The Supreme Court’s landmark decision in the Uber case reinforced the idea that the contract is not always king when determining employment status. Courts will go behind any written terms to take into account the practical reality of the parties’ relationship. A recent Employment Appeal Tribunal (EAT) decision in the case of Ter-Berg v Simple Smile Manor House Limited and Others (“Ter-Berg”) has again highlighted the importance of written terms.
Legal Position
The Employment Rights Act 1996 distinguishes between employees, workers and self-employed individuals. The status of an individual is important as levels of employment rights and protections differ for each status, for example a claim for unfair dismissal is available to employees with two years’ service but not to workers.
The Supreme Court has identified three factors to be used when determining whether a contract of employment exists:
- Personal service and substitution rights.
- Control.
- Mutuality of obligation.
In the Uber case, the Supreme Court looked behind the contractual terms to analyse the reality of the employment relationship. The Supreme Court found in Uber that clauses in an employment contract which detail a particular type of status are void if the reality of the relationship indicates a different employment relationship.
Case of Ter-Berg
In the case of Ter-Berg, the Claimant sought to rely on the principles of the Uber decision and specifically the principle that the contract is not always king. Although the Claimant agreed that he was initially employed as a self-employed contractor, he claimed that over time the arrangement evolved: he claimed mutuality of obligation existed, he was fully integrated into the business, the employer exercised a significant degree of control over him and that he was required to provide personal service. The Claimant argued that this overrode the contract and resulted in him having employee status rather than one of a self-employed contractor.
The EAT confirmed that where there is a dispute about employment status, there is no rule that the written agreement cannot be used to infer the parties’ genuine intention. Rather, what’s required is a broader approach and a consideration of all the circumstances of the situation. In this case, the wider context indicated that the contract did reflect the true intention of the parties. The case has been remitted to a new Employment Tribunal to consider the substitution clause in the contract and the impact this will have on the Claimant’s employment status.
Commentary
This case should prove a useful reminder that the contract will often be used as a starting point when determining status. It confirms the importance and relevance of written terms but reinforces the principle from Uber that a contract is not conclusive where it does not reflect the practical reality of the employment relationship. It is therefore essential to ensure contracts reflect the reality of the relationship and when considering the engagement, employers should always pay attention to the key principles of; (1) personal service and substitution rights; (2) control; and (3) mutuality of obligation.
We encourage employers to seek advice if there are concerns regarding status or assistance is needed with the drafting of contracts.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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