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Supreme Court confirms Autoclenz ruling over sham employment contracts
Posted Jul 29, 2011
The UK Supreme Court has upheld an earlier ruling by the Court of Appeal that contract wording cannot determine the employment status of workers, if it doesn't reflect the reality of the working arrangements.
The Court upheld an earlier decision in the case of Autoclenz Limited v. Belcher and others, which decided that although employment contracts stated that a number of car valeters were 'self employed', they were in reality employees of Autoclenz Limited.
The contracts between the workers and the car valeting firm stated that the valeters were sub-contracted, that they were able to provide substitutes if they were not able to work, and that no mutuality of obligation (MOO) existed between the two parties.
Unsurprisingly, the terms of these contracts did not reflect the genuine working practices of the valeters, nor the original intentions of the parties.
This ruling, which was handed down on 27th July 2011, once again demonstrates that there is no point in drafting a perfect contract of 'self employment' unless it reflects the true nature of the relationship between parties.
Background to the Autoclenz case
20 Autoclenz valeters originally took Autoclenz Limited to an Employment Tribunal in November 2007, claiming that they had not been paid the National Minimum Wage or paid leave under the terms of the Working Time Regulations 1998.
When the Tribunal found that the valeters were 'employees' rather than self employed individuals, Autoclenz appealed to the Employment Appeal Tribunal (EAT) which partly overturned the ET decision over the question of whether the valeters were 'workers' or 'employees'.
Both sides subsequently appealed to the Court of Appeal, which restored the original Employment Tribunal decision that the valeters were employees of Autoclenz.
Don't rely on sham contracts
Law firm Morgan Lewis says that the decision should serve as a warning to employers:
"Although the decision in Autoclenz has clarified rather than changed the law, it should serve as a warning to those organisations which seek to avoid their employer responsibilities by hiding behind a sham contract which expressly states that the affected individuals are self-employed contractors.
"An Employment Tribunal will not apply the same principles to an employment contract as those that apply to commercial contracts. It will look at all the circumstances of the relationship between the parties, not just what the parties have expressly stated the relationship to be.
"Such an approach is necessary to take into account the inequality of bargaining power, which is often to the would-be employees' detriment in such situations as they must accept the terms that the organisation offering work or requiring services dictates."
You can read the full judgement here.
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