Employing The Self-Employed: Beware The Pitfalls!30th Oct 2020
Self-Employed Workers – Flexible Hiring In Uncertain Times
You’re desperately trying to keep your business afloat in stormy economic conditions. Small bits of work are coming in – but not enough to risk taking on more full-time permanent staff.
You’ve considered temporary/agency workers – but you’re worried because they now have more rights under the law. Temps don’t feel as temporary as they once did.
So what’s the solution? You may be considering self-employed workers as a cheaper option. But beware – that has pitfalls too. So get legal advice first.
When Are Self-Employed Workers Judged To Be Employed?
Earlier this year a self-employed hairdresser won the legal right to claim for notice, holiday and redundancy pay.
Meghan Gorman’s contract said she was self-employed. But the salon where she styled hair maintained a high level of control over her work – so much so that she was effectively an employee there, she said. And the employment tribunal agreed with her.
How Much Control Is Too Much?
In the case of Ms M Gorman v Terence Paul (Manchester) Ltd, the tribunal heard how the contract she had signed did not reflect the real working arrangement. TPM Ltd controlled her working hours, set prices and decided which products could be used.
Ms Gorman had to comply with a dress code and ask permission to take holiday time.
She received 100% of the gross fees paid by the customers but had to pay TPM 67% to use its facilities. TPM could offer clients a discount – affecting her pay – but there was nothing she could do about it. She had no power to negotiate prices.
Furthermore, she had no access to clients’ records. And a restrictive covenant in her contract prevented her from providing services to these clients after her contract ended.
So what could she do under her supposed self-employment status at TPM? Accounts…she was responsible for keeping her own books and paying her own tax.
Judge Marion Batten wrote in her judgment: “The tests of employee status are clearly made out. The written contract does not reflect the reality of the working arrangements in practice, save in respect of the requirement for the claimant to keep her own accounts and attend to taxation, about which the claimant had no choice.”
When Is A Self-Employed Worker In Reality An Employee?
Our employment law specialists will tell you that – although cases are judged on their own merits – there are some detailed guidelines that a tribunal will scrutinise when reaching its decision.
Your workers are likely to be regarded as employees if:
- you can tell them what to do – how, where and when they should do it
- they have to do the work personally – they can’t sub-contract it
- you can move them between tasks
- you make them work set hours and pay them a regular salary/wage (even if there is no work available)
- they do not have ownership rights within your business, they are not a partner
- you give them time off for sickness and holiday in accordance with their contract or employment law rules
- they do not personally suffer the financial consequences of failing to deliver work properly – the cost of redoing work does not come out of their salary, it comes out of your profits
- they don’t have to provide their own tools and equipment – such as a vehicle or scaffolding
- they have an employment contract.
So What Does The Gorman Case Mean For You?
You would be recommended to take careful note of the Gorman case. It may not set a legal precedent but it has hit enough headlines to get quoted by employment law solicitors at tribunals.
There are other cases that have an important bearing on whether a supposedly self-employed worker is really an employee of the company in the eyes of the law.
They include the case of Pimlico Plumbers and another v Smith that went all the way to the Supreme Court. That case upheld previous decisions that a supposedly ‘self-employed’ plumber was actually a worker with employment rights including discrimination protection and holiday pay.
Expect more cases like this as gig economy workers demand the same legal rights that employees enjoy.
And get legal advice before you take on staff on a self-employed basis – you don’t want to be the next one facing a gig economy employment tribunal.
Get Expert Legal Advice
Find out more about the rules governing employment vs self-employment status – contact Coles Miller Managing Partner Neil Andrews, Head of the Commercial Department and an employment law specialist.