Contracts are they the gospel?

Not according to a recent decision of the Supreme Court, which held that car valets, whose contracts stated they were self-employed, were actually employees. This decision clarified that express terms may be disregarded if they do not reflect the parties’ actual agreement.

There are certain conditions that if present in an agreement may point towards either self-employment or employment. For example, if a worker is obliged to provide personal service then this may point towards them being an employee whereas a worker who is permitted to provide a substitute may be self-employed. Broadly speaking, the higher the degree of control over the worker the more likely they are to be an employee but there are numerous other factors that may be considered by a court of tribunal posed with the difficult task of deciding employment status.

In the instant case (Autoclenz Ltd v Belcher and ors) the claimant valets were engaged under contracts that described them as ‘sub-contractors’ i.e. self-employed workers.

The contracts stated that:
• Substitutes could carry out the valets’ work;
• No valet was obliged to provide services to A Ltd; and
• A Ltd offered no guarantee of work.

The valets sought to assert that they were employees and claimed unpaid wages and holiday pay. Initially, an employment tribunal found that the valets’ contracts did not reflect the reality of their working arrangements. For example, the valets did not provide substitutes and were expected to turn up for work every day and do the work provided by A Ltd. The tribunal therefore found that the valets were employees as they were fully integrated into A Ltd’s business and subject to its control.

On appeal, the EAT reversed the tribunal’s decision on the basis that express contractual terms should only be disregarded where the parties intend the contract to paint a false picture.

However, the Court of Appeal later restored the tribunal’s original decision – A Ltd then appealed to the Supreme Court. A Ltd’s appeal was rejected and the Supreme Court emphasised that the true agreement may have to be gleaned from all of the circumstances of the case, not just the written contract.

This case demonstrates that courts and tribunals appear to be willing to find an employment relationship even where one has been labelled otherwise. Further, courts and tribunals are clearly alive to the fact that terms and conditions inconsistent with employment may be included in written agreements in an attempt to avoid an employment relationship. If these terms and conditions do not reflect the reality of the relationship then they will be open to challenge by disgruntled workers seeking potentially expensive entitlements.

We can conclude that contracts are certainly not the gospel in all circumstances and that special consideration must be given to how any given working relationship will be conducted in practice.

This article was written by Lara Murray a solicitor in our Employment Department.

September 2011