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OCTOBER 2012 // FOCUS ON: EMPLOYMENT STATUS

AZETTE the quarterly newsletter of Floyd Graham & Co.

Lawyers for today’s employers

CAN YOU SPOT THE EMPLOYEE?

IN THIS ISSUE // WORKER OR SELF-EMPLOYED HOW CAN YOU TELL IF YOU HAVE ENGAGED SOMEONE ON A SELF-EMPLOYED BASIS OR IF THEY ARE A WORKER?

UMBRELLA CONTRACTS AN EMPLOYER’S GUIDE TO KEEPING DRY


Floyd Graham & Co Solicitors Lawyers for today's employers

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2 Deanery Court Grange Farm Preston Deanery Northants NN7 2DT Email: info@floydgraham.co.uk Tel: +44 (0)1604 871143 www.floydgraham.co.uk

CHAIRMAN'S VIEW Hello again FGazette readers! This is our last edition of the FGazette

Watch this newsletter and our website

for 2012 and follows an exciting

updates for further details of these

Summer. The Olympic and Paralympic

proposals and consultations which

Games demonstrated the extraordinary

will surely alter certain processes and

success that motivation and teamwork

strategies for employers (and not always in

can produce. There will no doubt be

the way intended by the government).

a difference of opinion as to whether the Games inspired our generation of

More immediately, the first stage of

employees or caused the loss of valuable

auto-enrolment of workers to workplace

working time due to employees’ Games

pension schemes officially comes into

viewing.

force today, 1 October 2012. However, for now this only applies to employers

Now we look to the future; the

with at least 250 employees and there

government’s motivation for employment

are later dates for the implementation of

law proposals has certainly not been

auto-enrolment for employers with 250

stymied by other priorities. The numerous

employees or less. Also applicable from

proposals for the near future include:

today is the increased national minimum

mandatory pre-claim ACAS conciliation

wage, which is £6.19 per hour for adults.

in relation to employment tribunal claims; changes to the cap on the compensatory

In this issue we focus on employment

award for unfair dismissal; the renaming of

status: whether an individual is an

compromise agreements as “settlement

employee, a worker or a self employed

agreements”; the introduction of

contractor – how to tell the difference and

“protected conversations”; amendments

why you would want to. As a reminder, the

to whistleblowing legislation; and financial

national minimum wage is applicable to

penalties for respondent employers

both employees and workers.

who lose an employment tribunal claim. Forthcoming consultations include those

We hope you find this newsletter useful

in relation to changes to employment

and would welcome your feedback on

tribunal rules, a new system of flexible

its content and presentation. We are

parental leave and flexible working and

of course here to answer any of your

collective redundancies.

questions.

IN THIS ISSUE // page 4 // UMBRELLA CONTRACTS page 6 // WORKER OR SELF EMPLOYED? page 8 // CASUAL WORKERS BENEFIT OR BURDEN? page 10 // brainteasers page 11 // fgC news


legislation timetable National Minimum Wage Increase

01 OCTOBER, 2012

Proposals for: • The standard adult rate will rise from £6.08 to £6.19 per hour. • The development rate (£4.98) and young workers rate (£3.68) will remain the same. • The rate for apprentices will rise from £2.60 to £2.65 per hour.

Enterprise and Regulatory Reform Bill 2012-2013 Proposals for: • A duty on the parties and ACAS to attempt pre-claim conciliation. • Introduction of “legal officers” to determine certain proceedings with all parties’ consent by way of a so-called “rapid resolution” scheme. • Additional powers for the Secretary of State. • The imposition of financial penalties to be paid by losing employers into a Consolidation Fund.

AUTUMN 2013? COMMITTEE STAGE COMPLETE. THE BILL WILL NOW PROGRESS TO REPORT STAGE IN THE HOUSE OF COMMONS

• Changes to the definition of “protected disclosures” so that in relation to whistleblowing, there would be a requirement that the qualifying disclosure is made in the public interest.

PROTECTION OF FREEDOMS ACT 2012

Some provisions in force from 10 September 2012

Changes include: • Minimum age 16 to apply for Criminal Records Bureau (CRB) check. • New test to be applied by police before including information on enhanced CRB check.

