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Employment status: Warning for employers as HMRC gets heavy with WeightWatchers

29 March 2010

A recent ruling by HM Revenue & Customs (HMRC) is a cautionary tale for organisations that use staff they treat as self-employed.

If employers use staff they regard as self-employed, but this is subsequently challenged by the tax authorities, there can be significant financial consequences.

Weight Watchers lost a recent case brought by the HMRC in respect of their meeting leaders and now face a tax bill going back nine years of more than £23m. 
 
It is worth pointing out that a decision by HMRC on status for tax purposes will not necessarily be the same as a decision by an employment tribunal for employment rights purposes. In the recent case of Autoclenz Ltd v Belcher, for example, HMRC had assessed workers as self-employed, but the Court of Appeal ultimately decided they were employees for employment rights purposes.
 
Employment status cases are always fact sensitive and borderline cases can therefore be very difficult. However, there are some basic principles that apply in such cases.

Firstly, whether the individual is required to provide their services personally? A requirement for personal service points towards employed, rather than self-employed, status.
 
In the WeightWatchers case the meeting leaders only had a right to be paid if they personally took the meeting. Although it was possible for a substitute to take a meeting in their place, the substitute was paid directly by WeightWatchers.
 
Secondly, does the alleged employer exercise a sufficient degree of control over the individual? A large degree of control by the employer again points to employment status.

In the WeightWatchers case there was a large degree of control exercised over the meeting leaders in terms of the way the meeting was run, the leader's own weight maintenance, the obligation to sell products at a certain price, and restrictions on her participation in other weight maintenance programmes.

The final factor is mutuality of obligation – a vital aspect of employment status. In the WeightWatchers case it was not in dispute that there was mutuality between the parties – the leaders were expected to turn up and conduct the meetings at a certain time and place each week.
 
This case shows the increasing willingness of courts and tribunals to take the reality of the situation into account and not just to focus on the terms of any written contract between the parties.

This is an important trend in the case law on employment status, which many employers may not yet be aware of – the drafting of the contract will only assist if it actually reflects what goes on in practice.

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Charlotte Blount

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