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Mon December 17 2018

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Landmark ruling finds against payroll company deductions

16 Feb The Unite union has won a potentially groundbreaking legal victory at the employment appeal tribunal in its battle against bogus self-employment and the use of payroll companies.

Unite took the case on behalf of pipefitter Russ Blakely against the employment agency On-Site Recruitment Solutions Ltd and payroll company Heritage Solutions City Ltd.

The case was for the unlawful deduction of wages and employer’s national insurance contributions as well as the non-payment of holiday pay. It is the first case of an employment appeal tribunal considering a bogus self-employment appeal involving the use of a payroll company.

 Unite appealed the case after the Reading employment tribunal rejected the case, determining that Mr Blakely was not a worker.

 The employment appeal tribunal (EAT) case was heard in early December 2017 but Unite has only now 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, the union notes.

 The employment appeal tribunal found:

•          The tribunal was wrong to decide that Mr Blakely 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 Mr Blakely and On-Site (the agency) – importantly, the use of a payroll company did not circumvent this relationship

•          Mr Blakely (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 deductions.

Unite assistant general secretary Howard Beckett said: “This is a groundbreaking victory secured by Unite’s Strategic Case Unit in the fight against bogus self-employment in construction and other sectors. It blows a hole in the way that employment agencies hide behind payroll and umbrella companies and pretend that they are not responsible for the employment of the workers they recruit.

“The fact the EAT held that a worker could be jointly employed by two organisations is a game changer in the campaign against bogus self-employment. Unite will be ensuring that the EAT’s findings are fully utilised to ensure that other workers are not denied their basic employment rights or exploited by agencies and parasitical payroll companies.

“This decision sends out an unequivocal message to all those involved in bogusly self-employing workers, Unite and our Strategic Case Unit is on your case. Whilst this isn’t the type of appeal that a mistreated worker might bring on their own, employers should beware, as Unite members have the unwavering support of the country’s largest trade union.”

From 19th January 2016 until 20th May 2016 Mr Blakely was employed by On-Site on the NHS-funded Broadmoor hospital redevelopment project in Berkshire. Confirming he was to undertake work on the project, On-Site texted Mr Blakely and informed him that he needed to contact payroll company Heritage Solutions City Ltd for payment.

Mr Blakely was paid weekly and was deducted a weekly fee of £18 by Heritage from his pay (described as management company margin). He was also charged the employer’s national insurance contributions, labelled on his payslip as ‘HMRC Payment NIERS’. In total he was charged £324 in management fees and £725.59 in employer national insurance contributions (NICs).

In March 2016, Heritage Solutions asked Mr Blakely to sign ‘a contract for services’, denying him such rights as auto-enrolment pension, holiday pay and sick pay.

The contract also attempted to authorise deductions for employer’s class 1 national insurance from Mr Blakely’s pay and included an ‘indemnity’ clause aimed at stopping him from pursuing any legal claims or raising complaints with HMRC. He was told that if he did not sign the agreement his pay would be stopped. Mr Blakely refused to sign.

He continued to work until 20th May 2016, when he took holiday and was told that he was not needed to return. Mr Blakely was owed £1453.50 in unpaid holiday pay, as well as the management fee and employer NICs deductions.

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


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