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Supreme Court Ruling Delivers Blow To Self Employment Status

Posted on September 07, 2011

WMT explains the importance of determining employment status, based on the recent ruling of the case Autoclenz Ltd v Belcher & Others.

The Supreme Court has delivered its long awaited ruling regarding the employment status of valets working for Autoclenz (Autoclenz Ltd v Belcher & Others), and has ruled the valets to have been employees of the company. Though this was not a tax case, the Judgement will have implications for all self employed workers and contractors working via their own Personal Service Companies.

A group of valets had taken Autoclenz to Court claiming that the written contracts between themselves and the company did not reflect the true working practices in place. Specifically the contracts in place had claimed to give the valets a right of substitution the ability to send along another person to do their job in their place and also excluded a mutuality of obligation (the ongoing commitments and obligations a party might owe or be under to the other).

The Court considered the true relationship between the parties and decided that the written contract did not accurately reflect the working practices in place. In reality substitution could not occur and, despite what was written, both parties understood that very clearly. The valets were obliged to accept and carry out in person all work offered to them by Autoclenz and Autoclenz undertook that they would continue to offer such work to the valet. The valets were, in reality, not in a position to barter or bargain with Autoclenz and were in a take it or leave it situation. The Judge noted that the substitution clause in the contract "was wholly inconsistent with practice" and that "the substitution clause and the right to refuse work were unrealistic possibilities that were not truly in the contemplation of the parties when they entered into their agreements". The reality of the situation was that "there was an obligation to attend for work unless a prior arrangement had been made".

The Court ruled that the valets were workers for the purposes of the National Minimum Wage Regulations, which also gave a right to holiday pay, sick pay and other similar benefits.

The case does not affect contractual relationships where the right of substitution is genuine and could realistically be exercised at any time given the nature of the relationship, and that this is understood and accepted by both parties. The Court has again confirmed that an unused right of substitution is still incompatible with employment provided that it is genuine. But, as was demonstrated in 2010 in the WeightWatchers case, the Courts will now consider working practices in preference to a written contract and that, in the event of an inconsistency, it is working practices which dictate the true nature of the relationship. Businesses should expect HMRC to quote this case extensively in status enquiries.

Any businesses with self employed workers, or any contractor working through a Personal Service Company which could potentially be classed as within IR35, needs to consider this Judgement urgently and review their arrangements.

RM2 are pleased to recommend WMT's services. WMT are a team of advisory, tax, audit, accounting and corporate finance specialists, helping people improve the performance of their businesses and by keeping tax bills down, maximise their wealth. For advice on the topic of this article please contact their Senior Employment Tax Manager Peter Davies on 01727 83825.

 
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