The case of Autoclenz Ltd v Belcher & Ors, heard in the Supreme Court on 11 and 12 May 2011, is concerned with the employment status of individuals.  In particular, the case examines whether a worker expressly described as self-employed in their contract can be deemed to be an employee in light of the true nature of the relationship between the parties.

Background facts

The 20 claimants in this case worked as car valeters for Autoclenz Ltd on a piecework basis, buying their own materials and uniforms from Autoclenz, paying for their own insurance and paying tax and National Insurance as self-employed contractors.   The Valeters signed documents stating that they were self-employed and that they were not and would not become employees of Autoclenz.

In 2007, Autoclenz required the valeters to sign new contracts, purportedly to clarify certain matters.  If any of the valeters refused to sign this new contract, they would not have been offered further work.  The new contract contained a substitution clause entitling the Valeters to engage other individuals to carry out the valeting on their behalf.  It also added a ‘right to refuse work’ clause, providing that the valeters would not be obliged to supply their services on any particular occasion, nor would Autoclenz be obliged to engage their services.  The contract expressly stated that the relationship between Autoclenz and the valeters was one of client and independent contractor.

The valeters sought a declaration that, notwithstanding the terms of their contract, they were in fact employees of Autoclenz and were therefore entitled to various employment rights (for example, the right to claim unfair dismissal and to receive payment on redundancy).

In the alternative, it was argued that the valeters were at the very least “workers”.  A worker is, broadly speaking, someone who undertakes personally to do or perform work or services, but is not a client or customer.  An employee will always be a worker, but a worker will not necessarily also be an employee.  If the valeters could establish that they were workers, they would be entitled to claim for unpaid wages, holiday pay, or failure to be paid the national minimum wage.

Autoclenz’s position is that the valeters were merely self-employed contractors and are not therefore entitled to the statutory rights of an employee or a worker.

Legal issues

The key issue is whether, in a contract that expressly denies the basic tenets of mutuality of obligation and personal service, an employment relationship can be said to exist.  In the evidence before the employment tribunal it was clear that Autoclenz expected an individual who was not coming into work to give adequate notice of his absence, which suggests that there was an obligation on the individual to provide their services personally and a joint intention that they would come to work each day to do so.  It was also accepted in evidence that the valeters were ignorant of their right to engage substitutes and none had ever done so (which suggests that no such right did in fact exist).

Previous decisions

The employment tribunal held at first instance that the valeters were both employees and workers, based on the significant degree of control exercised by Autoclenz over the valeters (in terms of hours, pay, materials and the terms under which they worked generally) and the fact that they were fully integrated into the business.  The Tribunal also relied on the reasoning adopted in the Employment Appeal Tribunal decision of Consistent Group Ltd v Kalwak [2007] IRLR 560 that the reality of the situation, rather than any express contractual provisions, should prevail if the latter contain unrealistic demands that do not reflect and are wholly inconsistent with the actual nature of the relationship.

The EAT partly reversed the Tribunal’s finding.  It held that the valeters were not employees but were workers, on the basis that the contractual provisions were genuine and were intended to reflect the relationship between the parties.  The EAT relied in this regard on its view that the Court of Appeal had subsequently reversed the decision in Kalwak, and so this was no longer good law.

The Court of Appeal, however, reinstated the first instance decision that the valeters were all employees and workers.  The court’s reasoning was that, where there is a dispute as to the legitimacy of a written term in a contract, the focus of the enquiry should be to discover the true intentions and expectations of the parties.  The starting point is the contractual documents, but the Tribunal may also ask whether the parties ever realistically intended or envisaged that the written term would be carried out, taking into account the conduct of the parties.  The decision was once again appealed.

It will be interesting to see whether the Supreme Court does now ultimately follow this new path trodden by the tribunal and Court of Appeal in allowing individuals the statutory protection afforded by employee (or worker) status in contradiction to their contractual agreements.  Such a decision would seem to signify a move away from the strict interpretation of black letter law, to a position in which the practical reality of a relationship is of equal or more importance.