Wave of litigation expected by ‘Self employed’ contractors against companies they supply services to
The European Court of Justice (ECJ) has just delivered a decision which has substantial ramifications for all organisations who use self-employed contractors and sub-contractors. This will be particularly prevalent in the housebuilding and construction sector.
The decision is expected to result in a significant rise in Tribunal claims by those who are currently classed as ‘self-employed’ against organisations to which they provide their services, as individuals begin to question and challenge their true employment status.
If found to be a ‘worker’, rather than self-employed, they gain to benefit from holiday pay, national minimum wage rates and sick pay. This would result in a substantial increase to a firm’s cost base.
There is now even greater reason for such individuals to question the status quo, as a recent case has clarified that if indeed they are workers, their claims can stretch back 18 years to 1999, as that is when the Working Time Regulations came into force. In some cases, this will result in compensation which runs into tens of thousands of pounds.
Not heard any rumblings of such a claim?
The recently decided case of King v The Sash Window Workshop Ltd has also confirmed that such claims can be stored up and brought when the contractor ceases to provide their services to the business, many months or even years down the line. Businesses therefore face a ticking time bomb.
So what happened?
Mr King was a ‘self-employed’ UK salesman. He worked on that basis throughout his service, despite the fact that the company offered him an employment contract, and he declined it. When the company no longer required his services, they gave him notice, at which point he challenged his employment status, argued he was in fact a ‘worker’, brought proceedings in the Employment Tribunal and claimed 13 years of holiday pay.
The Employment Tribunal agreed he was a worker and awarded him holiday pay. On appeal to the Employment Appeal Tribunal, they concluded that he hadn’t been prevented from taking leave (in fact, he had done so), it was just that he hadn’t been paid. They also confirmed that English law currently provides that leave cannot be carried over from one year to the next (except in narrow circumstances), and so his claim was restricted to his annual leave entitlement for that current holiday year.
The case was appealed to the Court of Appeal, who referred the case to the ECJ. The ECJ has decided:
- The UK legislation as drafted would mean that the worker would have to take the leave and not be paid it before they could bring a claim of unlawful deduction from wages.
- That would dissuade workers from taking leave in the first place.
- This is contrary to the Working Time Directive.
- A firm would effectively benefit from a worker not taking his paid leave, and should not be able to do so. There is no reason why the firm should be able to benefit from its failure to notify the worker of their rights, and the worker should not therefore be prevented from claiming holiday pay.
- A worker can claim holiday pay where they have been prevented from taking such leave. ‘Prevented’ can include where an organisation has not notified a worker of their right to take paid leave. This can accumulate over several reference periods (i.e. holiday years).
Accordingly, the ECJ has concluded that workers who are wrongly classified as self-employed can claim back pay in respect of unpaid annual leave going back many years. This is despite the fact that the Government has attempted to restrict claims for unlawful deduction from wages to 2 years. It appears that our legislation in this regard is incompatible with EU law.
The effect is there is now more reason than ever for ‘self-employed’ contractors to challenge their employment status, as if they can show they are ‘workers’, they will be entitled to 4 weeks holiday pay per holiday year, dating back to when they started (or 1999, when the Working Time Regulations came into force, whichever is the later). There may yet be a challenge as to whether they are in fact entitled to 5.6 weeks entitlement each year, as the UK decided to give its workers more holiday entitlement than its European counterparts.
This is likely to be an area which the Unions will target, as the value of such claims has increased massively. We have already seen Unions targeting self-employed contractors in the construction and housebuilding arenas, and explaining they can assist them with bringing claims in the Employment Tribunal if they are members. Some are also using it as a means to try and obtain support for union recognition in the workplace.
It is worth carrying out an audit of your contractors and working practices to see whether you are at risk of a finding of worker status.
However, bear in mind that in the event that a contractor challenges their worker status in the Tribunal, any audit will be disclosable, unless you take legal advice upon its contents, or a Solicitor carries out the audit.
In that event, the audit would be protected by legal professional privilege, and would not need to be disclosed. It can then be used as a guide to look at ways of structuring relationships to help reduce the risk of worker status being found, or to manage the risk.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.