Ask Auntie - The risks associated with Contract Workers

March 5, 2014

Dear Auntie,

I am the CEO of a medium sized company which has around 200 employees. We use contract workers all the time because we can hire them more quickly than employees and can get rid of them when we need to without having to worry about the sorts of convoluted processes and procedures that we follow for our employees. But I am beginning to worry about the costs. Added to this, one of our recent exiting contractors made the remark that he would “sue us for discrimination”.

Do we really have a risk here?

Mr Concerned

Many businesses like yours rely upon the services of contractors for the perceived advantages that you describe. There is also a feeling that contractors can be recruited quickly and that they allow employees to concentrate on “core” activities.

But there are disadvantages, as you have alluded to. Very often contractors cost more than the equivalent daily rate for an employee. This can lead to resentment among the employed staff. There may also be less control over the quality of the contractor’s work and the way in which they represent the business.

It is important to be cautious in the exercise of the perceived flexibility that comes with a contractor resource. Contract workers may have protection under the Equality Act 2010 (“EA”), in which case their rights under discrimination law will similar to those of employees.

It is unlawful to discriminate against or victimise contract workers who qualify for protection in relation to:

  • the terms on which you allow them to work or continue work; 
  • the way in which you afford them access to benefits; or 
  • by subjecting them to any other detriments. 

The duty to make reasonable adjustments also applies.

In order to benefit from the EA protection the contract worker must be employed by a person other than the principle (the end user) under a contract of employment, a contract of apprenticeship or a contract personally to do work. Contractors are likely to argue that their “employment” is either with an agency involved in the supply of with their services or with their own limited company. The key point is that they must be able to establish a relationship with the entity which obliges them to perform the work personally.

The meaning of “employment” for the purposes of the EA was considered by the employment appeal tribunal (EAT) in the case of Halawi v WDFG UK Ltd (t/a World Duty Free) at the end of last year. The case concerned a beauty consultant who was selling cosmetic products at a Word Duty Free (WDF) outlet in Heathrow airport. She provided her services through a limited company which she had formed specifically for this purpose.

The EAT found that there was no employment relationship. They found that there was an absence of control in the relationship which showed a lack of subordination or economic dependency. These are factors which are necessary in order for to have been an “employee” and therefore protected under the EA. An important factor in the decision was that there was a substitution clause. This allowed the consultant to send others in her place, and she had done this on occasion.

There was some unease expressed in this decision at leaving a potential victim of discrimination with no recourse to the law, but the court felt bound by the established principles. The consultant did not supply evidence to allow her to argue that she was employed by her limited company. This could have been an argument open to her and is no doubt one that others will seek to exploit.

The Respondents were fortunate in this case that the facts surrounding the situation, together with the way in which the Claimant had put her case, allowed them to escape the ambit of the EA. Not all businesses will be as fortunate. Very often, the requirement is for personal services may be satisfied because the contractor has been selected for the role purely on the basis of his or her personal skills and experience.

You may have risk here and the need to follow due process should never be disregarded in the case of contractors because it may become important to demonstrate the basis upon which decisions were taken.


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