Contractor found to be a worker despite being paid through a company

Written by Brabners LLP

The recent case of Community Based Care Health Ltd v Narayan [2018] confirmed that a GP providing services to an NHS provider through a limited company was a worker under the Employment Rights Act 1996.

In recent years there has been an influx of cases considering the question of whether an individual is self-employed or a worker, particularly in the gig economy. Whilst the decisions to date have helped shape the current landscape, this recent decision will be of particular interest to organisations who, either directly or through an agency, engage contractors that work via a personal services company (“PSC”). 

What were the issues in the case? 

Employment status – why does it matter?

As you will know, there are different types of employment status within the UK. An individual may be an employer, a worker or self-employed, with individuals bearing “employee” status being afforded the greatest level of protection.

It has been established through case law that the key elements for consideration when determining an individual’s employment status are: (i) existence of a contract; (ii) personal service, (iii) whether the employer is the customer or client of any business undertaking or profession carried out by the individual; and (iv) mutuality of obligation (i.e. where an employer is obliged to provide work and an individual is obliged to accept work).

The distinction is important – with employment status directly impacting the obligations owed by employers. In the wake of the tax changes to the IR35 regime (coming into force in April 2020), the question of status is arguably more pertinent than ever.

Facts

Dr Narayan, a GP, was registered with Community Based Care Health Ltd (“CBCH”), a company providing out of hours services to the NHS. Dr Narayan had been providing her services to CBCH since 2005 alongside doing locum GP work through an agency.

In October 2015, on the advice of her accountant, Dr Narayan set up a limited company, RNJ Medical Services, (“the Company”) which received payments from CBCH and from the locum work she carried out. Dr Narayan did not tell CBCH that she had set up the Company, and instead simply provided the bank details for the Company’s account. 

In November 2016, CBCH informed Dr Narayan that they were going to stop offering her work after issues arose over telephone advice that she had given and alleged shift swapping. She subsequently brought claims for unfair dismissal, race and sex discrimination, wrongful dismissal and unpaid holiday pay in the Employment tribunal.

Employment tribunal decision  

In determining Dr Narayan’s employment status, the judge considered that some of the key features were:

  • She provided her own medical equipment;
  • She did not need permission to undertake other work outside CBCH’s services;
  • She was not required to wear a uniform;
  • She had worked shifts for CBCH over many years;
  • Both parties were free not to offer work or accept work from each other; and
  • She had her own professional indemnity insurance.

Weighing up these factors, the judge concluded that Dr Narayan was a worker. As she was not an employee, her claims for wrongful dismissal and unfair dismissal failed, however she was free to pursue her claims for unpaid holiday pay and discrimination.

CBCH appealed the decision and asserted that Dr Narayan was self-employed.

Employment Appeal Tribunal (“EAT”) decision

CBCH’s first ground of appeal centred on the argument that it had a contractual relationship with the Company, not Dr Narayan herself and that Dr Narayan could no longer be considered a worker after the Company became the contracting party.

This argument did not succeed as it was not relied on in the first instance but the EAT confirmed it was bound to fail in any event. Firstly, there was a requirement that the individuals performing the out of hours service were qualified and approved in order to meet the strict performance requirements set down by CBCH and the NHS. The EAT found that the Company could not satisfy these requirements, noting that it could not “treat a patient or prescribe a drug or exercise medical judgment”. Secondly, it found that CBCH would not have been able to approve the Company without knowing that it existed.

The second ground of appeal was that the judge in the tribunal should have considered the case of Suhail v Herts Urgent Care [2011] (“Suhail”) where a GP was found to be self-employed. The EAT distinguished this case on the basis that the GP in Suhail was found to be marketing his services to whichever provider of medical services that might want to provide him with work, whereas Dr Narayan had worked shifts for CBCH over many years.

The third ground of appeal was that the judge wrongly concluded that Dr Narayan was an integral part of CBHC’s operations. The EAT disagreed, finding that the issue was one of fact for the tribunal and there was “plenty of evidence” that Dr Narayan was integrated into CBCH.

The EAT dismissed the appeal accordingly.

Learning points

The decision highlights that the question of employment status continues to depend on the specific facts of each case. It also serves as a reminder that whilst a tribunal will consider the label that parties place on an agreement, this is not in itself determinative of the true nature of the relationship (although it may be a relevant factor that will be considered). In the context of IR35, end-users using self-employed contractors should take note, as from April 2020 they will be tasked with determining the employment status of contractors and providing the reasons for the determination.

 

This bulletin is for general guidance purposes only and should not be used for any other purpose. Brabners is a Limited Liability Partnership

 

 

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