Hairdresser wins Landmark Case - Our very own Chelsea Brooke-Ward instructed for the Claimant - Employee Status
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The matter of Meghan Gorman v Terrence Paul was decided in March earlier this year and has been described by the media as “landmark” given the potential effects it may have on thousands of those in the hair and beauty industry working under similar circumstances. The case highlights the important distinction between employee and a self-employed person and how the courts are willing to look past a written agreement and look at the conduct of the parties and the actual relationship between them in reality and not what is said on a piece of paper.
We have the inside view as our very own founder, Chelsea Brooke-Ward represented the successful Claimant.
Miss Gorman was a hairdresser at Terrence Paul’s Salon in Manchester. Her contract was terminated following a closure of the salon at which she worked. She disputed her purported employment status at the Tribunal and sought to claim unfair dismissal as well as other rights an employee would be entitled too such as notice pay . The salon where she worked Terrence Paul disputed, she was an employee and relied upon her being self-employed pursuant to a signed self-employed agreement.
At a hearing on 11th March 2020, Employment Judge Marion Batten, despite such purported contract, found in favour of Miss Gorman finding that she was in fact an “employee”, entitling her to bring claims for unfair and wrongful dismissal, sexual discrimination and a failure to provide a written contract of employment, as well as claiming for notice and holiday pay.
Terence Paul, The Respondent claimed that Ms Gorman had control over the hours and days that she worked, as well other stylists who worked under self employed contracts whom all had control over their business including their starting and finishing times, treatments they could give and their holidays.
However, Ms Gorman alleged that she had to work for the hours set by Mr Paul salon, working from 9am-6pm from Monday to Saturday irrespective of whether she had clients, and that the company took 67% of her takings and even dictated when she would receive that payment which was initially paid to the salon and paid to the stylists in line with the timings of the company’s payroll.
Ms Gorman submitted that she had no control over her alleged business including things such as pricing or offering discounts to clients, in fact, the purported self employment contract dictated that they weren’t even her clients but that of Terrence Paul. Ms Gorman had to use the company’s products and conform to Mr Paul’s standard of dress – wearing all black. Employment Judge Batten found that Miss Gorman was controlled in pretty much all areas of business stating: “The contract did not reflect the reality of the claimant’s day-to-day working arrangements or her relationship with the respondent. In practice, the respondent decided and controlled the claimant’s working arrangements and practices.”
The Judge found that such degree of control, as well as other matters such as mutuality of intentions, were indicative of an employment relationship. The judge found that although there was a substitution clause, this was in effect a sham clause, as in reality this could not be utilised, as the Respondent even dictated the skill of such substitution, and in any event under such circumstances Ms Gorman wouldn’t be paid but the substitute, often another stylist at the salon.
On balance the judge preferred the evidence of Miss Gorman, which was largely unchallenged and found that she was an employee of Terrence Paul. The judgment was undoubtedly welcomed by Miss Gorman, Miss Brooke-Ward and all of her legal representatives at Direct Law Personnel.
Ms Brooke Ward was approached by Thrive Law for her comment on the case and she said the following:
“The case has been described as a landmark, and although I agree it is a landmark judgment, but not because of the law which has been applied. The judge interpreted the law as it has been for many years, since the days of the renowned judgment of Autoclenz v Belcher in 2011, which set precedent that Tribunals can, and should, scrutinise alleged self-employed contracts for sham clauses which don’t reflect reality.
The Judge in Ms Gorman’s case did just that and found that what was written in the contract was not how the relationship was in reality. In fact, Ms Gorman had almost no freedom over her alleged self-employed status when one looked at the facts of this particular case.
Ms Gorman’s case is significant, not least because it is evidence that the courts will disapply any written agreement that is not consistent with the way the relationship is conducted, but also the message it sends to industries such as the beauty industry, which is largely dominated by females. Whilst each case will be fact-specific the reality is a lot of industries operate in similar ways, and it’s what happens in practice that matters not what is written on paper.
The judgment has the potential to affect thousands of purported self-employed people (and for that matter the businesses who employ them) who will need to re-evaluate their respective situations, and that follows we could see more litigation as a result.
