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When is a contractor not a contractor?

29 July 2011

In order to determine whether an individual is an employee or self-employed contractor it is necessary to look at what both parties agreed. This is typically reflected in the written terms of a contract, but may not be.

In Autoclenz Ltd v Belcher, 20 valeters described themselves as self-employed, paid their own tax, purchased their own insurance, uniforms and materials, and signed contracts which said they could choose when to attend work and send along a substitute worker. In fact, it was always intended that they would have to attend work and undertake that work themselves; the business would not have operated otherwise. The Supreme Court held that the valeters showed that the written agreement between the parties entered into was not reflected in the terms. So the true relationship was that of an employer and employee.

Previously, as long as the written contract is not a ‘sham’, (which was a high threshold test), the written terms prevailed. Now, this approach is too narrow. Employers should now bear in mind that a skilfully drafted written contract (which this one was) designed to make someone a contractor not an employee, will be disregarded if there is evidence (as there was here) that a different agreement was actually reached.

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