• International Workplace
  • 25 April 2017

Major legal challenge to counter bogus self-employment culture launched

A major legal appeal case has been launched at the Employment Appeals Tribunal (EAT) to tackle bogus self-employment in all sectors.

The case is the first appeal launched by union Unite’s new Strategic Case Unit, which will focus much of its work on tackling bogus self-employment and contracts in all sectors. The case is significant as the EAT’s decision on the appeal will set a legal precedent, which Employment Tribunals nationwide will be obliged to follow when dealing with claims involving agencies and employers that utilise unlawful payroll or umbrella companies. 

The case concerns Unite member, Russ Blakely, who was employed as a pipefitter on the NHS funded Broadmoor hospital redevelopment project in Berkshire, from 19 January 2016 until 20 May 2016.

The main contractor was Kier and the mechanical contractor was Fascel. Mr Blakely received a text from employment agency On-Site Recruitment Solutions Limited to confirm he was to undertake work on the project and that he needed to contact an umbrella/payroll company, Heritage Solutions City Limited for payment.

Mr Blakely was paid weekly and was charged a weekly fee of £18 by Heritage for his pay (described as Management Company Margin). He was also charged the employer’s National Insurance contributions, labelled on his payslip as ‘HMRC Payment NIERS’. In total, he was charged £324 in management fees and £725.59 in employer NICs.

Mr Blakely was not asked to sign any form of contract until March 2016 when Heritage asked him to sign ‘a contract for services’. This document stated that he was neither an employee nor a worker and it sought to exclude basic worker rights, including auto-enrolment pension, holiday pay under the Working Time Regulations 1998 and sick pay. The contract also attempted to authorise deductions for employer’s class 1 National Insurance from Mr Blakely’s pay and included an ‘indemnity’ clause aimed at dissuading him from pursuing any legal claims or raising complaints with HMRC (which regulates employers’ compliance with the National Minimum Wage, as well as tax matters). He was told that if he did not sign the agreement his pay would be stopped. Despite this Mr Blakely refused to sign.

He continued to work until 20 May 2016, when he took holiday and was told that he was not needed to return.

Mr Blakely took an Employment Tribunal case for unlawful deduction of wages for the management company deductions and the employer’s National Insurance. He also claimed for the accrued holiday pay he had earned and not been paid. The total claim is worth between £2,500 and £3,000.

The case was initially heard at the Reading Employment Tribunal, which dismissed the claim as it found he was not a worker. Unite lodged an appeal with the EAT on 3 March 2017 based on the Tribunal wrongly applying law and reaching a perverse conclusion. The decision is expected to provide some legal authority and protection for workers being potentially exploited by bogus self-employment arrangements that use umbrella or payroll company schemes to satisfy the taxman, but fall short of minimum worker rights.

Unite Assistant General Secretary for legal services, Howard Beckett, said:

“For too long employers, agencies and accountants in construction and other industries have believed that they can boost their profits and evade basic employment protections by classifying workers as bogus self-employed. Unite has drawn a line in the sand and will be throwing the full force of our resources behind our members who are sick of being exploited and treated as disposable units that can be hired and fired at will. 

“We expect the EAT will uphold our appeal and establish a legal precedent for employers and agencies operating these sham contracts, which bear no relationship to the actual employment relationship, and mean this exploitation loophole can be closed.

“It is astonishing that both On-Site the agency and the payroll company Heritage thought it was somehow legal and acceptable, on the one hand to deduct employer’s NI from Mr Blakely’s wages and on the other claim our member was self-employed to avoid paying holiday pay and basic minimum pension contributions, whilst charging a 'Management Company Margin' for doing so.

 “Companies big and small need to take note that Unite’s Strategic Case Unit has been set up for dealing with precisely this type of legal case and we will be shining a light on those who seek to shamelessly dodge worker rights with bogus self-employment and other precarious models and those that allow this to occur in their supply chains.”