Despite the extensive employment law and precedent, we have in the UK, there are still many industries taking advantage of individuals by attempting to bind them to sham contracts for a number of reasons: one being to avoid paying tax and NI. Yet the companies seek to control those individuals in all almost all areas of their work, which can only be described as having their cake and eating it which is not in line with our employment legislation.
Hopefully, this judgment will see more individuals successfully questioning their working relationships.”
The Manchester Evening News Report can be found here.
From this we thought it would be a good idea to review the law on employment status and set out the tests involved so that employers can review their practice and procedures to ensure they don’t attract liability where it is not wanted.
Employee Status and the Law
Under the ERA 1996, an 'employee' is defined as:
“an individual who has entered into or works under (or, where the employment has ceased, worked under) a 'contract of employment'.
For these purposes, a 'contract of employment' is defined as a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.”
As you can gather the test in the statute is almost useless (or at least impossible to interpret), and it has been left to the courts to lay down tests to construe what is mean by the statute. These are the tests Tribunals apply when identifying if someone is an employee or not. However, just as with most areas of employment law, it is not that simple and there is no one test for assessing whether someone is an employee, a worker or self-employed. There is a mixture of tests (all rolled up into one) that are applied, which as you can imagine makes this quite a complex area of employment law - you think this would be the easiest part, but you’d be wrong! But, this is because of the uniqueness of the employment relationship. It is important, as the Tribunals have said not to make the test too rigid so as to cause injustice, but also makes the law difficult to understand especially for the lay person.
So………. what are those tests:
Mutuality of obligation
For there to be a contract of employment, there must be mutuality of obligation between the parties to it. This has been said, in broad terms, to mean that there must be an 'irreducible minimum of obligation on each side'. Essentially this means the Company is under obligation to provide work and the individual is obliged to accept the work. This is one element of the test that usually points towards an employment relationship.
A self-employed person would have no guarantee of work, nor would they be obliged to accept work simply because it is offered. An employee rarely has the freedom to refuse work.
So for a simple example, if an individual rang for the services of a plumber on an occasion, this would not create an employment contract although there is an exchange of work for payment because there is no mutual obligation that this work will continue. This is similar to those in the construction industry who work under subcontracting agreements - usually on a weekly or daily basis.
Putting the point negatively, if there is genuinely no obligation on the employer to provide any work or pay, and none on the putative employee to accept any work provided, then the relationship is too casual to constitute a contract of employment, ie the mutuality of obligation test will not be satisfied.
Right of control
The 'control' element of the modern test for employment status seeks to determine whether the employer has the power to exercise a sufficient degree of control over the employee for the agreement between them to qualify as a contract of employment - this goes back as far as the days where the case law referred to the relationship as between “master and servant” (Yewens v Noake 1880 - 1880… 220 years and people still can’t figure it out!)
In the context, 'control' has been said to include the power of deciding things such as (but not exclusive too) the following:
the thing to be done
the way in which it shall be done
the means to be employed in doing it
the time when, and the place where, it shall be done
In order to assess whether the employer has sufficient control, the starting point is to look at the express terms of the contract. If they do not deal fully with the matter, the question must be answered by considering next what may be implied through the conduct of the parties in the day to day arrangements.
In a typical employer/employee relationship the employee will exercise very little control over what he/she does on a daily basis. An employer would usually tell an employee what to do and how and when to do it.
Self-employed individuals would typically have a greater degree of autonomy of their business, usually setting their own hours and manner of getting the job done and the decision making behind it.
With Meghan’s case in mind, some in the hair and beauty industry will be able to set their own hours, will be able to offer discounts at rates set by themselves and use the products they wish to use. They will wear what they want and turn up to work only when they have clients: take holidays as and when they wish and this would be indicative of being self employed - control over areas such as this is in contradiction of someone being in business of their own accord.
Provision of own equipment
In an employment relationship generally speaking most equipment is provided by the employer to ensure security, uniformity and just general practice. Not many employees want to fund their employer and that shouldn’t be expected.
A self-employed person would be likely to provide their own equipment such as a laptop or tools of the trade, and would be expected to pay and obtain these at their own expense.
This provision however is certainly not conclusive and most company’s will seek individuals to buy equipment under sham contracts as its in their interest to do so because they don’t have to folk out for it. Thereby abusing their position.
