Labour & European Law Review Weekly Issue 233 01 September 2011
Although the law defines who is an employee and who is a worker, it can often be hard for Tribunals to decide their status in reality. In Autoclenz Ltd v Belcher and ors, the Supreme Court has said that Tribunals can disregard the written terms of a contract when they don’t reflect the true agreement between the parties.
Thompsons was instructed by Unite the union to represent its members.
Mr Belcher and his colleagues, car valeters for Autoclenz, worked under contracts that described them as self-employed contractors. They were paid on a piecework basis and paid their own tax and National Insurance. They also paid for their own insurance and gave the company five per cent of their weekly pay for cleaning equipment.
In 2007 Autoclenz introduced revised terms of contracts with two new clauses - one stating that they did not have to carry out the work personally (substitution clause); the other stating that there was no obligation on Autoclenz to provide work nor on the valeters to accept it (non-mutuality of obligation clause).
In November 2007 Mr Belcher and a number of his colleagues claimed that they were employees, alternatively workers, and that they were, consequently, entitled to the minimum wage and to paid holiday.
Tribunal, EAT and Court of Appeal decisions
Relying on the decision of the EAT in Consistent Group Limited v Kalwak, the Tribunal judge decided that the valeters were employees because the substitution clause and the right to refuse work were “unrealistic possibilities”. He concluded that the degree of control exercised by Autoclenz in the way the “contracts were performed placed them in the category of contracts of employment”.
The EAT, however, disagreed, holding that before a Tribunal can decide that a term of a contract was a sham, it had to be shown that both parties intended to mislead somebody. As there was no intention on the part of the valeters to mislead anyone in this case, the written term could not be a sham. There was therefore no mutuality of obligation and the valeters could not be employees (see weekly LELR 90).
The Court of Appeal, however, overturned that decision (see weekly LELR 144), saying that it was essential for a Tribunal to “consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them”.
Supreme Court decision
And the Supreme Court has now agreed with that. It ruled that clauses in the contracts of the valeters which were designed to suggest that they were self-employed and not employees, should be disregarded.
The Tribunal had been entitled to hold that the valeters’ contracts did not reflect the true agreement between the parties. These were that they would perform the services defined in the contract; that they would be paid for that work; that they were obliged to carry out work offered to them and Autoclenz to offer it; and that the valeters must personally do the work and could not provide a substitute to do so.
The Court of Appeal was therefore correct to hold that those were the true terms of the contract and that the Tribunal was entitled to disregard the terms of the written documents, in so far as they were inconsistent with them.
This Supreme Court decision will enable employment Tribunals to assess the reality of the employment relationship and provides a clear framework in which to decide whether an individual is an employee. Furthermore, it will prevent unscrupulous respondent lawyers inserting substitution clauses into contracts with a view to avoiding their legal obligations under domestic and EC law.