• Repeal of controlled activity, registration and continuous monitoring, and the provision of additional information by the police. In December 2012, the CRB and the Independent Safeguarding Authority will be merged into a single body: the Disclosure and Barring Service.

12 DECEMber, 2012

Pensions Act 2008: auto-enrolment

01 October 2012 to 01 February 2014

For employers with 250 or more employees on the PAYE scheme on 1 April 2012, employers will be required to automatically enrol workers who meet specific criteria into workplace pension arrangements under the auto-enrolment regime. These pension arrangements will need to meet minimum standards and employers will be required to make contributions in respect of eligible workers.

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UMBRELLA CONTRACTS

An Employer’s Guide to Keeping Dry

It is one thing for an organisation to find that its "casual workers" are in fact employees when engaged by an organisation, and another to learn that these employees are considered to be engaged by the organisation between assignments despite the fact that they have not been working. It is this latter point that is the focus of this article.


What is an umbrella contract?

●● The Court found that carers

would keep a person dry even when

Do you have any specific examples of when there is an umbrella contract?

there is no shelter, an umbrella contract

Here are some key legal decisions

out the work offered and had

preserves a casual worker’s service with

about how an umbrella contract may be

to do it personally. Further,

an organisation even when they are not

established:

the contractor was providing

Put simply, in the way that an umbrella

employed under a casual contract were in practice obliged to carry

critical care and it was therefore

working. Held - No umbrella contracts:

inconceivable that they could be

What are the consequences of an umbrella contract being held to exist?

●● Trawlermen were taken on each

relying on ad hoc arrangements

If the casual workers are “employees”,

months. The period in between

they will have some enhanced

voyages varied, but was often not

employment rights compared to

more than a few days. At the end

workers. It is length of service that will

of each voyage they were discharged

then, in some cases, dictate whether

by mutual consent.

these rights have been triggered. For

The trawlermen subsequently

example, once the employee has over

claimed redundancy payments.

two years’ service (April 2014), they can

The Court found that there was

claim unfair dismissal as well as statutory

no evidence that the men had

redundancy payments.

made themselves available for

voyage which would vary in length

There are however risks where the

or refrained from seeking or

individuals are not employees but

accepting employment from

are instead workers. As an example,

another trawler owner during

workers could claim accrued holiday pay

such periods. There was also

between a number of discrete contracts

no continuing obligation on the

where they have not worked for the

employer to offer employment to

organisation.

any particular individual.

additional liabilities after a notable

●● Wine butlers worked for a large hotel as “regular casuals”.

event such as redundancy

The Court found that although the

or a business transfer, when the

relationship had many characteristics

employees proceed to bring claims

of an employment contract, there

against the organisation for redundancy

was no mutuality

payments and/or rights under the

of obligation; the workers had

TUPE Regulations. It is only then

the right to decide whether or not

that the organisation has to face the

to accept work and were

consequences of casual workers being

free to obtain work elsewhere.

long serving employees; in some cases, the financial liabilities

Held - Umbrella contracts in existence:

of such findings can be catastrophic.

●● A lap dancer who had to attend weekly unpaid meetings was found

It is not only current employers that

to be engaged under an umbrella

need to be diligent but also those

contract even though

acquiring people by way of a business

she was not rostered to dance

transfer or service provision change.

every week. If she did not attend

Effective due diligence should not just

the weekly meetings, she was

be limited to employees but extend to

liable to sanctions including

workers and those with irregular working

fines, suspension or termination.

patterns to highlight potential risks.

5 What steps should my organisation be taking to ensure that umbrella contracts are not inadvertently created? It is vital to ensure that the contractual documentation between the organisation and workers is accurate and that the conduct of the parties reflects the written terms. If acquiring employees and workers, due diligence is key to uncovering potential hidden liabilities. For more advice and support on this complex area, please contact a member of the Legal Team.

Put simply, in the way that an umbrella would keep a person dry even when there is no shelter, an umbrella contract preserves a casual worker's service with an organisation even when they are not working.

work in between crew agreements

Often organisations only discover these

in the provision of such a service.

from several weeks to several


A WORKER OR SELF-EMPLOYED? 6

How can you tell if you have engaged someone on a self-employed basis or if they are a worker? For the purposes of the Employment Rights Act 1996 ('ERA'), there are two types of individuals who have rights they can enforce in an employment tribunal: workers and employees. Self-employed contractors fall outside the scope of the ERA and will have to rely on contractual remedies should a dispute arise. Explanation as to the rights that workers have will follow in the next article. The term “workers� includes employees, so this article considers solely how to tell the difference between self-employed contractors and workers (not the difference between workers and employees). Although this is a huge topic surrounded by a plethora of case law, we will just consider some pointers and recent case law to distinguish the two groups.

