Self employed contracts

Self employed contracts

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9 Feb 2018

A recent judgement on the back of the Pimlico Plumbers case revealed the importance of the substitution clause in determining the validity of self-employed status.

What is a substitution clause?

This clause, often written into self employed contracts, describes how easily person ‘A’ who signs a contract for services with a Company ‘C’ can opt to either do the work himself or send another person ‘B’ (or indeed any other person) to complete the agreed work.

Why is this important to determining self employed status?

The clause is a good indicator of whether ‘A’ is personally engaged to carry out the work. If he is personally engaged he is more likely to be considered a ‘worker’ in employment status terms and therefore would be entitled to paid holiday and certain other statutory rights. Conversely if he can send who he wants to do the work he is less likely to be personally engaged and more likely to be regarded as self employed.

What did the Pimlico case say about this?

Usefully the Court of Appeal gave some guidance about the wording of these clauses. They said in summary:

  • If A is completely free to send another person to do the work, A is more likely to be self-employed.
  • If A needs to notify C that an alternative person will complete the work and even if A is contractually required to show C that the alternative person has the required qualifications or experience A, is more likely to be self employed.
  • If C has the right to interview an alternative person and has the contractual right to reject them, A is more likely to be a worker.
  • If A is the only person able to complete the work, A is more likely to be a worker.

NB: where we refer to ‘contractual right’ it is not necessarily what is written in the contract that matters – if the reality is that A cannot provide a substitute unless C approves that substitute then this is in effect a contractual right, irrespective of the actual wording on the contract.

What other indicators of employment/self employment are important?

Courts will also consider to what extent C supervises A’s work; A’s freedom to choose how and when services are provided; how A is paid (by invoice or payroll); who provides the equipment or premises for A to carry out the work; how much work and how regularly A works for C and A’s other work activities e.g. for other Companies.

What should I now?

Review self employed contracts (your myHRdept HR Advisor can help you do this) and make necessary amendments to clauses. In the light of the recently reported Sash Windows case employers would be well advised to impose worker or employee contracts on ‘self-employed’ people even if the person is reluctant.

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