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Worker wins “groundbreaking victory” in payroll case

Trade union Unite has won a potentially groundbreaking legal victory at the employment appeal tribunal (EAT), says the Chartered Institute of Payroll Professionals (CIPP).


The case was for the unlawful deduction of wages and employer’s national insurance contributions, as well as the non-payment of holiday pay.


Unite said this is the first time the EAT has considered a “bogus self-employment appeal involving the use of a payroll company”.


Between January and May 2016, the worker involved was employed by agency On-Site to an NHS funded hospital redevelopment project in Berkshire.


On-Site contacted the worker via text to confirm his work and told him he needed to contact an umbrella/payroll company, Heritage Solutions City, for payment.


The worker was paid weekly and was deducted a weekly fee of £18, by Heritage, from his pay which was described as management company margin – a total of £324. He was also charged the employer’s national insurance contributions – a total of £725.


Unite said that in March 2016 Heritage Solutions asked the worker to sign a ‘contract for services’, seeking to deny him the most basic worker rights, including auto-enrolment pension, holiday pay and sick pay.


Unite said the contract also attempted to authorise deductions for employer’s class one national insurance from the worker’s pay and included an ‘indemnity’ clause aimed at stopping him from pursuing any legal claims and gagging him from raising complaints with HMRC. He was told that if he did not sign the agreement his pay would be stopped – but the worker refused.


He continued to work until May 20 2016, when he took holiday and was told that he was not needed to return. At this point, he was owed £1,453 in unpaid holiday pay, as well as the management fee and employer NICs deductions.


Union said the case was initially heard at the Reading employment tribunal which dismissed the claim, believing he was not a worker having failed to properly understand the evidence provided.


The union then lodged an appeal with the employment appeal tribunal on March 3 2017, based on the tribunal wrongly applying law and reaching a perverse conclusion.


Unite appealed the case to the EAT, after the Reading employment tribunal rejected the case, wrongly finding the worker was not a worker.


The EAT case was heard in early December 2017, but Unite has only recently received the appeal court’s written judgment. The fact that the decision was made at the EAT means that it is binding on all employment tribunals and must be applied in other cases.


According to Unite the employment appeal tribunal found:

  • The tribunal was wrong to decide the worker was not a worker;
  • When determining whether there was a contract (part of the test of whether someone is a worker) the tribunal must consider the intentions of the worker and all surrounding circumstances, not just the intentions of the employer;
  • There was a contract between the worker and On-Site - importantly, the use of a payroll company did not circumvent this relationship;
  • The worker (and therefore other agency workers being paid through payroll companies) could be a worker of the agency, the payroll company or both. The possibility of being a worker of more than one body provides the opportunity to dramatically reduce the amount of umbrella/payroll company rip-offs.

The case has now been returned to the employment tribunal, to determine who the worker’s employer was, whether it was On-Site, Heritage or both. The tribunal will also decide on the worker’s compensation, which is expected to be around £2,500.

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