Opinions on contracts: Case studies - example 2 - “Henry”
FactsHenry is a consultant engineer who works through his own service company.
Job description/controlClient is a large manufacturing company. Under a previous contract Henry has undertaken a broad review of a 15 year old production line and established that significant improvements could be made to the line to increase productivity. Under the current contract Henry is to produce a further report with detailed and costed proposals on the improvements and how they might be carried out with minimum disruption to production.
Henry has a free hand over how his work is carried out and when (although there is a deadline of three months for completion). However, Henry is required to keep the client fully informed about progress and the client can require Henry to modify proposals if any aspect seems unsuitable to them.
Payment basis/risk/opportunity to profitHenry is paid £70 an hour but there is a ceiling of 300 hours on the work. If Henry takes longer than this he will only be paid extra if unforeseen difficulties arise or the client insists on unreasonable changes. If the work takes less than 300 hours Henry is only paid for the hours worked.
Holiday pay/sick payNo sick pay or holiday pay paid under the terms of the inter-company contract.
Length of contract and personal factors
- The contract has a deadline of 3 months.
- Henry has worked through his company as an engineer for many years and it is accepted that the company is ‘in business’. The company has had many engagements similar to the current one and is generally engaged to provide an ‘expert’ service by clients with little engineering expertise.
- Henry has an office and computer at home which he uses for work extensively.
EquipmentHenry visits the client’s factory regularly to examine the production line and processes. The only significant equipment he uses is his own computer (to prepare the report). 70% of the work is done in his office.
- Engagement cannot be terminated ‘early’ other than following a breach of contract.
- There is no restriction imposed by the contract that prevents either Henry or his company providing services to others during the engagement.
- Both parties intend that the company is engaged to carry out the work and that Henry is not an employee of the client.
CommentsA specific task has been agreed and the client cannot shift the worker to another task. Henry has the major say over how the work is carried out and when. The client does have some right to ongoing control over the work in that regular reports are required and changes in Henry’s proposals can be sought.
Overall, control is limited.
Henry is being paid an hourly rate and there is no real prospect of his making a loss. Nevertheless he is subject to a ceiling and must complete the work in the time allowed for otherwise he will have to finish the work in his own time without further payment. This is a mild pointer to self-employment.
The fact that there is no sick pay or holiday pay due is a pointer to self-employment.
The company has a business organisation and many different clients. This is a significant pointer to self-employment.
Significant and fundamental equipment is provided by the company as is office accommodation. This points to self-employment.
The fact that the contract cannot be terminated early is a neutral factor (no right to terminate is common in engagements of this length - whether employment or self- employment.)
The fact that there is no restriction on Henry or his company providing his services to others during the engagement is a mild pointer towards self-employment.
Mutual intention for self-employment is relevant if the other factors are neutral.
Overall pictureHenry is a skilled worker who has been engaged to carry out a specific task and control over him is limited. He is paid based on an hourly rate but there is an over- riding limit within which the work agreed must be completed. There is a contract deadline of three months and the company has many other clients. Some important equipment is supplied by the company and the work is mainly carried out away from the client’s premises.
Henry would have been self-employed if engaged directly by the client and the new rules will not apply. Even if the contract had been expected to last for a longer period - say, nine months - the other factors would still have led to a conclusion of self-employment.