Employment status case affecting the construction industry

A groundbreaking case has been considered recently by the employment tribunal which has looked at whether two contractors who had signed self-employed contracts were actually employees and entitled to the benefits afforded to employed staff.

The case involved Excel – who are big in the construction industry and the employment tribunal had to consider the employment status of two men following their dismissal without notice.  Mr Harris was the site foreman who had been with Excel for seventeen years and his son Mr Kearney who was a bricklayer who had been with Excel for less than a year.

Both men had signed a ‘self-employed contract for services’ which stated that they could work when they decided, that they could use their own working methods, refuse work, leave the site without permission and send a substitute with similar experience and qualifications to undertake the work.   They were also responsible for their own tax affairs.

Employment Judge Emery determined that the relationship was one of employer and employee.  This was based on a variety of evidence which showed for example that the substitution clause was in practice unworkable due to health and safety protocols and that there had never been any attempts at substitution over seventeen years.

It was also found that Excel exercised control over the men in terms of their work and how they performed it, and also their hours of work.  In short there was mutuality of obligation which is essential in an employment relationship.

Excel pointed out the men were required to be on the Construction Industry Scheme and argued that they were responsible for their own tax affairs.  Notwithstanding this the Employment Judge ruled that in reality the men were employees.

This is an important case and although it is only a first instance authority it is likely to have ramifications for the wider construction industry where half of the industry’s workers are considered to be self-employed.    Excel have indicated that they will appeal the decision and so the story might not be over.

The lesson to be learned from this is that the status of a worker boils down to the way they actually work, and the reality of the situation as opposed to the labels that written documentation attaches to them.

It is a hard lesson for employers in this situation as they will have increased costs in terms of paying holiday pay, providing pensions, notice pay and redundancy pay.   Various employment rights also flow from this the most obvious being unfair dismissal rights.

With IR35 legislation affecting the private sector just around the corner this decision is likely to focus the minds of such workers who themselves are likely to be exposed to income tax and national insurance back pay, should HMRC decide to make an issue of this.

As always it is best to seek timely legal advice when entering into these types of arrangement to understand the pitfalls and exposure whether you are an individual or a business.

Harris and Kearney -v- Excel Brickworks Limited Case Number: 2200566/2019

For further information please contact Steven Eckett, Partner and Head of Employment seckett@meaby.co.uk and 020 7703 5034.