Self-employment contracts come in for scrutiny following the City Link collapse

MPs who investigated the closure of City Link have called upon the government to take tougher action on employers who use “bogus self-employment” and zero-hours contracts. The criticism of the business practices at City Link makes it increasingly important for companies to be aware of when it is appropriate to use independent contractors, and when taking on employees is the most viable option.

The problems at City Link

On 24th December 2014, City Link went into administration. This led to an investigation and subsequent report, entitled “The impact of the closure of City Link on Employment”, produced by the Business, Innovation and Skills Committee, and the Scottish Affairs Committee. The collapse of the company resulted in a loss of up to 3,000 jobs nationwide, with 1,000 of those who lost their jobs either self-employed or agency staff.

The report has criticised the actions of City Link, and its owner Better Capital, in the period prior to administration. After finding that City Link was financially incentivised to avoid the consultation period with employees, the report has argued for changes to the statutory redundancy period. However, perhaps most significantly, MPs accepted the analysis prepared by the RMT Union that showed that City Link’s self-employed drivers were in fact direct employees “in everything but name”.

In holding that the contracts for self-employed drivers were “bogus”, the report deemed that City Link had acted unfairly in denying the drivers the full extent of rights attached to employee status. Accordingly, MPs have called upon the government to take tougher action on employers that use such “bogus self-employment contracts”, and those employers that exploit staff on zero-hours contracts.

Employee or independent contractor – does it matter?

In law, employees – those staff who are directly employed by a company – enjoy greater protections than those who provide work as self-employed, independent contractors. Unlike such contractors, employees are entitled to paid holidays and statutory sick pay, receive the national minimum wage, along with maternity or paternity pay, and pension contributions. Employees also enjoy the right not to be unfairly dismissed after they have provided two years of continuous service.

As such, independent contractors can be an attractive option for a company looking to hire: the employer avoids the rights and protections listed above, and additionally gains flexibility and freedom – only engaging the individual when work is needed – along with making tax and National Insurance savings. However, the hiring of employees is sometimes necessary, and can also be a more attractive option.

Where a business needs a certain level of control over staff, including how they conduct their duties, and the ability to ensure that they do not have the option to refuse shifts, hiring an employee can be the only option. However, the MPs have taken issue with employers who expect such control but label the individual as an independent contractor.

Assessing whether staff are likely to be deemed employees

With increased scrutiny directed towards the terms of engagement, it is important for businesses to ensure that they have the correct contractual terms in place for their staff. If a contract were to be challenged, an employment tribunal would look behind any labels and examine for the hallmarks of an employment relationship.

When looking at whether an individual is an employee or an independent contractor, the tribunal is likely to take a range of factors into account, including;

• Does the individual work a set number of hours a week? Are they paid hourly, weekly or monthly?
• Is the individual obliged to undertake the work personally? Can they refuse a shift or do they have to take the work offered?
• What level of control is there? Is the individual told what to do, or how, where or when to do it?
• Is the individual prevented from working for other businesses?
• Do they receive any benefits in kind? Do they receive overtime or bonuses?

Employment law advice for employers

Find out how we can help you settle disputes and stay on the right side of the UK’s ever-changing employment law by calling us on 01895 207892, or email your details to employment@ibblaw.co.uk.