It was found that contrary to the provisions in the contracts the Claimants were expected to attend work and undertake the work themselves, and they had no control over the way in which they carried out the work or the hours that they worked. These findings enabled the Supreme Court to conclude that the arrangements actually conferred full employment status on the Claimants. Previously, as long as the contract was not a 'sham', the written terms prevailed. The case confirms that tribunals and courts are now entitled to look behind the words and phrases used in an agreement and set aside express contractual terms that are inconsistent with the reality of the relationship of the parties. There is no need to establish a common intention of the parties to mislead. It was found that the Claimants were subject to control and direction by Autoclenz, and this was inconsistent with the written terms. The courts will always examine the evidence concerning the real relationship between the parties. A blanket statement that the individual is not and is not intended to become an employee will clearly not be sufficient if the reality is different. Before engaging an individual as a self-employed contractor, businesses should review the commercial terms on which the agreement is based and ensure that the contractual terms accurately reflect the reality of the working relationship between the parties. For additional information please contact Alexandra Dean of Gepp & Sons on 01245 228141. The above is not legal advice; it is intended to provide information of general interest about current legal issues. 1 [2011] UKSC 41