Difficulties can occur in identifying the true legal status of staff even where both parties believe that they have agreed to a self-employed status. These difficulties may prove expensive for employers if the legal status has been incorrectly categorised for any length of time.
Thus in the case of Young & Woods Ltd –v- West [1980 IRLR 201] both parties agreed at the outset that the worker was self-employed but the Court of Appeal held that he was nevertheless an employee. A consequential problem particularly for the employer in such a matter is that HMRC may revisit the tax position, re-categorise the individual as an employee and then make demands for substantial income tax and national insurance arrears perhaps going back several years. If the worker does not have funds, the employer may be pursued directly for the worker's income tax arrears upon the basis that the PAYE system should have been operated for such staff from the outset. Casual staff engaged for under two years by their employers may be laid off with small risk of unfair dismissal claims. None the less if they are employees, the full PAYE and pension payments would still be applicable during their period of work.
Schools' music teachers are sometimes engaged as self-employed personnel. However if they work on school premises with the school's musical instruments and are paid directly by the school, there is a substantial risk that they would be held to be employees notwithstanding any agreed self-employed status. The risk may be reduced by ensuring that the parents or guardians of the pupils receiving music lessons, are directly invoiced by the teacher, who is then not paid at all by the school for the services rendered.
The legal status of sports coaches can give rise to similar difficulties. The risk of a sports coach being held by an Employment Tribunal to be employed rather than self-employed, may be greater, for example because of the practical difficulty of arranging for separate payments to be made by parents or guardians for general sports coaching. Team sports, such as football, cricket or basket-ball, are in any event usually regarded as part of a school's general educational provision which many families would object to paying for separately.
Cases can of course go the other way - thus:
In July 2013 the Scottish EAT had to consider the appeal of Mr Rogers a music teacher against the Employment Tribunal decision that he was not employed by the preparatory school where he gave music (bagpipe) lessons to pupils – Gordon H C Rogers –v- Craigclowan School.
Mr Rogers taught individual pupils part-time for about 13 years during which time there was no legal issue. At the outset he was given a letter setting out details of his appointment, remuneration and a notice period was also agreed. Difficulties then arose when a new Head was appointed who sought to put music teachers on a clear legal footing. Mr Rogers complained to an Employment Tribunal to the effect that the School was wrongfully treating him as self-employed but the ET found that he was a self-employed contractor being paid only for the hours he worked for Craigclowan School. However unlike the music teacher example above, Mr Rogers also provided his own musical instruments (bagpipes) selected what to teach and the manner of teaching and even had the right to substitute another teacher.
He appealed to the EAT which considered an aspect of Court of Appeal decision in Autocleanz Ltd –v- Victor J Belcher & Others [2011 4 All E.R. 745]. The EAT in dismissing the appeal of Mr Rogers concluded that the ET had correctly applied the Autocleanz decision so was entitled to conclude that he was self-employed rather than an employee.
The Supreme Court in the case of Autocleanz Ltd –v- Victor J Belcher [2011 UKSC 41] approved the following passage from the Court of Appeal Judgement (Aikens LJ):
"I respectfully agree with the view emphasised… that the circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed. I accept that frequently organisations which are offering work or requiring services to be provided by individuals are in a position to dictate the written terms which the other party has to accept. In this area of the law it may be more common for a Court or Tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and the Court or Tribunal must be realistic and worldly-wise… so the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed… this may be described as a purposive approach to the problem. If so I am content with that description".
The legal principle is that a Tribunal must always take an objective approach to an individual worker's status subject to having regard to the greater bargaining power of the employer. However an argument for employee status should not be refused "merely because he (the worker) has been content to accept self-employed status…"