IDENTIFYING FEATURES The three features that an individual must demonstrate to show they are a worker are:

1 2 3

A CONTRACT EXISTS

The individual undertakes personally to perform work or services for another party

the other party is not a client or customer of a profession or business undertaking carried on by the individual.


DOES A CONTRACT EXIST? To determine the first limb of the test – whether a contract exists at all – a tribunal or court would consider a number of factors including whether there is “mutuality of obligation”. This means that where there is an obligation on the “employer” to provide work and an obligation on the individual to accept that work, the individual is likely to be a worker rather than self-employed. There is copious case law on the subject of “mutuality of obligation”, but we focus on other features of a worker in this article.

PERSONAL PERFORMANCE One of the principal areas of dispute is the second limb listed on the previous page; that the services have to be performed personally. For this reason, many contracts for self-employed contractors state that the individual may appoint a substitute in their place to carry out the work. However, a clause about substitution is not a simple solution to the question of whether work is performed personally; tribunals and courts will take into account whether a substitution clause accurately reflects the working relationship. This means that if an organisation has no intention of ever permitting the engaged individual to appoint a substitute in reality, there is a high risk of the self-employed contractor being held to be a worker rather than a self-employed contractor.

NOT A CLIENT OR CUSTOMER Another area of dispute is in relation to the third feature listed on the previous page; that the organisation for whom the individual performs work is not a client or customer of the individual’s business. The Court of Appeal recently considered this point in the case of Hospital Medical Group Ltd v Westwood. In this case a doctor (“Westwood”) had entered into an agreement with a cosmetic surgery clinic (“HMG”), which stated that he was a self-employed independent contractor. Westwood was engaged by HMG under this contract to carry out hair transplant procedures one day a week and he was paid by reference to the number of procedures carried out. He also worked as a GP in a separate GP practice. Westwood claimed that he was in fact a worker as opposed to a self-employed contractor for the purposes of unlawful deduction of wages and holiday pay claims. The Court of Appeal agreed that he was a worker and noted that as Westwood was an integral part of HMG, it could not be said that HMG was his customer. One of the reasons the Court of Appeal stated that Westwood was an integral part of HMG was that HMG’s marketing material referred to Westwood as “one of our surgeons”. Similarly, in the case of Bates van Winkelhof v Clyde & Co LLP, the Employment Appeal Tribunal (“EAT”) held that an equity partner (“B”) fell within the definition of a “worker”. The EAT considered whether B marketed her services as an independent person to the world in general (which would not fall within the definition of a “worker”) or whether she had been recruited by the principal, Clyde & Co (“the LLP”), to work as part of its organisation. The EAT considered that B was an integral part of “the LLP”. Under a clause in the LLP agreement, B had agreed to devote her full attention to the business of the LLP and therefore could not offer her services to anybody else; the LLP was not B’s client. There is however an appeal outstanding in relation to this case; we will keep you updated on any developments.

Why does it matter whether an individual has worker or selfemployed status? Understanding these distinctions is important when putting in place agreements and managing the risk that "self-employed contractors" suddenly claim to have rights under the ERA. However, context is everything and there is no one-contractfits-all solution to ensure that an apparently selfemployed contractor is not a worker. This is why we would advise seeking legal advice in this area.

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CASUAL WORKERS BENEFIT OR BURDEN? 8 Some employers rely heavily on casual workers as a means of creating a cost effective and flexible non-permanent workforce, which can be aligned to ever changing operational and financial objectives. A casual worker is effectively someone who does not form part of the permanent workforce, providing their services on a flexible or irregular basis. Generally, they are engaged in a variety of ways:

On an ad hoc basis:

This is usually under what is known as a zero hours contract i.e. work is not guaranteed, there is no obligation to accept work and payment will only be made for work done.

