ACCA F4 - Corp and Business Law (ENG)

128 8: Contract of employment  Part C Employment law

The case below marks an important shift away from courts accepting as fact the contents of an

employment contract towards looking at the actual working arrangement when deciding on an

employee's employment status. It also means that the relative bargaining power between the parties

should be considered.

Autoclenz v Belcher 2011

The facts: A group of individuals worked as car valeters. Their contracts stated that they were self-

employed contractors, that there was no obligation to provide them with work, that they had to provide

their own materials and that they could substitute others to work in their place.

Decision: The reality of the situation did not agree with the contracts. The workers would arrive each day

and be provided with work, there was never any substitution of labour, the workers had to provide

advance notice if they would not be available to work and they were provided with cleaning materials for a

small charge. In the court’s opinion, the contract did not genuinely reflect the reality of the situation and

should be set aside. There was a difference in the relative bargaining power between the parties which

indicated an employer/employee relationship.

The question of whether someone who is described as 'self-employed' is actually self-employed was

asked in Tiffin v Lester Aldridge LLP 2012. This case considered whether partners in a partnership can be

employees. It was held that partners with equity stakes in a partnership cannot be employees. However,

each case should be determined on its facts and it is likely that a salaried partner (without an equity stake)

will be deemed an employee for employment law purposes.

2 Why does it matter?

The distinction between employed and self-employed is important as to whether certain rights are

available to an individual and how they are treated for tax purposes.

The first thing that it is important to note is that much of the legislation which gives protection to

employees extends further than employees. Much of it is drafted to cover 'workers', a term which has a

wide definition to cover most people providing services to others outside of the course of (their own)

business. This has reduced the importance of the distinction between employee and independent

contractor in this area. However, there are several other practical reasons why the distinction between a

contract of service and a contract for services is important.

SIGNIFICANCE OF THE DISTINCTION

Employed Self-employed

Social

security

Employers must pay secondary Class 1

National Insurance contributions on behalf of

employees

Employees make primary Class 1 National

Insurance contributions

There are also differences in statutory sick pay

and levies for industrial training purposes

Independent contractors pay Class 2

and 4 contributions

Taxation Deductions must be made for income tax by

an employer under PAYE from salary paid to

employee

The self-employed are taxed under

self-assessment for income tax and

are directly responsible to HM

Revenue and Customs for tax due

Employment

protection

There is legislation which confers protection

and benefits upon employees under a contract

of service, including

 Minimum periods of notice

 Remedies for unfair dismissal

Employment protection is not

available for contractors

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