ESM0512 - Guide to determining status: Contracts – establishing the reasons for differences

Where there are differences between what happens in practice and the written contractual terms you will need to establish the reasons to decide the effect on status. If they are because of an agreed variation or sham (see ESM1007) what happens in practice will be important. If it is because the particular term has not been enforced, it is the contractual terms that will be important. Again, some examples illustrate the point.

Example 1

The written contractual term says that the engager will exercise control over how the worker carries out the work. In practice, the engager knows the worker can work without any supervision and he never needs - and does not - tell him how to do the work. Both parties agree however that the engager has the right to exercise this sort of control if he wants or needs to but the right has not been exercised. The contractual term is valid and governs the relationship but is ignored in practice.

Example 2

The written contract states the worker will be paid £1,000 to plaster three houses - the work to be completed during February 2000. In practice, the worker undertakes other work for the engager during February 2000 and is paid £300 per week.

The facts show that the original contract was not honoured because the houses were not ready for plastering. As an alternative the worker and engager agreed other work for a weekly wage. This is either an agreed variation to the contract or a new contract and it is what happens in practice that reflects the reality of the situation. But there is no suggestion that the contractual term was a 'sham'.

Example 3

The written contract states that a welder will provide all the equipment needed at his own cost. In practice, whilst the welder supplies some hand tools, all the expensive and specialist welding equipment used is supplied by the engager at no cost to the worker.

When questioned, the engager and worker agree that the intention had always been that the equipment would be supplied by the engager. They had signed the contract as they had been told it was a ‘standard contract’ that guaranteed self-employed status. The contractual term is a sham and what happened in practice represents the true agreement, which may or may not be a contract of service depending on the other factors in the case.