Freelancers who are really 'workers' can now claim holiday pay

A recent judgement on the employment status of a locum pharmacist could prove costly to pharmacy owners but a welcome bonus for some freelancers.

Grace Wooller went to Ashford Employment Tribunal in December last year to successfully challenge her employment status as a locum.

Her victory will enable her to claim unpaid annual holiday pay (5.6 weeks in total) for each of the three years she had worked for her previous employer, Paydens, a pharmacy chain.

Wooller’s lawyer Julie Calleux, from employment law specialists Employease, argued that her client's contract did not reflect her working conditions and that she was in fact a “worker” and not the “independent contractor” that Paydens believed she was.

Under the Working Time Regulations (the legislation which provides for holiday pay), a “worker” in legal jargon means “an individual who has entered into or works under (a) a contract of employment.”

Or, “(b) any other contract . . . whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”

The concept of personal service

Personal service is the key concept in the definition of a “worker”. To avoid giving an individual “worker status” and thus having to pay them additional benefits such as holiday pay, many employers include a substitution clause in the written contract between them.

This generally states that the individual can provide someone else to do the work if they are absent for any reason. Mrs Wooller had such a clause in her locum contract.

If litigation occurs (either brought by the freelancer or the taxman), a judge will not stop at the written documents. They will accept to test whether the substitution clause reflects the reality of the situation.

But here is the flaw in Paydens’ defence, according to Calleux. She argued that the clause did not accurately reflect the relationship between Paydens and Wooller.

Wooller said that on several occasions her offer to provide a replacement pharmacist was turned down by Paydens, which insisted on arranging its own cover.

In fact, Calleux argued it would be unreasonable to expect them to do anything else, given the key role of a pharmacist in any of their branches.

Right of substitution was a fiction

Paydens submitted that they had no problem accepting substitutes if they had the required qualification. But the tribunal accepted Calleux's argument that at this level of responsibility, it did not make business sense for Paydens to accept somebody they did not know.

The tribunal concluded: “The claimant was engaged to provide services personally and was a worker. The purported right of substitution was, in reality, a fiction. The respondent’s position in respect of the claimant was clear: if she could not carry out the work they wished on a particular date, they would provide an alternative - the claimant was not free to do so.”

The fact that Wooller is now considered a worker means she can pursue her claim for unauthorised deduction of wages for holiday pay backdated from the start of her relationship with Paydens.

Judgement highlights problem in other sectors

According to Employease, this decision could have a substantial impact on Paydens and the whole pharmacy sector; it could set a precedent for any locum wishing to raise the issue.

The company owns some 95 pharmacies in South East England and there are one or two people on that contract in each outlet – multiplied out, it could be a large sum, although there are no guarantees that Paydens or, indeed, other employers would have to pay out the full sum, such is the complexity of employment law.

However, the contract that Wooller and her lawyer successfully challenged was Paydens’ standard locum contract: Calleux believes it to be fairly standard throughout the industry.

In fact, Employease says the judgement serves as a reminder of what can happen in many other business sectors - any employer who inserts a substitution clause in a freelancer's contract but does not allow that individual to provide their own substitute cover during absences risks facing similar claims.

Final thoughts and recommendations

If a company employs people under a “non-employed” status,  Calleux recommends three alternative solutions for such end-users to avoid facing unpaid holiday pay claims:

1. Ensure that any contract’s substitution clause accurately reflects the relationship.

2. Offset holiday pay costs by offering a “worker” a lower rate of pay (though not below the minimum wage) with the right to holiday pay. The rate is usually 12.07% of gross salary.

3. Use a contractor who provides their services through a limited company. Then, the company is responsible for any challenges to the status of the person it provides as cover.

However, importantly for freelancers, Employease says such independent workers with similar working arrangements to Grace Wooller’s can use this decision to claim holiday pay.

Editor’s Note: This article does not constitute legal advice on any particular situation. For further information, contact Julie Calleux at Employease.

Further Reading –

Contractors’ Questions: Can I holiday as I want?

Ex-stripper defiant over ruling she was self-employed

Stutchbury IR35 case – practical advice for contractors

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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