You’ve been slogging away, working all hours to meet your deadlines and need help so you take someone on. Potential bear traps await. Unanticipated legal consequences may arise if an individual is considered an employee or a “worker”.
An individual’s legal rights differ depending on whether they are:
1. an employee;
2. a worker; or
Employment status is determined by the contract AND how the relationship works in practice and is ultimately a matter for the Tribunal’s determination where a dispute arises.
Employees enjoy the highest level of legal protection including:
1. the right not to be unfairly dismissed (after two years’ service);
2. entitlement to a statutory redundancy payment (after two years’ service); and
3. entitlement to family and pay rights.
Although less protected, workers still have valuable statutory entitlements e.g.:
1. the national minimum wage;
2. paid annual leave and other working time rights;
3. protection under discrimination and whistleblowing legislation.
The fashion business often experiences sporadic, unexpectedly busy periods e.g. during fashion show assignments or where external factors demand immediate completion of a project such as grant funding, the weather, client demands.
Therefore arrangements tend to be informal assuming little or no obligation between the parties. So-called “zero hour” contracts or variants are used. Yet, the relationship may evolve into something very different and change the employment status of a casual worker over time. Regular patterns of work may occur or an umbrella contract arises and full statutory protection could be claimed. It is of note that the Government is currently consulting on regulating the use of “zero hour” contracts.
There are also rules that apply specifically to agency workers because of the issues that can arise out of the tripartite nature of the arrangement. These rules are outside the scope of this article.
Self-employed individuals generally only have contractual rights but may be protected from unlawful discrimination.
Establishing employee status
Where an individual and the fashion company are working closely on a project the lines can become very blurred so bear in mind that personal service (i.e. the individual must do the work personally and not via a substitute), mutuality of obligation and sufficient control over the individual’s work by the company are likely to indicate an employment relationship. However, other factors may be relevant e.g.
a. who provides and maintains necessary tools and equipment;
b. the degree of financial risk;
c. the degree of investment in and management of the business;
d. whether the individual can profit from their performance; and
e. whether there is a fixed wage or salary.
The risk of sham contracts
An individual, ostensibly engaged on a self-employed basis, may subsequently claim his or her status is protected either as a worker or employee and claim a statutory right. A Tribunal may determine from the facts that the contractual documentation is in fact a sham. The applicable employment rights may then apply together with retrospective tax and NIC liabilities.
Seek initial advice
The temptation is to dive in and take someone on without appropriate documentation or with documentation that does not accurately reflect the situation. If in doubt, seek advice on how best to proceed before engaging an individual. Your time and fees incurred in the heat of a dispute may far outweigh the costs of initial advice before “subcontracting” the work.
Peter Rawlinson is a lawyer based in Sheffield and advises businesses in the creative and manufacturing sectors with other specialist freelance lawyers at Excello Law. Penny Morrison specialises in employment law.
For all initial enquiries please contact Peter on firstname.lastname@example.org or 0114 2755517 or 07899906476.