Enfield Technical Services Ltd v Payne; BF Components Ltd v Grace
It can sometimes be hard for workers to know whether they are employees or self-employed. The Court of Appeal has just said in Enfield Technical Services Ltd v Payne; BF Components Ltd v Grace (IRLR 500, 2008; IDS 854) that if they pick the wrong status, their contracts will not be deemed illegal as long as they did not misrepresent the true facts of the situation.
Mr Payne was offered a job in 1998 as a catering manager but asked to work as a sub-contractor. Enfield agreed as long as he worked exclusively for them. After an inquiry into Mr Payne’s status, the Inland Revenue accepted that he was self-employed. Mr Payne subsequently brought a claim for unfair dismissal in 2006, but Enfield argued he was not an employee or that, if he was, he had been working under an illegal contract given his self-employed status for tax purposes.
Ian Grace worked for BF Components from June 2002 until September 2003 on a self-employed basis. He then reluctantly signed a contract of employment because his employer insisted he was effectively an employee. He brought a claim for unfair dismissal when his employment was terminated in January 2004, arguing that the arrangement prior to September had amounted to employment status.
The tribunal agreed that Mr Payne did have an employment contract but rejected Enfield’s argument that it was void because it had been illegal.
In the case of Mr Grace, the tribunal decided that as both parties had colluded in telling the Revenue that he was self-employed prior to September when he was, in reality, an employee, the contract was illegal. He therefore did not have the requisite year’s employment status to bring a claim of unfair dismissal.
The EAT heard both cases together. It agreed with the tribunal that Mr Payne had not tried to misrepresent his status to the Revenue. It would therefore “be absurd if a contract were held to be illegal because the parties in good faith thought that it could legitimately be considered to fall into one legal category whereas in fact it fell into another”.
It also allowed Mr Grace’s appeal, saying that the issue was not whether Mr Grace had misrepresented his true legal status to the Revenue, but whether he had tried to misrepresent the “underlying facts of the relationship”. Although he had wanted to continue being self-employed even after the company had told him he was obviously an employee, this could not be said “to constitute a misrepresentation of the facts of the relationship such as to render the contract illegal.”
Court of Appeal decision
The Court of Appeal upheld both the decisions of the EAT. It agreed that there has to have been some attempt by the parties to misrepresent the true nature of the arrangement before a contract can be deemed illegal.
It accepted, however, that these decisions can be very difficult as the circumstances are “infinitely variable.” There are always a number of factors involved that have to be weighed up and “predictions as to the side of the line on which a particular relationship will be held to fall are notoriously difficult to make.”
In this case, the Court agreed there could well be tax advantages in claiming self-employed status, but said that any such advantages did not make their contracts illegal just because they were later found to be contracts of employment.
It said that it was important to distinguish a contract of employment that had been unlawfully performed as a result of a factual misrepresentation, from one that had been wrongly categorised with no “false representations, even if the employee had claimed the advantages of self-employment before the dispute arose”.
The Court accepted there were limits to that principle and that the “circumstances in which a miscategorisation is made may amount to misrepresentation and bad faith which would deprive the employee of the right subsequently to claim the benefits of employment.”
This case will provide some comfort to those whose empoyment status has been wrongly catgorised either by the employer or the Inland Revenue, provided there has been no attempt to conceal the relationship as in Salveson –v- Simons  IRLR 52 ( where part of the salary was paid as a management fee and so held to be a misrepresentation to the Revenue.