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Status of construction industry contractors questioned by Tribunal ruling

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Published 6 March 2020

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An Employment Tribunal has thrown into question the status of construction industry contractors in a ruling finding that two contractors were in fact employees and should be afforded the protections open to all employed staff.

It is a decision that could have a profound and far-reaching impact on the construction industry, adding significant additional costs that may compromise the viability of many development projects.

The case – Harris and Kearny v Excel Brickworks Ltd – examined the employment status of two men, Mr Harris working as a site foreman and his son, Mr Kearny, a bricklayer. The foreman had worked for the company for 17 years, and the bricklayer for less than a year. Both had signed a ‘Self Employed Contract for Services’ and were subsequently dismissed without notice.

The building company, Excel, argued that the claimants were self-employed and sought to rely on the contract that stated they could work if and when they so decided, refuse work, use their own working methods, leave site without permission and send a substitute with similar experience and qualifications to carry out the work.

The Employment Tribunal considered the facts and determined that, in reality, none of the above ever happened and that Excel would not have agreed to Mr Harris or Mr Kearny exercising these rights under the contract. As such, regardless of the wording of the contract, in reality the relationship was one of employer and employee with the statutory benefits that arise as a result.

Tania Goodman, Partner and Head of Employment said: “The Tribunal was asked to determine whether they were, as the contract suggested, subcontractors and able to choose their hours or refuse work, or whether they were employees being directed and controlled by Excel. The Judge ruled that there were in fact employees based on their actual working practices rather than those set out in the Contract.”

Tania explains: “Around half of the country’s construction workers are classified as self-employed. This status is already under HMRC’s spotlight with the reform of IR35 taxation regime, and also with recent question marks around the legitimacy of self-employed status under the ‘gig economy’.

“This case demonstrates that simply badging an employee as a ‘contractor’ or ‘self-employed’ does not guarantee that a tribunal or court will accept this description at face value but rather will look into the reality of the working relationship and day to day practices.”

“Employers must therefore be able to show that to be truly self-employed contractors can satisfy some or all of the tests with the necessary autonomy to decide their working hours, patterns and methods and being able to send a suitably qualified substitute. If these are tests are not satisfied then they are likely to be workers or employees and, depending on their status, qualify for sick pay and holiday pay and, as employees, after two years’ service gain protection from unfair dismissal. This could add significant costs to an employer’s wage bill, and with construction projects so keenly priced may raise concerns over viability.”

This is a first instance decision and given the implications for Excel it is likely to be appealed, so watch this space.

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Shorter Reads

Status of construction industry contractors questioned by Tribunal ruling

Published 6 March 2020

Associated sectors / services

Authors

An Employment Tribunal has thrown into question the status of construction industry contractors in a ruling finding that two contractors were in fact employees and should be afforded the protections open to all employed staff.

It is a decision that could have a profound and far-reaching impact on the construction industry, adding significant additional costs that may compromise the viability of many development projects.

The case – Harris and Kearny v Excel Brickworks Ltd – examined the employment status of two men, Mr Harris working as a site foreman and his son, Mr Kearny, a bricklayer. The foreman had worked for the company for 17 years, and the bricklayer for less than a year. Both had signed a ‘Self Employed Contract for Services’ and were subsequently dismissed without notice.

The building company, Excel, argued that the claimants were self-employed and sought to rely on the contract that stated they could work if and when they so decided, refuse work, use their own working methods, leave site without permission and send a substitute with similar experience and qualifications to carry out the work.

The Employment Tribunal considered the facts and determined that, in reality, none of the above ever happened and that Excel would not have agreed to Mr Harris or Mr Kearny exercising these rights under the contract. As such, regardless of the wording of the contract, in reality the relationship was one of employer and employee with the statutory benefits that arise as a result.

Tania Goodman, Partner and Head of Employment said: “The Tribunal was asked to determine whether they were, as the contract suggested, subcontractors and able to choose their hours or refuse work, or whether they were employees being directed and controlled by Excel. The Judge ruled that there were in fact employees based on their actual working practices rather than those set out in the Contract.”

Tania explains: “Around half of the country’s construction workers are classified as self-employed. This status is already under HMRC’s spotlight with the reform of IR35 taxation regime, and also with recent question marks around the legitimacy of self-employed status under the ‘gig economy’.

“This case demonstrates that simply badging an employee as a ‘contractor’ or ‘self-employed’ does not guarantee that a tribunal or court will accept this description at face value but rather will look into the reality of the working relationship and day to day practices.”

“Employers must therefore be able to show that to be truly self-employed contractors can satisfy some or all of the tests with the necessary autonomy to decide their working hours, patterns and methods and being able to send a suitably qualified substitute. If these are tests are not satisfied then they are likely to be workers or employees and, depending on their status, qualify for sick pay and holiday pay and, as employees, after two years’ service gain protection from unfair dismissal. This could add significant costs to an employer’s wage bill, and with construction projects so keenly priced may raise concerns over viability.”

This is a first instance decision and given the implications for Excel it is likely to be appealed, so watch this space.

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