Employee status: ensuring the contract reflects the relationship
A recent Employment Tribunal (ET) ruling which addressed employee status has highlighted the importance of ensuring that any contract with self-employed individuals accurately reflects the true agreement between the parties, both at the start of the relationship and throughout it. Whilst a contract may state that an individual is self-employed, the ET will examine the actual day to day behaviour of the parties to determine the correct employment status.
The case of Gorman v Terence Paul, was brought by Meghan Gorman, a self-employed hairdresser who had worked at the salon owned by Terence Paul in Manchester since 2013 until its closure in 2019. This is a common practice in the hairdressing industry and as a result of this; Miss Gorman did not enjoy the benefits or rights associated with employment.
However, Miss Gorman argued in the ET that despite being contractually classed as self-employed, she was in reality an employee because of the large degree of control Terence Paul had over her and the way she worked, notably:
- The hours that she would work, including start and finish times;
- A requirement to adhere to Terence Paul’s dress code;
- When she took holidays;
- Terence Paul retaining 67% of Ms Gorman’s earnings; and
- Controlling the products that she was required to use.
In light of the power Terence Paul exercised over Miss Gorman, the ET concluded that Miss Gorman was not in business on her own account but was, in reality, an employee of Terence Paul.
As a result of this finding Miss Gorman is now able to pursue Terence Paul for a number of employment claims including unfair dismissal, wrongful dismissal, sex discrimination, failure to provide a written statement of terms of employment and unpaid holiday pay.
The warning to employers is clear – the ET will take a very dim view of businesses who attempt to get around employment law by classifying individuals on paper as self-employed when they are in fact employees, which can have significant financial consequences.