Contractors Or Employees?

Contractors tempted to claim employee rights are undermining freelancing.

Contractors tempted to bring claims against end users on the back of recent employment tribunal rulings, which have suggested that in certain instances they may have the same rights as employees, are putting themselves in financial jeopardy and are harming the freelancing community warns Giant group, the contractor services group.

According to Giant group, recent debate about whether contractors may be entitled to sue end users for unfair dismissal, for example, has been prompted by a spate of recent tribunal rulings and trade union agitation over the proposed Agency Workers Directive.

Matthew Brown, Managing Director, Giant group, comments, “Recent cases have raised a few eyebrows but contractors shouldn’t take them as a green light to bring claims against end-users.”

“The outcome of one case is not necessarily any indication of how tribunals will rule on future claims, particularly when you consider the often idiosyncratic nature of contractors’ individual working arrangements.”

Apart from the high chance of future employment claims resulting in expensive failure, Giant group warns that by bringing claims contractors risk drawing Revenue & Customs’ attention, possibly resulting in a retrospective demand for unpaid national insurance and PAYE.

“Logic dictates contractors can’t be self-employed and employees simultaneously. It might only be a matter of time before we see truly joined up government, whereby claims by contractors for employment rights automatically trigger tax investigations,” says Matthew Brown.

One of the main reason end-users engage contractors, Giant group points out, is that they are not employees - the more contractors resemble employees, the less attractive they will become.

Matthew Brown says, “Contractors who try to bring claims ought to consider the impact their actions have on the wider freelance community.”

The most recent significant case, Muscat vs. Cable & Wireless, which was heard last year, said that even contractors engaged through their own personal service companies might, in certain circumstances, be deemed employees of the end client.

However, according to Giant, assuming all contractors have employment rights because of the Muscat case would be a mistake.

Matthew Brown explains, “The ‘evidence’ that Mr Muscat was a disguised employee of C&W was fairly extensive. C&W made some fairly basic errors which few other end users are likely to repeat - especially now the courts have indicated precisely how they should not behave.”

Muscat vs. Cable & Wireless was the first tribunal ruling that did not involve a low paid temp - Mr Muscat was a relatively well-paid telecoms contractor. However, Mr Muscat was a long-serving employee of Cable & Wireless, who left work on Friday as an employee and returned on Monday as a contractor. C&W even paid his incorporation costs. Following incorporation, he continued to be directed on a day-to-day basis, retained an employee number and so on.

According to Giant group, momentum is now gathering against the notion that contractors should have the same rights as employees.

The Agency Workers Directive (AWD) may now be substantially re-written, or even ditched altogether, in the wake of a major EU drive to cut Red Tape announced at the end of September.

“The EU had been threatening to settle the employment rights issue once and for all but it looks as though the Lisbon Agenda, which set targets on economic deregulation and workforce flexibility in the EU, is again in the ascendancy,” says Matthew Brown.

“If the AWD rises from the dead it is likely to be in a diluted form. A number of member states, including the UK and Germany, are keen to ensure that the directive does not reduce the flexibility of their labour markets.”

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