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Last updateFri, 20 Oct 2017 3pm

Legal

What happens when sub-contractors claim self-employed status is a sham?

Imagine the situation – J, a ‘self-employed’ electrician, has worked for ABC Services Ltd for five years consecutively, other than for the odd week or two when on holiday or ill. In that time J has worked on a number of sites for ABC and has always completed the work himself. 

When he has been unable to work, ie on holiday or ill, then ABC have typically not engaged anyone else but used their in-house electricians to do the work. When the work is available J has always done the work himself. Although J is registered through the CIS Scheme as a self-employed operative, they do not always provide records such as invoices or timesheets. 

Here is the sting. After five years of reasonably consistent work provided by ABC to J, the opportunities for new work become fewer and subsequently J is not given any work for a substantial period of time. ABC are under the belief that they have to make sure their employed operatives are kept busy. One evening J is talking about the predicament to a friend who suggests he may be entitled to some money from ABC under something called a ‘worker’ status. 

The next day J calls ACAS and the Citizens Advice Bureau. They both suggest ‘J’ appears to look like the definition of a ‘worker’ under section 230(3) of the Employment Rights Act 1996. So, what does this mean? Well, J could be entitled to similar statutory rights as an employee. Potentially, this could amount to five years’ worth of holidays, pay at the national minimum wage, the right to be fairly dismissed, protection from less favourable treatment and whistle-blowing and redundancy pay, among a number of other rights. Is this what ABC Services intended when they first gave work to J some five years ago? Probably not. 

There has been great Parliamentary reform recently in terms of employment rights, but there have been no such discussions in terms of status. With more and more case law building the case for the ‘worker’, business owners will be well advised to review the manner in which they engage self-employed operatives. 

It is not uncommon to find some form of contractual arrangement in place. However, the authoritative case law that is coming from upon high is scrutinising the relationship in practice and not necessarily the proposed intent contained within an agreement. There may well be provision in an agreement where there is ‘no mutual obligation to accept or provide work’ and there may also be opportunity to provide a ‘substitute if unavailable and unwilling to undertake the work’ but the test comes of what happens in reality and if the arrangement is effectively a sham. 

In today’s litigious world don’t think the worker needs to prove they have to work under a sham contract for a specific period of time. There are no ‘two-year windows’ of continuous employment needed to claim holidays or the national minimum wage, as defined in Regulation 2 of the Working Time Regulations 1998 and section 54 of the National Minimum Wage Act 1998 respectively. Equally, the protection from discrimination and whistle-blowing exists from the outset! 

So what are the options? Taking the worker on as an employee is not always seen as a viable option. After all, the reason for taking on a self-employed operative in the first instance was often to avoid employment liabilities and offer greater flexibility. Therefore some legal protection and distance should be sought, namely through an agency or bureau or by engaging legally formed companies to undertake the task. 

The construction sector is, as with many other industries, built up and dependent on flexible labour models. Will the decisions in recent case law change the way self-employed operatives are engaged? With the so called claims culture still firmly out there, business owners are well advised to consider their liabilities with self-employed contractors, operatives and consultants.

THSP can help businesses understand their risks and then put pragmatic solutions in place. For more information tel 08456 122144 or visit www.thsp.co.uk.