A recent Employment Tribunal decision on the question of employment status serves as a useful reminder of the criteria applied to a dispute of this nature.

The Case

There was a preliminary hearing in the case of Gorman v Terence Paul (Manchester) Ltd, held to determine Gorman's employment status.  The preliminary hearing was convened after the Terence Paul hair salon closed, prompting the Gorman to bring claims for unfair dismissal, sex discrimination, notice pay, holiday pay and redundancy pay.  The company argued that Gorman was self-employed, noting she had signed a consultancy agreement (Agreement) some five years prior, which confirmed she was not an employee. 

Reality of Working Arrangements

The Tribunal compared the consultancy agreement to the reality of the Gorman's working arrangements.  It found that Gorman was an employee, taking into account the following:

  • The Agreement stated that Gorman could choose what time she spent at the salon. However, her actual working arrangements were strictly controlled by the company, including her working hours, whether she arrived late or finished early and when she could take holiday.
  • There was mutuality of obligation present: the company allocated clients to Gorman, she was obliged to perform the services required and the company was obliged to pay her for that work.
  • Prices were set by the company and Gorman had 67% of her fees deducted by the salon for use of the facilities.
  • The company controlled the Gorman's appointments and handled all bookings as well as making clear that she could only use certain products.
  • Whilst the Agreement theoretically allowed Gorman to send a substitute if she was not able to attend work, in practice her right of substitution was not possible. If she was unable to attend, the company arranged and paid for the her clients to be covered by other stylists of the salon. Unlike in a genuine substitution agreement, if Gorman did not provide her hairdressing services personally she would not be paid.
  • Gorman had no access to information about her clients, this was all held in a database controlled by the company.
  • The Agreement subjected Gorman to a 12-month non-compete clause following termination and also prevented her from working at a competing salon whilst the Agreement was ongoing. The Tribunal found that if she was genuinely in business on her own account then the clients would arguably be hers and the non-compete restrictions would be unnecessary.

In respect of the Agreement stating that Gorman was not an employee, the Tribunal found that she had no choice about this when she signed the Agreement, and also that she had not fully understood what she was signing.

Best Practice

This is a first instance case, so not a binding decision.  Nevertheless, it is a useful reminder of the sorts of issues that will be taken into account in the event of a dispute about employment status.  Employers should ensure the terms of any consultancy agreement reflect the reality of working arrangements, in order to minimise the risk of future dispute. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.