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What's New? > Reality is what counts in a contract

Reality is what counts in a contract

Published: 6th September 2011

Employers have been given a warning about using employment contracts to try and get round working time and minimum wage regulations.

The judgement from the Supreme Court in the recent case of Autoclenz Ltd v Belcher and others, has shown that an apparently cast-iron contract will not help an employer to avoid their responsibilities.

Instead, the Court has said, what matters is the reality of the relationship rather than the wording of the employment contract and companies must not try to outwit the system. 
Autoclenz provided car cleaning services to motor retailers and auctioneers and described their valeters as sub-contractors in their contracts, rather than employees.  The contract also said that the valeters could get other people to carry out the valeting for them; that they were not obliged to provide their services and that Autoclenz did not guarantee that it would provide work on any specific occasion. 

The aim of the contract was to make the valeters self-employed, so that they would not qualify for paid leave and the minimum wage.

But 20 of the valeters, supported by their union, brought a case against Autoclenz claiming that they were really 'workers' for the purposes of the Working Time Regulations and the National Minimum Wage Regulations.  When the case reached the Supreme Court, the judges ruled in their favour, saying that they were employees in spite of the wording of their contract.

In the ruling, the Supreme Court said that a contract for work or services is different from an ordinary commercial contract between parties of equal bargaining power. Very often a company that is offering work is able to present the individual worker with a written contract on a take it or leave it basis. Because of this, the Court ruled that relative bargaining power of the parties must be taken into account in deciding whether the written contract represented the truth of what was agreed, saying that they had to consider all the circumstances, not just the written word.

Said employment law expert Kim Faivelowitz of Ward Gethin solicitors:  "This case demonstrates that even if an employer comes up with an apparently cast-iron contract, it will not help them to get round the Working Time and Minimum Wage Regulations. Employers must accept their responsibilities and not try to outwit the system."

She added:  "When it comes to employment contracts, the Courts are going to be 'realistic and worldly wise', as the judges put it in this case, and will be looking beyond the wording of the contract to assess the true situation."

If you require further information on the above issue or any other employment matter, please contact a member of our Employment Law team on 01553 660033.

This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek our specific advice.