Employed or Self-Employed - that is the question

Dear Auntie,

I am a partner in a small financial advisory firm which is an appointed representative of a major network.  We hire a number of independent financial advisors as sales consultants on a self-employed basis. I’ve heard that following a recent decision in the employments tribunal, consultants are now to be regarded as employees as a result of their regulatory status. How can this be?       

Yours,
Mr F U Ming

 


Dear Mr F U Ming

The employment tribunal case which you refer to is Johnson-Caswell v MJB (Partnership) Ltd. It is very unlikely to be greeted with open arms by firms like yours in the financial services industry.

MJB were Appointed Representatives of a principal firm, Burns Anderson, which ensured that MJB complied with the FSA rules. Johnson-Caswell was hired by MJB as an independent financial advisor. His contract stated that he was self-employed and required him to comply with strict directions, instructions and training requirements to ensure compliance with the FSA regulations. On termination of his self-employed role, Johnson-Caswell brought a number of claims, including unfair dismissal against MJB. A pre-hearing review was required to determine whether Johnson-Caswell was an ‘employee’ and was therefore entitled to proceed with his unfair dismissal claim. The tribunal held that he was in fact an employee.

The tribunal came to this conclusion because by imposing strict training and supervision obligations on Johnson-Caswell to ensure compliance with FSA standards, MJB had a sufficient element of ‘control’ over Johnson-Caswell’s work so as to be treated as an employer. The tribunal also noted that there were other aspects of the contract between MJB and Johnson-Caswell which were more in keeping with an employment contract than a contract for services, such as the post-termination non-solicitation clause.

So why is this decision important? Under the Equality Act 2010, a person in employment, whether under a contract of employment (employee) or under a contract personally to do work (self-employed contractor) can bring claims for discrimination. However, despite being protected against discrimination, self-employed contractors do not enjoy all the legal protections which an employee would. As well as not having the right not to be unfairly dismissed, self-employed contractors do not enjoy the statutory rights of an employee in relation to families and pregnancy circumstances. For example, they do not have the right to statutory maternity or paternity pay, or ordinary and additional maternity leave. They also do not enjoy the rights which an employee has regarding redundancy such as a statutory redundancy payment or collective redundancy consultation. These are just a few of the imbalances between rights enjoyed by employees and non-employees. It is easy to see why an employee is more expensive than a self-employed contractor for a business and how employees come with greater liabilities and risks.

This decision appears to have had very little regulatory input and the employment tribunal appears to have no regard of the consequences that this decision may have in the financial services sector and other highly regulated sectors.

We anticipate that this decision will be challenged in the future. However, you would be well advised to seek legal opinion before entering into contracts with consultants on a self-employed basis  to ensure that you reduce the risk of finding yourself liable for unexpected employees whilst at the same time complying with the rules set by the FSA.

Peter Wright (pwright@foxwilliams.com) is a partner at Fox Williams LLP.

 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.