The recent high-profile case law around workers’ rights could have a direct impact on law firms which employ self-employed consultants or contractors. Alison Downie explains how to assess whether your consultants are workers, and what you need to do if they are

In the last year, a number of employment cases concerning ‘precarious work’ arrangements have hit the headlines, prompting major public dislike of employers, like City Spring, Deliveroo, Uber and Pimlico Plumbers, getting round the law and avoiding basic working rights for their low-paid staff. All the staff in question were engaged on supposed self-employed independent contractor (SEIC) contracts, but claimed to be workers and entitled to some workers’ rights: annual holiday leave and pay and the national minimum wage. They won their claims.

The dangerous presumption that because an individual pays tax and national insurance on a self-employed basis means they cannot be a ‘worker’ is wrong

Does your firm engage individuals described as self-employed, paying self-employed tax, but who carry out their work for the firm personally, have no or limited rights to substitute someone to do their work, and are integrated into your firm in some ways? A law firm ex-partner who has become a consultant, perhaps? Or a paralegal or accounts team member?

Following recent cases (and depending on the individual facts), these individuals are also likely to be legally defined as a ‘worker’, and so entitled to annual holiday and holiday pay, plus backdated pay.

The dangerous presumption that because an individual pays tax and national insurance on a self-employed basis means they cannot be a ‘worker’ is wrong: they can.

Employment status

An individual’s entitlement to statutory working rights depends on their employment status, which governs whether an individual has full, some or no employment protection.

There are three main categories, as follows.

  • Employee: where a contract of employment exists, an employee has the full range of employment rights, including protection from unfair dismissal, the right to a redundancy payment, holiday leave and pay, and sick pay.
  • Worker: has a more limited range, which includes the right to annual holiday and pay, and the national minimum wage.
  • SEIC: a very limited range of working rights, such as health and safety / working time and discrimination protection.

The case law: integration, control and substitution

The much earlier case of Hospital Medical Group v Westwood [2012] EWCA Civ 1005 really opened the doors to self-employed consultants and others working for law firms to claim entitlement to annual holiday leave and pay because they were workers. It’s highly relevant for law firms.

Here, the test was whether the SEIC was integrated into the business of the organisation to which they were providing services. If so, they were a worker and entitled to annual holiday leave and pay, regardless of the fact that they were self-employed for tax purposes.

Dr Westwood was a plastic surgeon with his own general practice, and self-employed. He also contracted to do work for Hospital Medical Group clients under an SEIC contract. Later, Dr Westwood claimed to be a worker and entitled to holiday leave and pay, backdated for two years.

The test was whether Dr Westwood was sufficiently integrated into the hospital’s business. He was: he billed the clients on the hospital’s bills, carried out his work on its premises, used its equipment, and was listed on its website, plus the hospital exercised control over his work. He won his claim.

In the recent cases, the two key tests used to decide whether an individual is a worker are ‘control’ and ‘substitution’. If the business exercises control over the individual’s work and if, in reality, they cannot freely substitute another to do the work, so must provide personal service, that is incompatible with SEIC status. As such, it was found that the individuals were integrated into the business and not separate from it.

Consultancy agreements may state that the individual is a self-employed contractor responsible for paying their own self-employed tax; can substitute another to carry out the work; and has full control and unfettered freedom in carrying out the work. But the courts can ignore such contract terms in deciding on the correct employment status if the true working arrangements are clearly different.

What do you need to do?

Law firms which engage individuals on an SEIC basis, but do not give annual paid holiday, should check again the contract terms and the day-to-day reality of the work arrangements, and consider their potential liability. Claims for back pay can be expensive.

It is highly likely that your self-employed consultants are workers, and are entitled to annual holiday leave and pay, if they are: included on your firm’s website; use your administration and resources to communicate with clients and carry out their work; use your bills and billings system to charge for their work; and use your offices.

Typically, a law firm consultant may be paid on a commission arrangement, of a percentage of work billed and paid. The number of days and the rate of holiday pay could be calculated with reference to time spent carrying out the work, and the amount of commission paid.