Sham Contracts

On 19 November 2007, twenty car valeters issued employment tribunal proceedings against Autoclenz, which provides car-cleaning services to motor retailers and auctioneers. Despite express language in their contracts that each was a 'self-employed independent contractor', they claimed they were entitled to be paid in accordance with the National Minimum Wage Regulations (NMWR) and to receive statutory paid leave under the Working Time Regulations (WTR).

The Supreme Court has now found in the valeters' favour, finding that they were not just workers, but employees, meaning that they have right not only under the NMWR and WTR but also the full range of rights under the Employment Rights Act. In doing so, the Supreme Court judges produced a clear ruling from the highest court in the land, that employment status is ultimately determined by the reality of the working relationship – not by what is written in the contract, removing ambiguity about this issue in previous cases.

Does intention matter?

It was agreed that the claimants all knew that they were being offered a role described as and intended to be one of self-employment. But this did not change the outcome. The Supreme Court reviewed the case-law and identified some useful principles when assessing the parties' intentions, in a dispute over employment status:

The Court will consider whether the words in the written contract represent the true intentions or expectations of the parties; and not just at inception but also if and when the agreement is varied. So, the reality of how the relationship develops will often override the parties' intentions at the time of entering into the contract; and The Courts recognise that frequently, organisations offering work to individuals will be in a position to dictate the terms of the offer and that this can create an inequality of bargaining position. So, the Court will be more willing to investigate allegations that the written contract does not represent the actual terms of the relationship. In that respect employment contracts are in special category and will not be applied as strictly as commercial contracts between individuals who have equal strength in negotiation. What are the key indicators?

In reaching their conclusions, the Employment Tribunal made four factual findings in respect of the individuals' relationships with Autoclenz. These were enough to persuade the Tribunal (and subsequently the Supreme Court) that they could disregard the...