A recent ground-breaking case has established the importance of control in employment status decisions, which will have a huge impact on those working under self-employed contracts. The case of Ms M Gorman v Terence Paul (Manchester) Ltd was listed, following a case management preliminary hearing, to consider the preliminary issue of whether the claimant was an employee, a worker, or neither of those for the purposes of claims brought under the Employment Rights Act 1996, the Working Time Regulations 1998 and the Equality Act 2010.
- Gorman pursued claims of unfair dismissal, sex discrimination, notice pay, holiday pay and redundancy pay against her employer, Terence Paul (Manchester) Ltd (“TP”).
- Gorman worked under an “independent contract for services” for TP when she qualified as a hairdresser in 2014. The contract referred to Gorman being a “SEHS”; although this was not defined in the contract, the Tribunal determined this to be “self-employed hair stylist”.
- The contract stated the following:
- Gorman could choose her working hours, providing they were within the normal business hours of the salon.
- Although there was no obligation for Gorman to work, she must inform TP when she didn’t intend to work so that cover can be arranged.
- Gorman could use a suitably qualified and experienced substitute to perform the hairdressing services.
- Gorman had to adhere to the salon’s price list and any promotional offers in force.
- Gorman was responsible for her own tax affairs including VAT, if registered.
- Gorman was personally liable for any loss, liability, costs, damages or expenses arising from any negligent or reckless act in the provision of the services.
- Restrictive covenants were in place for 12 months post-termination, meaning that Gorman was unable to set up as a competitor nor work with any competitor within a half mile radius of TP.
- Clause 10 stated the following:
“10 For the avoidance of doubt, the SEHS shall not be entitled to any payment from [the respondent] in respect of any period where the SEHS does not perform services at the Salon regardless of the reason for the non-performance of services.”
- This meant that if Gorman did not attend work and sent a substitute, then she would not be paid any of the gross fees earned. Instead, another hairdresser from TP would be given the work and paid by TP. Therefore, if she did not provide services personally, she did not get paid. Clause 10 completely contradicted being able to provide a substitute.
- Gorman also didn’t receive 100% of fees paid by customers. Instead, a net deduction of 67% was taken per week.
- TP had significant control over Gorman, contradictory to many clauses within the contract for services. This included:
- Gorman was required to work between 8.45am and 6.00pm.
- If Gorman wanted to take a holiday, she had to notify TP and TP had to give permission.
- TP kept records of the hours Gorman worked and recorded lateness, holiday and early finishes.
- Gorman’s clients were considered clients of TP and access to client records was restricted.
- Gorman was given a list of client bookings to complete and duties to carry out throughout the day.
- TP would decide which product range would be used by Gorman when washing, dying and styling clients’ hair.
- Gorman was required to wear black clothing to fit in with the professional appearance in the salon.
The Tribunal concluded the following:
- The contract for services does not reflect the working arrangements.
- Day to day working arrangements were controlled by a manager of TP.
- There was mutuality of obligation.
- There was an implication that if Gorman had decided her own times and duties, this would have resulted in her contract being terminated.
- TP had control over holiday agreements and working hours.
- Gorman was not free to leave the salon whenever she desired and had to seek managerial authorisation.
- TP exercised a significant degree of control over everything Gorman did during the salon’s opening hours.
- Substitution was not allowed.
- Fees were non-negotiable, and the significant net deduction of 67% meant that TP bore the risk of profit and loss.
- The restrictive covenant is consistent with that of an employment contract.
Given all the circumstances, the Tribunal concluded that the relationship between the parties was that Gorman was an employee of TP and that the tests of employed status were clearly met.
The facts of this case form a clear basis for future employment status challenges. The evidential control TP had over Gorman, contradictory to the contract initially signed, could not make for a better example of false self-employment.
It is imperative that businesses review the working arrangements of their self-employed workforce versus the contracts they are engaged on to prevent a successful claim for employment benefits such as holiday pay, sick pay and redundancy entitlement.
For a review of existing contracts, or any other employment law and tax matters, call us today on 0121 445 61