Right of substitution and engagement of helpers
The ability to provide a substitute and/or engage helpers is something Tribunals look at closely when deciding whether a worker is employed or self-employed. The Tribunals too will take this point in to consideration. If a self-employed person has contracted to do a job and is either sick or double-booked, that person will usually have the freedom to provide a suitable substitute to complete the job in their place. It is important that this should be more than a mere statement, it should be acceptable to the client in practice.
So taking the plumber as an example again. Where an individual rings a company for a plumber and speaks to say Mark, if Mark is busy sick or simply can’t be bothered on the day in question and sends John instead this would be acceptable as the customer generally speaking just wants a plumber.
However, in an employment situation where a interview process has been undertaken then the employer expects the individual they have chosen to turn up to do their job.
This becomes more complex where self employed contracts give a right to a substation but this then boils down again to the reality of the situation and whether such individual is really allowed to send a substitute or not. Where they are not these are often found to be sham clauses drafted with the intention of creating the impression the relationship is on a self employed basis as in Megan’s case.
Financial risk
Individuals who risk their own money, purchasing assets and paying for general overhead costs and materials are usually considered to be self-employed. Self-employed people quote for work in the knowledge that the risk of additional time or costs may cause them to lose money on other engagements.
By contrast, an employee would normally be remunerated on a salary or simple time-spent basis - such as hourly or monthly and usually have very little financial risk.
Degree of integration into the organisation
The degree to which an individual is involved or participating in the structure of the organisation can indicate either employment or self-employment - do they attend meetings, functions and celebrations?
An employee may have their own desk or workspace, their own computer and a telephone number - so much so that they can be said to be integrated into the business.
A self-employed person will be unlikely to have a desk, a computer or access to the business premises without prior appointment - and generally speaking is unlikely to be integrated into a team (although again this is not conclusive either way).
Pay and Benefits
A typical employee has one paymaster –the employer and no one else.
A person who provides services to several different businesses, has numerous paymasters.
An employee will also usually receive a salary regardless of sickness, performance or holidays. A contractor who fails to turn up may simply not be paid, and may be dismissed on the spot for performing badly.
Taxation
As an employee you would not expect to have to file your own tax returns since responsibility for your taxation lies with your employer.
When self employed, an individual would carry the burden and responsibility for their own taxation and any engagement agreement would usually confirm this and indemnify the client.
The implications in respect of this when someone has been found to be an employee rather than a worker would mean that the new provisions (old provisions but being extended) that take effect at some stage year, will bite (literally!) - the ‘IR35’.
IR35’ has become a term that many organisations are very cautious about, but what exactly is it?
IR35 is a tax law that stops an individual from avoiding employment tax by treating themselves as self-employed, when they are actually working as an employee for an organisation.
It as introduced in 1999, and has been applicable to the public sector, but is planned to roll out the scheme out with same implementation of IR35 to the private sector at some stage, but it is not known exactly when which will see companies liable for employment tax where an individual obtains employee status.
Nature and Length of Engagement
Whilst fixed term contracts are not uncommon for employees, usually an employment relationship will be intended to be long term with an indefinite duration.
Where engagements are for shorter periods of time, or specific projects within a business, this is often an indication that the individual is not intended to be an employee.
Exclusivity
Given these points around financial risk and control, it is not surprising that self-employed individuals cannot be engaged on an exclusive basis. There may be requirements that they do not work elsewhere during the life of a short-term project, but in general, they cannot be subject to exclusivity clauses.
Employees conversely would be expected to devote their whole time and attention to their role. You will often find, as in Meghan’s case employment contracts contain “restrictive covenants or restraints on trade clauses” that prohibit the individual from working with a company’s competitor and these types of situations are very strong evidence pointing towards an employment relationship.
Whilst some of the above tests may be applicable others may not and whilst one might point towards being an employee that doesn’t necessarily mean that an individual will be an employee where the other tests aren’t satisfied. Assessing the status of an individual requires a robust balancing exercise looking at the tests in isolation and collectively and applying them to the facts of the particular case, which is why this particular area of employment is difficult and often misunderstood..
If you require any specific or additional legal advice which has not covered in this article above, please get in touch using the contact us form,
