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Monday, 20 February 2012 09:15

Employees or Self Employed Workers? The Scales of Justice Tip Against WeightWatchers (UK)

Written by  Jonathan Lord
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Back in 2007, HMRC ruled that WeightWatchers' group leaders in the UK should have been treated as employees for tax purposes, with tax and National Insurance deducted by the employer. Weightwatchers UK disagreed, claiming that they were self employed, and decided to appeal the ruling.

Appeals relating to HMRC matters are held by the UK first-tier tax tribunal, and their ruling in WeightWatchers (UK) Ltd vs HMRC found that the leaders were in fact employees, resulting in a tax bill for WeightWatchers (UK) of a reported £23million.

The guidelines for identifying whether a relationship is one of employment or selfemployment are well-established, dating from Ready Mixed Concrete (SE) Ltd v Minister of Pensions and National Insurance in 1968. This case identified three key tests: mutuality of obligation (ie the obligation to give work when it is available and to accept work when it is offered); control and whether other factors are consistent with a contract of service. The Supreme Court reconfirmed these tests recently in Autoclenz Ltd v Belcher, which also ruled that tribunals should look at the obligations of the parties in practice, not just at written terms which may fail to reflect the genuine position.

In Weight Watchers (UK) Ltd & Others v HMRC the tax tribunal held that “Leaders” engaged to arrange and conduct meetings of Weight Watchers’ members were employees, despite detailed documentation describing them as independent contractors, and despite many years’ prior practice of treating them as such. Weight Watchers and several Leaders appealed on the grounds that the three tests for employee status listed above had not been correctly applied. Their appeal was rejected on all points.

In relation to the mutuality of obligation test, there was considerable discussion on the right of substitution which appeared in the Leaders’ agreements. Generally, an independent contractor will have the right to provide a substitute worker to perform his obligations, so that there is no real mutuality of obligation. In this case, although there was a substitution clause, the tribunal considered that it was fettered by fairly detailed alternative arrangements set out by Weight Watchersas to how meetings were to be conducted if a Leader was absent. In reality, therefore, the Leaders could not discharge their contractual obligations simply by providing another person. There was therefore sufficient mutuality of obligation for the relationship to be one of employment.

In relation to the control test, the Leaders’ contracts stated that they had “absolute discretion” in conducting meetings. However, it was held that the various requirements and restrictions set out in contractual and other documentation, in addition to the practical realities of the relationship, meant that Weight Watchers had sufficient control for them to be classed as employees.

The appeal tribunal also confirmed that the third “other factors” test does not require a detailed balancing exercise but is a check to ensure there is nothing which points away from the conclusion reached as the result of the first two conditions being satisfied. Therefore it was not relevant in this case.

To summarise, the factors taken into consideration by the tribunal – and which should be considered by all organisations confused with employed v self employed debates - included:

Mutuality of obligation - it was deemed to exist (the employer has to offer the work and the employee had to do it), suggesting an employee/employer relationship

  • Degree of control - Guidelines provided to the leaders were found to suggest that leaders were subject to tight control, and therefore contradicted the claim that they were self employed.
  • The ‘personal service’ provided by the leaders - Although leaders could substitute themselves for an alternative leader, WeightWatchers (UK) had a high level of control over who that leader could be, and the substitute was paid directly by WeightWatchers (UK), not the original leader. It was therefore ruled that there was no genuine right of substitution.
  • Sales of product - Sales of WeightWatchers goods did not constitute a contract between the leader and the purchaser, but WeightWatchers (UK) and the purchaser.
Last modified on Saturday, 25 February 2012 21:59
Jonathan Lord

Jonathan Lord

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