Category Archives: Case Law

Employed or Self-employed? Correctly Label the Employment Status in Your Business

to-be-or-not-to-beSUMMARY: How can your business avoid the employee/self-employed quandary that Hermes Couriers now faces?

Are workers receiving the thin end of the wedge where their rights are concerned? You would be forgiven for thinking the answer is quite possibly “yes” in the light of numerous news reports of recent weeks and months. To date, reports of poor treatment of staff have been made, in respect of Sports Direct and Amazon to name but two prominent businesses, it would seem that Hermes Couriers is the latest company to come under the media spotlight following the compilation of a dossier of complaints that its drivers are treated unfairly. The claims primarily allege that the company has failed to pay its drivers the National Minimum Wage (“NMW”).

Hermes Couriers’s initial response is that the drivers are self-employed workers and not employees and thus not entitled to the NMW. As an individual’s employment law rights differ depending on their employment status, it is imperative that a business correctly labels that status at the outset. With case law littered with examples of those individuals who are genuinely employed versus those who are genuinely self-employed, it is reasonable for businesses to think it is relatively easy to get the label right.

So why is there still room for dispute? Quite simply because case law has given rise to a number of tests/theories which are to be applied when deciding the question. As part of our quick guide series we have identified the six key questions to be asked by businesses in these times of doubt.

The 6 Key Questions:

1. Is it the expectation that the service is undertaken by the individual or does the individual have the right to substitute him/herself with another individual?

If there is no right of substitution (or there is a right but it is a very limited right) this is more consistent with the relationship being one of employment.

2. Is the business obliged to offer work and, when offered, is the individual obliged to undertake that work?

If the business can choose, without limitation, when it offers work and the individual is likewise at complete liberty to decide whether he/she will do the work which is offered, the relationship is more consistent with one of self-employment.

3. Is the individual expected to comply with the business’s policies and procedures (such as its disciplinary and grievance procedures), internal working practices (such as hours of work) and directions/instructions for undertaking the work?

Although it is fair to expect compliance with health and safety policies by both employees and the self-employed alike, the more integrated into a business’s working practices the individual is, and the greater the degree of overall control exercised by the business together point towards an employment relationship. Likewise, if the individual is a member of the business’s various schemes offered to employees (e.g. share option, bonus or medical insurance schemes), the relationship is more consistent with one of employment.

4. Does the individual bear any risk/have the ability to benefit from any profit?

Bonus arrangements aside, if the individual runs the risk of being out of pocket financially when undertaking work for a business, this will point toward the individual being in business on his/her own account and therefore self-employed.

5. Does the individual work solely for the business or for a variety of businesses?

In circumstances where an individual performs services for more than one business at any one time there is a greater likelihood of the relationship being one of self-employment than is the position where an individual works for a number of different businesses during any given period of time. However, a degree of caution should be applied when asking this question as the issue of part-time working can arise.

6. How do the parties term the relationship and who is responsible for accounting for tax?

This last question is one where businesses often fall into difficulties. The description applied to the relationship – even when it is agreed by both parties at the outset of the relationship – is not decisive. Just because an individual has described themselves as “self-employed” does not mean they are for employment law purposes. Similarly, where parties elect to adopt the tax practices of the genuinely self-employed (such as issuing invoices for services rendered) does not automatically mean the courts will find that no employment relationship exists.

When coming to a decision about a worker’s employment status, it is necessary to consider each of the six questions opposed to taking one in isolation to the others; this explains why businesses find themselves in some difficulty when determining the employment status of its workforce. Therefore, despite HMRC’s statement to the BBC in respect of Hermes Couriers which indicates key question 6 is going to be one that receives close scrutiny in determining the exact status of the drivers, it will be the complete picture that is scrutinised.

Only time will tell whether Hermes Couriers is correct in its assertion that its drivers are self-employed. In the meantime your business can avoid similar difficulties by conducting a review of any current arrangements and practices (utilising the 6 key questions above) for those engaged on a self-employed basis.

Contact Details

If you would like more information or advice on employment status issues please contact:

+44 (0) 808 172 93 22

This update is for general guidance only and does not constitute definitive advice.

Sports Direct: Failure to Pay National Minimum Wage – A Business Model With Exploitation at its Heart? (Part 1)

14184143 - green grass  uk pound symbol against blue skySUMMARY:  The Sports Direct founder, Mike Ashley, faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct.  A month later, it was widely reported that Sports Direct’s profits had been hit.  Mr Ashley’s fortunes have not improved as this month it has been announced that shareholders will be asked to vote on whether there should be an independent workplace review – we will have to wait until September to see how this latest chapter unfolds.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

  1. Failed to pay its workers the minimum wage;
  2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;
  3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and
  4. Conducted daily physical security searches of employees.

On the back of the ever increasing publicity of how some high profile companies treat their employees, we have produced a two part series to enable you to assess whether your company is inadvertently making the same mistakes as those reportedly made by Sports Direct.  The first in this series explores the allegation that Sports Direct failed to pay its workers the minimum wage and sets out the law behind this complex issue.



