October Blog - 07/10/2019

Self-employed or worker? New law ups importance of knowing the difference

Distinguishing between a worker and someone who is self-employed can be difficult. High-profile businesses have been caught out and lost court cases over it. And from next year, new legislation will make it more important to get it right.

From 6 April 2020 you'll be required by law to give a 'statement of employment' to new workers in England, Wales and Scotland. This is a document giving the main terms and conditions of employment. Currently only employees are entitled to them.

If you intend to recruit self-employed people, you must ensure that they're truly self-employed, otherwise they'll be workers and must receive a statement of employment. A recent case has emphasised how tricky this can be.

A doctor was contracted to work regular rota shifts for a company providing out-of-hours services for the NHS. That company was unknowingly paying the doctor's salary to another company she'd formed.

After a dispute, she made an Employment Tribunal claim for unfair dismissal, sex and race discrimination and breach of contract. The company argued she was self-employed and so couldn't bring the claims because she didn't have any employment rights.

The tribunal looked at her contract and her day-to day working arrangements and disagreed, deciding she was a worker. The company's appeal was rejected and it remains liable for most of her claims.

The doctor's contract included some terms that suggested self-employment. But others suggested she was a worker, such as possible disciplinary action for breaking company rules, and being required to have annual appraisals. She was also regarded as integral to the company's business, having worked there for nearly 12 years.

So, what's the difference? Every situation is different, but you can start by ensuring that the contracts differ for workers and self-employed staff. This table sets out the differences:

Worker

Self-employed

Can be permanent or fixed-term

Should only be for a fixed-term

Could need your permission to also work for someone else

Shouldn't need your permission to also work for someone else

States the work is on a 'casual', 'freelance', 'zero hours' or 'as required' basis

States they're working on a self-employed basis

You'll give them the equipment they need to work

They'll provide the equipment they need to work and indemnity insurance

Paid when they're off sick or on holiday

Shouldn't be paid when they're off sick or on holiday

Can be appraised and must comply with the business's rules and procedures (which might include the disciplinary procedure)

Can be required to comply with some rules but shouldn't be subjected to disciplinary action or appraisals.

Income tax and NI paid using PAYE

Paid gross wages and required to pay HMRC income tax and NI

Can be required to wear a uniform (where necessary)

Shouldn't be required to wear any uniform

Can send a substitute if they're unable (rather than unwilling) to do the work, but only with your consent

Can send a substitute if they're unable or unwilling to do the work, without needing your consent

What this means for you

From April 2020 you'll need to give any new workers an employment statement. If you don't, they could claim up to 4 weeks' pay at a tribunal (though only if they successfully claim for something else).

If you take on self-employed people, follow the table above when working with them and, if necessary, change your template contracts.

Going against something in the right-hand column won't always mean a self-employed recruit is automatically classed as a worker, but the more you do so, the greater the risk. Stick to it wherever possible to put yourself on a sound legal footing.

Note also, though, that complying fully with the table won't guarantee that they're seen as self-employed. Tribunals look at whether you've actually followed the contract. They'll also look beyond it for signs of self-employed staff having been integrated into the business – if they have, they're more likely to viewed as workers. Invites to company social events over time can be one such sign.

How we can help

We'll update our Employment statement (and other employment contracts) ahead of the law change so that they comply. We also have a Consultancy agreement that you can use when taking on the self-employed.

 

 

October Blog - 14/10/2019

Email signatures can create a contract, says High Court

In 2006, a High Court case said that a legally enforceable contract will only be made via email if the sender 'signs' it by manually typing their name.

Last month, a High Court case said that a contract can also be formed if the email is 'signed' by having the sender's name and title inserted automatically (e.g. via the email service provider's signature feature).

Therefore, it seems a contract can be created by email if you:

  • Manually type your name at the end of the email; or
  • Use an automatic signature that includes your name and title. Even if someone else sets it up for you (e.g. a member of your IT team).

What this means for you

Most businesses use email signatures. This ruling needn't be a catalyst for everyone to abolish them. Instead, simply avoid sending emails spontaneously and include the words 'subject to contract' when using emails to discuss a potential contract. This will show conclusively that you don't intend to create a contract by sending the email.

October Blog - 21/10/2019

Enhanced v statutory redundancy payments: 'set-offs' are out, says EAT

The Employment Rights Act gives employees a right to receive a minimum (i.e. statutory) redundancy payment once they've been employed for 2 years. Some employers offer enhanced redundancy pay in their contracts, which usually say that this includes the statutory redundancy payment. A recent case in the Employment Appeal Tribunal (EAT) has highlighted a major problem for employers who do this.

The case involved an employer who failed to make a redundancy payment. The contract included a term providing enhanced redundancy pay and said it would be 'set-off' against the statutory redundancy entitlement (i.e. the statutory payment is included within the enhanced pay).

The employee claimed breach of contract at an Employment Tribunal, asking for £43,949 (which included the statutory redundancy entitlement of £5,868). The employee won, but was only awarded £25,000, the statutory limit payable for breach of contract claims. She appealed to the EAT about the size of the award.

The EAT noted that the Employment Rights Act says that a clause in any agreement (except collective agreements) will be invalid if it intends to limit, or exclude, any part of the Act. This meant that saying the enhanced payment will be 'set-off' against a statutory payment won't work, leaving an employer liable to pay both payments.

The EAT also said that the statutory limit of £25,000 doesn't include claims for statutory redundancy pay. This meant she was entitled to receive the statutory redundancy pay of £5,868 as well as the capped award of £25,000.

What this means for you

Review your documents if they contain enhanced redundancy payment clauses and, if necessary, amend them to say that the statutory redundancy pay will be satisfied first before you'll be liable to pay the enhanced (contractual) redundancy payment.