Scope of AWR

Who’s in Scope?

  • PAYE workers engaged by recruitment agencies (contracts for services i.e. not employees)
  • Workers employed by recruitment agencies (contracts of service, generally linked to benefits such as travel and subsistence schemes)
  • Workers engaged and supplied by umbrella companies  (should be on contracts of service to avoid MSC implications)

Who’s out of scope?

  • Managed service companies (if considered a sham, will be in scope)
  • Genuine self- employed workers (e.g. engaged by their own personal service companies (PSC))
  • Workers who are working on genuine project/deliverables basis (i.e. do not fit the criteria for working “temporarily for and under the supervision and direction of a hirer”) Reg 3(1)(a)

What is a self-employed worker?

Reg 3(2) states if the individual who is providing services to a client has a contract which “has the effect” that the client is a customer of a “profession or business undertaking” carried on by the individual then the individual is not an agency worker.

This definition of “worker” has been taken from s 230(3) of the ERA 1996, and it has also been used in the Working Time Regulations 1998 (WTR), which created a status of worker that was not quite an employee but gave an individual certain statutory employment protection rights that employees benefited from.  As an established definition in law, the interpretation of this definition has been considered on a number of occasions by the Employment Tribunal when dealing with claims by individuals that they are “workers”.

How have Employment Tribunals interpreted the definition of “worker”?

Byrne Brothers (Formwork) Ltd v Baird and others [2002] IRLR 96

Bearing in mind there was no authoritative guidance at that time the EAT in this case gave guidance as to what carrying on a business undertaking could mean:

  • The test was similar to the test to determine whether a contract was a contract of service or a contract for service and therefore relevant factors to be considered could include:
    • Degree of control exercised by the client
    • Exclusivity of the arrangement
    • Duration of the arrangement
    • Who provides equipment to perform services
    • Method of payment
    • Level of risk undertaken by the worker
    • HMRC regarding an individual as self-employed is relevant but not conclusive (note the more recent case of Autoclenz Ltd v Belcher and Others 2011 which potentially waters down the importance of any HMRC determination further)
    • The test for mutuality of obligation was important – the presence of mutuality of obligation is considered an essential element in the determination that an individual is a “worker”

Clarkson and Pensher Security Doors Ltd UKEAT/0107/09

The EAT in this case determined that that Mr Clarkson was offering his services to a client as a business undertaking notwithstanding that he had worked consistently for the client for 2 years +, the client had provided most of the equipment used by Mr Clarkson, and Mr Clarkson had never invoiced the client until after its termination.

Relevant facts which the EAT relied upon to make their decision were that the individual:

  • was not integrated into the business of the client
  • kept his own time and determined how and when he worked subject to practical considerations such as emergencies and deadlines
  • wasn’t involved in company procedures (e.g. appraisals)
  • was not paid when he did not work
  • had specialist skills that gave him a stronger bargaining position in the market place

It is important to note the cases relate to self-employed individuals and not to individuals supplied through their own limited company however the rationale used in these cases is likely to apply for AWR purposes.

If a Limited Company Contractor is outside of IR35 are they out of scope of AWR?

Whether a limited liability contractor (LCC) is a self-employed worker for the purposes of AWR will be assignment specific, and will come down to the facts of a particular assignment.  The fact that an LCC may be outside of IR35 is  persuasive given that the IR35 test  focuses on whether the individual supplied by the LCC would have (in the absence of the LCC arrangement) been regarded as an employee of the client.  However, HMRC makes decisions based on the facts of a particular case and does not necessarily apply or refer to cases in the employment tribunal on employment status or worker status, however certain elements of the tests are similar.

It is therefore feasible that a situation could arise where an individual is in scope of AWR but their LCC is out of scope for IR35.   However, from a practical perspective it does not make sense for a LCC who is arguing they are outside of IR35 to also argue they are in scope of AWR for obvious reasons!  It therefore does make sense to consider the IR35 status of a LCC as an indicator as to the individual’s AWR status.

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One comment on “Scope of AWR

  1. Carla says:

    you have such a good sense when you’re writing, please keep doing the good work.

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