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In the recent decision of Watson v Johnson and Another [2024] EAT 105, the Employment Appeal Tribunal (EAT) dismissed the Claimant’s appeal against the Employment Tribunal (ET) decision.
Facts
The Claimant was an experienced tax accountant who was employed by the Respondent from 4 October 2010 until 31 March 2019. As of 1 April 2019, the Claimant was appointed associate partner. As a result, the Claimant ceased to be on the Respondent’s payroll and to receive payments to the auto-enrolled pension scheme. The Claimant was also issued with a P45.
Towards the end of 2019, the Claimant raised concerns in relation to there being no change from when he was an employee. In January 2020, the Claimant raised concerns over the lack of any partnership agreement or written confirmation that the Respondent would pay his tax.
The relationship between the parties began to deteriorate further in March and April 2020 at the height of the Covid-19 pandemic when the Claimant had to work from home. The equity partners then decided that drawings for each associate partner should be reduced for April 2020 until the situation returned to normal. The Claimant raised a formal grievance in respect of a salary reduction. The Claimant asserted that he would be entitled to resign and claim constructive dismissal and unauthorised deduction from wages.
On 11 June 2020 a meeting took place between the Respondent’s equity partners where it was decided that previous communication received from the Claimant should be accepted has his intention to bring the 2019 agreement to an end, therefore terminating his involvement in the partnership.
ET decision
The ET had found that the Claimant had moved from being an employee of the Respondent to being a partner for the purposes of the Partnership Act 1890 and was not an employee of the Respondent. The ET did however decide that the Claimant was a worker. The indicators that did not support a finding of employment status were as follows:
The Respondent paid the Claimant without monthly deductions for PAYE and National insurance;
The Claimant was issued with a P45 which he accepted;
The views of both parties at the time were that he was self-employed, showed by his own terminology used in correspondence;
The Claimant was no longer entitled to pay for overtime worked;
The Claimant was not enrolled in auto-enrolment;
The Respondent did not require a written record or account of the holiday taken by partners;
The Claimant was exposed to financial risk.
Whilst there were indicators to support a finding of employment status, the ET balanced the various factors and ultimately decided that following the change to associate partner the Claimant was no longer working under a contract of employment. The ET found that the tax position and views of the parties had a particular weight when reaching the decision due to the particular expertise of the parties in this case.
The ET held that the Claimant was a worker because he performed his work and services personally and the Respondent was not in any sense a client or customer of the Claimant.
EAT decision
The Claimant appealed against the finding that he was not an employee. He contended that the ET had erred in finding there was a partnership agreement; that it had failed to have regard to all relevant factors and that it had reached a decision that was inconsistent with its finding that the Claimant was a worker.
The EAT dismissed the Claimant’s appeal finding that the ET was entitled to give weight to what it found to be the parties’ genuine intention that their relationship should be one of partnership; it had taken into account all relevant factors and permissibly found that there was a partnership agreement. The EAT further held that the ET had had regard to the factors pointing for and against the existence of a partnership, but had determined that the balance tipped in favour of a partnership and against the existence of a contract of employment.
What this means for you
This case highlights the importance of having as many self-employed indicators in place as possible – and it is not enough to just have them in a written agreement, the reality of the relationship must reflect the terms of the agreement.
Where there is a finding of both self-employed and employed indicators, there is a high chance that the individual will found to be a worker, which still allows them to bring various claims in the Employment Tribunal. Contact our specialist employment team for more information.
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