HM Revenue and Customs (“HMRC”) are currently investigating allegations that Sports Direct paid its workers less than the National Minimum Wage (“NMW”) effectively saving the Company millions of pounds per year.

The underpayment allegedly arose as a result of workers being forced to undergo compulsory rigorous security checks at the end of their shifts as a theft prevention measure, adding as much as 15 minutes onto their working day (or up to one hour and fifteen minutes to their working week), which is unpaid.

In addition, it is also alleged that workers faced a 15 minute deduction from their pay for “clocking on” 1 minute after their designated start time, even if they actually arrived on site on time.


All employers are obliged to pay the NMW regardless of their size, and the NMW applies to all “workers” ordinarily working in the UK who are over compulsory school leaving age, not just employees.  This includes agency workers and apprentices.


From 1 April 2016, there are now 5 rates of NMW:

National Living Wage Workers aged 25+


Standard Adult Rate Workers aged 21-24 (inclusive)


Development Rate Workers aged 18-20 (inclusive)


Young Workers Rate Workers aged under 18 but above the compulsory school age


Apprentice Rate Apprentices either:

  1. Under the age of 19; or
  2. Aged 19 or over, but in the first year of their apprenticeship



In order to determine whether the NMW is being paid to your workers, you will need to determine their average hourly rate of pay.

On the face of it this calculation seems quite a simple one – sadly, this is not so. The average rate of pay is calculated by dividing the total amount of “money payments” that a worker earns across the relevant reference period, by the number of hours the worker has worked during that same reference period. However, what amounts to a “money payment” frequently trips up the uninitiated – see below.

The number of hours worked (known as “working time”) can also prove a tricky area for companies and one which has given rise to a raft of case law on its own. This is dealt with below.

Turning then to the relevant reference period, this is usually one month and cannot be greater than one month. However, if the worker is paid weekly or daily, then this is their reference period.

What Money Payments Should Be Considered?

Companies must exercise caution as some payments cannot be included as “money payments” for NMW purposes:

Bonus**An annual bonus paid for example in December, will usually only count for the December reference period
Commission/Incentive Payments Based on Performance
Accommodation Allowances
Allowances Paid by HMRC Dispensation Agreements


Benefits in Kind
Loans Given by the Company
Advances of Wages
Pension Payments
Lump Sum Payments on Retirement
Redundancy Payments
Tribunal/Settlement Awards
Premiums Paid for Overtime/Shift Work
Tips and Gratuities

What About Deductions From Pay?

Certain deductions from a worker’s pay can reduce their pay for NMW purposes, including deductions made by a company in respect of expenditure in connection with carrying out their duties (e.g. the cleaning or purchase of uniforms). After these deductions have been taken into account the worker must still be left with at least the NMW.

Another famous retailer, Monsoon, was ordered to pay more that £100,000 to its employees in 2015 as a result of its practice of requiring staff to wear Monsoon clothes at work and deducting the discounted cost of the clothes from their wages. After the deduction, staff were left with less than the NMW.

Conversely, certain deductions do not reduce a worker’s pay for NMW purposes such as a deduction permitted by the contract between the Company and the worker due to misconduct.

In the case of Sports Direct, it has been reported that deductions were made from workers’ pay for lateness. If the deductions were not permitted by contract, the deduction would reduce the workers’ pay for NMW purposes.

A deduction of this nature could also amount to an unlawful deduction of wages, allowing the worker to bring a claim in the Employment Tribunal.

What Is Classed As Working Time?

Finally, a key issue for the Sports Direct case is what is actually classed as working time?

Working time is defined as any time during which a worker is working, at their employer’s disposal and carrying out their duties. There has also been recent case law demonstrating that, for those workers without a fixed placed of work, travelling time to their first assignment of the day and travelling time from the last assignment of the day may count as working time.

Against this legal backdrop, should the time spent by Sports Direct workers undergoing compulsory security checks be considered working time that is counted for NMW purposes? It is highly likely that the answer to this question is “yes”.  This is because workers are not free to leave the company’s premises until the compulsory security checks are completed.

How Can Your Company Avoid A Similar Fate?

Those companies operating in sectors where payment of the minimum wage is prevalent often adopt a proactive stance and schedule annual reviews to ensure legal compliance in this respect. These reviews can be linked to annual pay reviews or can form part of wider audits which align HR strategies to deliver the businesses’ objectives.

In any event, and at the very least, all companies need to:

  • have an awareness of the current NMW rates which are updated twice a year;
  • understand what payments can be included for NMW purposes; and
  • understand what counts as working time for NMW purposes.

This then enables a company to identify any risks which may arise on the back of the publicity surrounding high profile NMW cases such as Sports Direct; at the very least this will enable that company to tackle those risks head on.


If you would like more information on this topic, audits or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email:

This update is for general guidance only and does not constitute definitive legal advice.