Worker ruling may cost firms ‘millions’

Contractors should prepare themselves for millions of pounds in claims after a ruling on self-employed workers' entitlements.

This follows Redrow Homes' failure to overturn an employment appeal tribunal (EAT) decision that a number of self-employed operatives on its sites were "workers" within the terms of the Working Time Regulations and thus entitled to holiday pay.

The judgement may prove as significant as the ruling on rolled-up holiday pay (CJ 6 May).

The Court of Appeal in London said the EAT in the Redrow case had reached the right decision - although for the wrong reasons. It was accepted that the men were not employees. They were engaged on CIS4 terms. But the court said the key issue in deciding whether they were "workers" for the purpose of the regulations was not the manner in which they had agreed to supply services and be paid, but whether or not they undertook the work personally.

"The ramifications of this decision will be enormously widespread," said Nichola Upperton-Evans, an employment law expert at law firm Rowe Cohen.

She said it could affect thousands of building workers and cost the industry millions of pounds a year. "If claims are backdated to 1998, it could even put some contractors out of business."

Upperton-Evans added: "It has generally been the practice that jobbing freelance scaffolders, bricklayers, electricians and the like were regarded as trading on their own as self-employed entities and were therefore responsible for their own tax, National Insurance, VAT, insurance, pensions, and holidays.

"The Appeal Court now says that some are presently - and since 1998 have been - workers with the same entitlements as permanent staff because they do the work personally. I am staggered to think about the consequences."

Employers should now prepare themselves for "an avalanche of disputes and claims", she said.

On behalf of Redrow, it was argued that there was no contractual obligation on the operatives to do the work personally. But the court held that this plainly was the intention.

Alison Humphrey, of Rowley Ashworth, represented bricklayer Bernard Wright at the Court of Appeal. "In essence, the court is requiring tribunals to have regard to the reality of each particular contract and to the parties' expectations as to whether they are required to perform work personally," she said.