From a pool/bank of staff:

Casual workers should not be confused with temporary agency workers who are supplied via a third party agency. They have specific rights and protection under the Agency Workers Regulations 2010. The general perception is that the flexibility and informality of a casual work arrangement comes with little obligation on the organisation. This is not however correct. Even though the casual worker may not have the same employment rights as someone who is genuinely an employee, they do still have certain basic rights, which this article will uncover below. It is important to remember that the basic rights below do not require any qualifying service; they apply from the first day of the engagement. Workers (casual or otherwise) have the following rights:

The business can call upon a pool of workers when work becomes available but there is no obligation to accept the work.

Under an umbrella contract:

The worker is engaged on a series of individual contracts but there is an overarching contract which continues even when the worker is not working. There is a more detailed explanation of umbrella contracts in the first article.

●● Protection against deduction

from wages The legal prohibition on making unauthorised deduction for money owed by employees from amounts due to them such as wages, applies equally to workers. In order to make deductions the employer must ensure that its workers have, in advance, given their express written authority for any deductions to be made.

●● Protection from discrimination

on the grounds of age, race, sex, disability, sexual orientation, religion and belief The Equality Act 2010 protects a wide range of individuals including workers (with protected characteristics) in the workplace from the various types of discrimination including direct and indirect discrimination, harassment and victimisation. Organisations should note that the protection applies not only during the engagement but also to job applicants; it may even apply after the engagement has come to an end.

●● National Minimum Wage

(“NMW”) Rights Irrespective of the informality of the arrangement the national minimum wage legislation must be adhered to. Records must be kept to be able to establish compliance. Whilst workers can claim in the employment tribunal to establish their rights, HMRC can also carry out inspections and issue an underpayment notice. There are also financial penalties (£100 - £5,000), as well as risks to reputation (note that an employer was recently named and shamed for failing to pay the NMW). A worker is also protected from dismissal and detrimental treatment because they are eligible to be paid the NMW rate or they seek to ensure they are paid the appropriate rate. Compensation can be claimed in the employment tribunal.


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case unless the worker is found to be engaged under an umbrella contract. There is a more detailed explanation of umbrella contracts in the first article. NMW rates are set to increase from 1 October 2012. More information can be found on our website – National Minimum Wage Update.

●● Working Time Rights

All the rights created by the Working Time Regulations 1998 (“WTR”) apply to workers. For example, they will be entitled to certain daily and weekly rest breaks and will be subject to the maximum weekly working time limits unless they have signed an “optout”. Often casual workers will have more than one job. The time spent in other work must be included when calculating their total working time. Records will need to be kept. Workers are also entitled to the 5.6 weeks statutory paid holiday per annum. This can be a complex area to get to grips with particularly where it is not known for how long a worker might be engaged or where the engagement is made up of a number of discrete contracts. The whole situation is even more complex since the ECJ sometime ago ruled that rolled-up holiday pay is unlawful. The WTR does give guidance as to how to calculate entitlement. Any entitlement will be a pro-rated amount based on the statutory minimum of 5.6 weeks. This is the

●● The right to be accompanied at

disciplinary and grievance hearings Workers are entitled to be accompanied by a trade union representative or a fellow worker at any disciplinary or grievance hearing as well as any appeal. It would be prudent to confirm this right in any communication which confirms the meeting details. The worker does not have to be a member of the trade union to which the representative belongs and the trade union does not have to be recognised by the organisation.

●● Whistleblowing protection

Workers making protected disclosures are protected under the whistleblowing legislation in the same way as employees. They are protected from dismissal and detrimental treatment. Compensation can be claimed in the employment tribunal if these rights are breached. Organisations should ensure that the mechanism through which employees can make complaints is also available to workers and they are aware of this.

●● Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 These Regulations cover casual

workers who work part-time, allowing them to challenge less favourable treatment arising from their part-time status, where such treatment cannot be objectively justified. Irrespective of these basic minimum rights, many businesses do consider that casual workers are a welcome means of bolstering permanent head count when needed. Whilst organisations will, given the legal implications, want to contract with workers on the basis that they are not employees they need to be aware that in some cases the casual worker could be an employee from day one of their assignment, or over time their casual status could shift to that of employee. A contract stating that the individual is not an employee and there is no obligation to offer or accept work is a good place to start, but it may not always be sufficient. If however there is a dispute on the question of status an employment tribunal will look at what happens in reality on a daily basis. Those engaging casual labour over long periods of time or on a number of distinct contracts may benefit from further guidance as to how to identify and minimise the risk of individuals securing employment status and additional legal rights, over and above the ones they already have as workers.


