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Employee status ruling could affect “self-employed” individuals

Gateley Legal

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An Employment Tribunal has held that a hairdresser who was engaged on an “independent contract for services” was, in fact, an employee and not self-employed.

Read the latest on this ruling and how it could affect self-employed individuals. 

The Facts

Meghan Gorman began working for Terence Paul (Manchester) hair salon as an apprentice in 2013. On qualification, she was offered work as a “self-employed hairstylist”. The "contract for services" she was given to sign contained a number of clauses that described Miss Gorman’s status as being that of a self-employed person and included the statement that the "the individual does not wish to be an employee".

Miss Gorman worked as a stylist for six years until the salon closed in 2019 during which time, she wasn’t able to take any paid leave and when the salon closed she was told that she was not entitled to any redundancy pay. Miss Gorman brought proceedings in the Employment Tribunal claiming that the reality of the situation was that she was an employee not self-employed and that she should have been entitled to these and other statutory employment rights and protection. 

The Law

Whilst the written contract is the starting point, a Tribunal will consider all aspects of the relationship in order to determine status, with no single factor being in itself decisive. 

Factors to consider include:

  • The degree of control that the “employer” exercises over the individual;
  • The degree to which the individual is integrated into the “employer’s” organisation;
  • The requirement of personal performance and whether the individual can send a substitute;
  • The mutuality of obligation between the parties; 
  • The bargaining power in determining the employment relationship. 

The Tribunal Findings

There was no negotiation between Terence Paul and Miss Gorman when she was offered her contract. The contract included the following:

  • Miss Gorman would receive 100% of the gross fees from her clients in the salon. However, Terence Paul took 67% of her intake, claiming it was for her hairdressing chair, washbasin and other stock and services.
  • The ability to send a substitute, however in reality if she did not do the work personally then another hairdresser in the salon would get the work and she would not be paid.
  • Miss Gorman would have her own clients however, Terence Paul maintained and closely guarded the list of clients and prevented her from accessing the list.
  • Restrictive covenants lasting 12 months, prohibiting Miss Gorman from poaching other hairdressers or clients from Terence Paul, indicating that Terence Paul did, in fact, see the clients as their own and not those of the self-employed hairdresser.
  • Terence Paul would decide the price list. If they decided to offer a discount, this would affect Miss Gorman’s pay, which she had no say in.
  • Miss Gorman had specific hours or work set by the salon and had to adhere to their dress code.

The Decision

It was held that the contract simply did not reflect the day-to-day working arrangements in place or Miss Gorman’s relationship with the salon. Terence Paul decided and controlled all her working arrangements and practices. Terence Paul took all the economic decisions and bore the risk of profit and loss.

The Impact

The finding that Miss Gorman was, in fact, an employee means she now has the corresponding employee rights, including the right to notice pay, holiday pay, redundancy pay, and the right not to be unfairly dismissed or discriminated against. 

This finding will have a major impact on the hairdressing and beauty industry, where Miss Gorman’s arrangement is not uncommon. It could also affect other industries that operate a similar self-employed relationship, including dentists, hygienists and drivers. 

It also demonstrates the legal test that the Tribunal will always look at the actual reality of the working relationship between the parties and not just the wording in the contract. 

What can you do?

Companies should ensure that their agreements reflect the reality of the working relationship with the individual.

For more guidance and information regarding this ruling please contact our expert listed below.

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