In a recent case, a book-keeper (and from 1990 onwards accountant) for a brewery (Exmoor Ales Limited) submitted invoices in the name of her partnership (with her husband) to the brewery for payment. This went on for some 27 years.
Self employed or employee?
The Tribunal and the Appeal Tribunal found that initially she was self-employed. However, from 2011 onwards the brewery paid her a quarterly payment of £1,000. It was said by Mrs Herriot that this represented a payment which reassured the brewery that she worked for it exclusively; i.e. not working for any other clients. Everything was agreed verbally and invoices aside there was no written documentation between the parties. There was no explanatory documentation regarding the purpose behind the quarterly payments. When the brewery terminated her agreement she brought a number of claims including unfair dismissal which of course only employees can bring. The brewery denied that she was a worker or employee.
The Tribunal found on the facts that that Mrs Herriot was an independent contractor until 2011 when she became an employee. It accepted her evidence that the quarterly payment was in respect of agreeing to work exclusively for the brewery, and that she had no right to appoint a substitute when she could not carry out the work personally. The brewery had said the £1,000 was a bonus and to assist with their cash flow. One can see that this was simply not a credible explanation.
An employee in spite of the tax arrangements
The brewery pointed out that her tax arrangements, i.e. the invoices she submitted had VAT added to them and she accounted to HMRC for her own tax, NICs and VAT, indicated that she and the Brewery clearly worked on the basis of her being a self employed contractor. In addition, she had prepared employment contracts for other staff (but not herself), and unlike other employees, she was not a member of the employee share scheme. The Appeal Tribunal rejected these factors. It held that she was an employee in spite of the tax arrangements. The facts indicated that she did what the Brewery asked of her, and worked when it asked her to do so and the Brewery provided her with work and effectively a salary. There was a mutuality of obligation. The Brewery exerted control over her as it would over an employee and there was no right to send a substitute; she was required to perform the work personally. These factors, and the exclusivity obligation – whereby she could not work for other clients weighed heavily in her favour.
Key criteria for deciding on employment status
Businesses should be aware of the factors which were considered in this case as they are key criteria for deciding on employment status. Although there were no written contracts between the parties, the evidence of what happened on a day to day basis in reality, the mutuality of obligations between Mrs Herriot and the Brewery, the fact that the Brewery exercised a high level of control over the Claimant whilst at work and the inability to send a substitute or work for other clients, were decisive factors.
The manner in which the individual accounts to HMRC for their earnings whilst relevant is not decisive. Having a contract which states that a person is a contractor and DEFINITELY NOT AN EMPLOYEE – which we sometimes see, are equally not decisive if the reality is different. The adage that you can call a garden fork anything, but it will still be a garden fork applies in this case. Our employment team at Stephens Scown LLP can advise on structures of organisations, employment status, productivity and efficiency.