Labour & European Law Review Weekly Issue 262 29 March 2012
It is not always easy to know whether someone is an employee or an independent contractor. In Weight Watchers UK (Ltd) v The Commissioners for Her Majesty’s Revenue and Customs (HMRC), the upper tax and chancery chamber Tribunal confirmed that the first requirement of a contract of employment was mutuality of obligation and key to mutuality was the issue of substitution.
Weight Watchers UK (WWUK) engaged a number of “leaders”, described as independent contractors in the agreements between the parties, to conduct meetings on their behalf. They were paid on a commission basis, depending on how many people attended.
The documentation said that it was up to the leaders when and where they held the meetings, although the arrangements required “specific approval” from the area manager. Clause 8 purported to give leaders “absolute discretion” in how they ran the meetings, but also required them to follow a detailed programme.
Crucially, clause 10 of the agreement stated that if a leader could not attend a meeting and could not find someone suitably qualified to replace them, WWUK would try to find a replacement but needed as much prior notice as possible (the substitution clause).
HMRC challenged the status of the leaders as independent contractors and determined that WWUK was liable to pay national insurance contributions.
First tier Tribunal decision
Following the test set out in Ready Mixed Concrete (SE) Ltd v Minister of Pensions and National Insurance, the Tribunal held that the leaders were employees.
It found that there was a continuous contractual relationship between WWUK and individual leaders under an umbrella contract, dealing with issues such as selling merchandise, restrictive covenants, confidentiality clauses etc that applied between meetings.
Each meeting was then conducted under a specific contract incorporating the terms of the umbrella contract as they related to running the meetings. This required leaders to provide the service personally (or else they didn’t get paid) and to deliver WWUK’s programme only. They also imposed a high degree of control over how the meetings themselves were conducted.
Upper tier Tribunal decision
The upper Tribunal said that the first requirement of a contract of employment was the need for mutuality of obligation – the requirement on an employer to offer work and on the employee to perform the work personally - over the period that the contract existed. Employers can show a lack of mutuality of obligation if the worker has an unfettered right to provide a substitute to carry out the work.
The Tribunal said that although they might appear to have a free hand in providing a substitute worker, in reality the leaders were restricted because they had to find a suitably qualified replacement; they had to have a good reason for not taking the meeting themselves; they had to notify the area manager; and they had to conduct all subsequent meetings in the series.
It concluded that it was “absurd to suppose that a Leader could ... first agree to conduct a series of meetings and then, without notice to Weight Watchers, simply fail to attend to take any of them, without a breach of contract”.
As for the issue of control, the Tribunal dismissed the use of the phrase “absolute discretion” about how they conducted the meetings as a label designed by lawyers to give the impression the leaders were self-employed. Instead it found that, in reality, WWUK retained control over them in a number of ways, not least stipulating that they had to maintain an “appropriate” weight level and following a prescribed programme.
It therefore dismissed the appeal.
This is a good decision by the upper Tribunal in relation to the law relating to employee status and the question of personal service. It rejected WWUK’s argument that the distinction to be drawn was between cases in which the worker had a right to provide a suitably qualified substitute when they were unable to work (e.g. because of sickness), with those when they chose not to work (e.g. to attend a close relative’s wedding).
The real question, in its view, was whether the substitution clause allowed the worker never to turn up and carry out the work personally at all. This was clearly not such a case.
It also demonstrates the positive impact of the Supreme Court’s decision in Autoclenz Ltd v Belcher (weekly LELR 144), in the way for example it dealt with the “absolute discretion” clause – recognising this as a clause designed to avoid a contract of employment, which did not reflect the actual reality of the employment relationship.