In Autoclenz Ltd v Belcher and others, the Supreme Court held that courts should look outside the written terms of a contract to determine what was actually agreed, where it is argued that those terms do not reflect the reality of the working relationship.
The claimants’ contracts referred to them as sub-contractors and included clauses: (i) allowing for them to provide substitutes, supposedly meaning they did not have to do the work personally; (ii) stating that the company was not obliged to provide work and they were not obliged to do any work offered. The tribunal, EAT and the Court of Appeal all held that the individuals were employees and therefore entitled to statutory paid leave and the national minimum wage as the contractual documents bore no practical relation to the reality of the employment relationship.
The Supreme Court agreed. While a court may disregard contractual terms intended to deceive a third party, a bi-party ‘sham’ is not the only circumstance in which a court can ignore written terms. The key question is what was actually agreed? This must take into account the relative bargaining power of the parties, as the employer often holds the ‘whip hand’. In this case, the terms of the claimants’ written contracts, which were inconsistent with the true working relationship, could be ignored. As the claimants had entered into contracts under which they had to provide personal service, and there was mutuality of obligation to provide work, and perform work under the control of Autoclenz Ltd, they were employees.
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