Company Name:  
Contact Name:  
Employees:  
Best Time to Contact:  
Your Contact Email Address:  
Any Additional Information:  

Home > Feature Articles > Importance of Accurate Documentation

Importance of Accurate Documentation

Email Update 56
The Employment Appeal Tribunal has handed down a decision in the case of Larner v Launahurst Ltd (supporting the original Employment Tribunal decision) which demonstrates the importance of having accurate documentation.

A preliminary issue to be determined by the Employment Tribunal in this case was whether or not the Claimant was an employee.

You can access Larner v Launahurst Ltd UKEAT/0188/09/MAA by clicking on the following link:

http://www.employmentappeals.gov.uk/Public/Upload/09_0188rjfhLBMAA.doc

If the Claimant was an employee he would have the right to bring an unfair dismissal claim against his ‘Employer’, whereas if he was a self-employed contractor, any claim that he could bring would be restricted to breach of contract.

Parties had entered into a ‘Contract Supply Agreement’.

In order for there to be a contract of employment, there is an irreducible minimum that must exist:

1. Personal Service;
2. Mutuality of Obligation; and
3. Control

The ‘Contract Supply Agreement’ was designed to be a contract for services (self-employed contractor agreement) rather than a contract of service (an employment agreement).

However, despite what was written in the contract, the reality of the relationship between the parties was much different: the Claimant always did the work personally; he never sent a substitute; work would be allocated by the company and the Claimant would do that work; the Claimant did not refuse work; the Claimant always gave notice to the company of proposed holidays and the company would adjust its work schedules to take account of the Claimant’s absences; the Claimant was told what to do and where to do it; the Claimant was given regular work, and was paid on a regular basis; the company provided a vehicle and paid for fuel. All these factors, and others, pointed towards the Claimant being an employee.

While the Claimant was responsible for his own tax and national insurance, which suggested that he may not be an employee, this was just one factor to be considered along with the rest.

Despite the terms of the written contract the Tribunal found that the Claimant was an employee.

The effect of the Tribunal decision is that the Claimant can now proceed with his unfair dismissal claim against his employer.

The current statutory cap on compensation, where the Employment Tribunal finds that dismissal is unfair, is £76,700.

There can be advantages for both businesses and individuals entering into a contract for services (such as self-employed contractor), rather than a contract of service (an employment agreement).

The principal advantage for the business may be that the individual will not have certain statutory rights which are only afforded to employees. The principal advantage for the employee may be that costs incurred in connection with the business can be offset against income.

However, even if parties intend to enter into a particular arrangement in order to obtain these and other advantages, the parties’ intention is just one of a number of factors that will be taken into account to determine whether or not someone is or is not an employee.

If a business gets it wrong, then they may find themselves having to pay tax and national insurance that has been unpaid during the course of the engagement. The business may also find itself defending claims that can only be brought by employees, such as unfair dismissal (and the associated costs and inconvenience), with the potential for significant compensation being awarded to the employee.

The importance of accurate documentation, suitably drafted in the first place, and actively reviewed to reflect the actual relationship between your business and anyone it engages (whether as an employee or contractor), should not be underestimated.