Employment Law Advocates

As I noted in my last post on this topic, it is rare to find a factor in an employment relationship that provides a knock-out point as to the nature of that relationship. However, the exception that proves the rule is tax. There is remarkably little authority on the importance of this point but my experience is that tribunals give considerably more weight to it than is strictly allowed, and for good policy reasons. It would be highly unfortunate for a person to be able to obtain the tax advantages of self-employed status with the enhanced statutory rights of an employee. The closest judicial statement in support of this proposition is from Lord Denning in Massey v Crown Life but the actual ratio of the case is rather weak, in that the label adopted by the parties is only used as a tie-breaker where there is ambiguity.

In fact, tax status can be highly significant even if the other factors point strongly in favour of an employment relationship. This is because, strictly speaking, if the parties conspire to say that someone is self-employed but their understanding is that he is really an employee, they are committing a fraud upon the Revenue, which would taint the contract with illegality in any event. In such a situation, whether the employee could enforce his rights would depend upon the level of his knowledge of the fraud and the extent to which he participates in it and benefits from it. Tribunals often have precisely such considerations in mind when making decisions about employment status and, although employers save National Insurance contributions, the employee is the main beneficiary of such an arrangement.

This means that self-employed people who had a strong bargaining position when they were negotiating their contracts, and a good understanding of any potential tax advantages, will be unlikely to persuade a tribunal that they are employees. Accountants, for example, stand no chance. The strongest claims in this area will be those in which an employer has imposed self-employed status on an employee either ignorant or indifferent about a potential benefit to him. Usually, these cases involve relatively low-paid workers in industries where everyone is nominally self-employed or where an employment contract has ended and been replaced, at the behest of the employer, with a virtually identical contract for services.