Self-employment may not be all it seems

Posted on January 13, 2023

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Advocate David Keates reviews a recent Isle of Man case which tackled the tricky issue of whether an ostensibly self-employed person is in law an employee.

Knowing whether a person has the status of an employee of a business or not is key to understanding the employment rights they might enjoy, such as the protection against unfair dismissal. It is important for individuals, as they will want to know what protections they might have against unfriendly acts by their “employer” and it is important for “employers”, as they will want to know what limits are placed on their dealings with these individuals.

Businesses will often seek to define those who perform work for them as “self-employed” or “individual contractors”. This can be for a number of legitimate reasons but can sometimes be because the business is seeking deliberately to frustrate employment rights that would otherwise arise, whether to save money, engage in unethical labour practices or some other reason. Unsurprisingly, the law has developed so as to curtail much of this behaviour.

In a recent Isle of Man case, the Employment & Equality Tribunal was called upon to determine the status of the complainant, a beautician. She had previously worked as a self-employed person for some time and joined the business in 2016 as an employee. In 2017, she had asked her employer if she could go back to being self-employed and they had agreed. Both parties therefore considered that she was self-employed.

After their working relationship broke down, the complainant launched a claim against the business, claiming that she had, as a matter of law, been employed by them all along. The Tribunal dealt with this matter as a preliminary issue. Ultimately, it determined that she had the status of an employee. At first blush, this may appear rather surprising, bearing in mind that she had asked to change her status to that of being self-employed and both parties had proceeded on the basis that she was. How then did the Tribunal reach this decision?

The law that the Tribunal applied is well-trod. In Carmichael v National Power the House of Lords said that the “mutuality of obligation” and the “control” elements are the “irreducible minimum” legal requirements for the existence of a contract of employment. Once those two elements have been established, the final classification of the relationship depends on the balance of all the relevant factors which may include:

  • Method of payment,
  • The obligation only to work for that employer,
  • Stipulations as to hours,
  • Overtime,
  • Holidays,
  • Payment of Income Tax and National Insurance contributions,
  • How the contract may be terminated,
  • Whether the individual may delegate work,
  • Who provides the tools and equipment, and
  • Who bears the risk of loss and the chance of profit.

After assessing each of the above factors, the Tribunal found that the complainant was an employee.

What does this mean?

Any business that is seeking to classify its workers as anything but employees should think carefully about doing so. An attempt to classify a person as “self-employed” while retaining all the benefits of control over their work that are associated with employment will be bound to fail, with potentially costly consequences.

Often, purported “self-employed” contracts still require the individual to personally perform the work, turn up when and where they are told, accept all reasonable instructions from the business etc. These are all factors pointing towards an employment relationship, not being self-employed.

Similarly, any worker who has the status of being “self-employed” but is still controlled by the business is likely to enjoy wider employment rights than they otherwise thought. They may also find that their tax position is incorrect.

David Keates is an Advocate at M&P Legal and a member of the firm’s Employment Team.

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