Lawrence Rodkin, Partner at Simons Rodkin Litigation Solicitors outlines the key considerations when engaging self-employed staff or contractors.
Status of relationship
The status of a worker/ consultant is a matter of law. The parties cannot determine or agree this. In fact it is relatively common for a worker/ consultant who is purportedly self-employed to actually be an employee. There are a number of legal tests as to whether an individual is an employee or a self-employed contractor. I will not go into these tests in detail. The old fashion is test is whether the Company controls or has the right to control the method/ method of working on the part of the person. A more modern approach is whether the person is an integral part of the business.
Danger bells would start ringing where the worker only works for one Company where the person converts from an employee to a self-employed status with no change in what they actually do.
Accordingly the first matter of importance is to take a really objective view of the relationship and consider whether in practice there is a possibility that the person involved will be an employee despite the label placed upon the relationship by the parties.
In such a case serious issues can arise by continuing with the mechanics of a self-employed relationship when it is relatively clear that legally the person is an employee. The next important thing to consider is preparation of an agreement which will protect the Company in the event of an employment relationship being determined by the judge or a court.
As a minimum there should be a tax indemnity which should be required to reimburse the Company should it receive PAYE assessments in respect of employer National Insurance and income tax etc.
Remuneration and hours of work
These points frequently give raise to legal claims. If a contractor is paid by hour/day/ half day then fair enough.
It is best to endeavour to pay a contractor per hour/ by half day worked. In addition the hours when the work is to be carried out, if they are put into the agreement, then this will be beneficial but obviously be aware of creating an employment relationship by the employer excising too many functions over the way the employee caries out the work.
The ability to appoint a substitute is normally seen in self-employed agreement. This is normally a legal fiction and the last thing an employee would want is for a worker to turn up and do the work in his place! Such a clause is normally inserted into an agreement for tax reasons.
Any commission arrangement should be precisely drafted in order to avoid disputes. There may be issues in relation to post termination commission.
Confidentiality/ conflict of interest
In particular it may be desirable to create an express obligation on the part of a self-employed contractor not to solicit relevant clients/ customers after the termination of the engagement. Post termination restrictions will be subject to reasonable limitation of enforceability under the general law and will need to be carefully drafted with this in mind.
An employer has relatively good protection in relation to these items. This is due to employees being under an implied obligation of fidelity towards the employer. This operates as part of the general law. A self-employed contractor does not have such an implied term and these items need to be specifically written into the agreement to protect the Company.
I am personally very keen on shorter agreements. If you present a very long agreement to a contractor they will be wary of signing this especially if they will be working for you for a short period of time. I have come across extremely long self-employed agreements. The politics of the relationship must be considered and in my view a short agreement covering the main points which is signed by a self-employed worker is better than a longer agreement which may be difficult for a lay person to understand.
Simons Rodkin Litigation Solicitors