BRAINTEASERS

Check your level of employment law knowledge with our quick quiz on EMPLOYMENT STATUS

1. Which one of the following statements about employment contracts is false? a) A contract of apprenticeship can be a contract of employment. b) A contract of employment only exists if it is in writing rather than made orally. c) A contract of employment means a contract of service and does not mean a contract for services. d) Under a contract of service, a person agrees to serve another and this is a type of employment contract. 2. Which one of the following statements about workers is false? a) A worker (rather than a self-employed contractor) normally contracts to personally perform work or services. b) Where an individual has an obligation to perform work and a business has an obligation to provide work, this is known as mutuality of obligation and is usual where an individual is a worker rather than a self-employed contractor. c) Where an individual has an obligation to perform work and a business has an obligation to provide work, this is known as mutuality of obligation and is usual where an individual is a self- employed contractor rather than a worker. d) A self-employed contractor (rather than a worker) can usually send someone else in their place to carry out work for the business.

3. Which one of the following statements about agency workers is false? a) An agency worker may not be employed by anyone. b) The reason an agency worker may try to claim they are an employee rather than a worker is because employees have greater statutory rights than workers. c) If agency workers are not employees, they do not have the right to bring a discrimination claim. d) If the "Swedish Derogation" under the Agency Workers Regulations is exercised, agency workers will have employment rights against the employment agency as employer. 4. Which one of the following statements is false for the purposes of the Employment Rights Act 1996? a) All employees are workers, but not all workers are employees. b) Workers have less extensive employment protection rights than employees. c) A worker could bring a claim for outstanding holiday pay in the Employment Tribunal but a self- employed contractor could not. d) All workers are employees, but not all employees are workers.

HAVE YOU GOT THEM RIGHT? answers below

Answers: 1b, 2c, 3c, 4d. Congratulations if you answered 3 or 4 questions correctly! You appear to have a good understanding of employment law. If you answered less than 3 correctly, please do give us a call to discuss any areas of uncertainty.

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EMPLOYMENT LAW QUIZ


newlyweds! On 28th July the very first FG & Co wedding took place. Hannah Scripps, a member of our Business Support team married her school sweetheart Rob Smith and became Mrs Smith. They were married in 11 a lovely converted barn at the Barns Hotel in Bedford and the day went absolutely perfectly, even the weather behaved itself!

Hannah (right) finally becomes Mrs. Smith!

FGC NEWs

SEE WHAT WE’VE BEEN UP TO AT FLOYD GRAHAM & CO H.Q.

welcome philip! We are pleased to announce that Philip Jackson became the newest member of our Business Support team in September. We would like to welcome Philip to the FGC team and we look forward to working with him.

cycle 4 cynthia On 23rd September 2012 the FG & Co team took part in Cycle 4 Cynthia for the second year running. Needless to say a fantastic effort was made by all who took part. All sponsorship money pledged goes to two fantastic charities – the Friends of Cynthia Spencer Hospice and Macmillan Cancer Support. Even though the event has now taken place there is still time to sponsor one or all of the Floyd Graham & Co team and if you would like to do this please contact us on info@floydgraham.co.uk or 01604 871143. An update of the amount raised will be given in the next FGazette.


SPOTLIGHT ON OUR SERVICES As a dedicated employment law and HR practice, Floyd Graham & Co Ltd provides the whole spectrum of HR and employment law services. The Spotlight feature gives us the opportunity to give you an insight into a particular service in each publication. In this edition of the FGazette, we would like to introduce you to Sentinel.

More and more of our clients are enjoying the benefits of Sentinel as it provides the complete HR and Employment Law compliance package for employers. We would be delighted to give you a live demonstration of this package. Connect with Floyd Graham & Co Solicitors

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Floyd Graham & Co Ltd

Lawyers for today's employers

FGazette October 2012  

Welcome to FGazette! The quarterly newsletter of Floyd Graham & Co - Lawyers for today's employers. In this month's edition, our focus is on...

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