The case of a self-employed construction contractor who counted as an employee: Paving the way for more employment status reappraisals?

Judgment was given in August for this case relating to employment law in the construction sector, but published in November 2022. On appeal, it was found that a self-employed contractor who was paid via HMRC’s Construction Industry Scheme (CIS) counted as an employee. Cases like these are relevant to construction companies due to the potential for it to open the floodgates for other employment status reappraisals and accompanying latent tax liabilities.

Richards v Waterfield Homes Ltd and another [2022]

Mr Lee Richards v 1) Waterfield Homes Ltd 2) Unity Build and Repairs Ltd [2022] EAT148.

The Claimant, Mr Richards, was a multi-trade carpenter who worked for the Respondents as a self-employed contractor from 2010 to 2018.

The Claimant was paid via the Construction Industry Scheme (CIS), which is unavailable to employees. The CIS scheme provides for self-employed construction contractors to have 20% of their earnings deducted and paid to HMRC.

The parties labelled the relationship as one of self-employed contractor and client, with the Claimant having ‘insisted’ on working through the CIS scheme.

However, numerous factors indicated the Claimant was an employee: the Claimant worked regular hours five days per week, did not work for anyone else, and his work was highly controlled by the Respondents.

In 2018, the Respondents in the case reorganised their workforce onto employment contracts. The contract stated that the Claimant’s employment commenced in 2018. The Claimant disputed this statement and brought an Employment Tribunal claim arguing that employment commenced in 2010.

In the first instance, the Employment Tribunal (ET) found that the Claimant was self-employed: the parties’ true intentions outweighed any indicators of employment status. On appeal, the Employment Appeal Tribunal (EAT) overruled the ET’s prior decision and held that Claimant was an employee from 2010. The parties’ intentions alone, as inferred from the use of the CIS scheme, were not determinative of employment status. Intention was just one factor to be considered alongside significant contradictory evidence.

Therefore, a person might enjoy employment status (and all the accompanying statutory rights and obligations) despite their use of the CIS. Intention is only one element of a multi-factorial test to ascertain employment status.

Will there be similar findings at other CIS sites? It is possible, particularly where the same evidentiary factors exist (e.g. integration, control, personal service). Yet, unlike the Respondents in this case, most CIS sites will not have issued an employment contract.

Link to judgment published 2 November 2022

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