17 Nov 2011

Weight Watchers – Lose a few pounds…

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Weight Watchers lost their employment status appeal in the Upper Tier Tax Tribunal meaning they now face a liability in excess of £10,000,000 for each year assessed!!

The outcome of the case was in no way surprising given that Weight Watchers were challenged for exactly the same thing in Australia in 1984 and very little appears to have changed since then. The Privy Council in that case (Narich) confirmed the individuals should have been classed as employees.

The judgment starts off talking about written contracts and emphasises what was said in the Supreme Court earlier in the year  in Autoclenz – basically that a court is not restricted by what is in a contract because the employer has a far superior bargaining power over the individual and can simply dictate terms to the individual in the companies favour. He also commented on clauses drafted by lawyers to give the impression of independent contractors which do not reflect the practical reality of the relationship and that the courts should take a purposive approach to the relationship rather than restricting themselves to contractual clauses.

The principles personal service and control were all considered at length.

Personal service/substitution was tightened slightly in that the judge confirmed that the occasional use of a substitute would not establish a contract is not one of self-employment – any lack of personal service must be so broad that the individual can send substitutes and never turn up for work at all.  

Control almost went back to HMRC’s way of arguing i.e. it is whether there is a right to control regardless of whether control is exercised in practice. This can be seen where the judge referred to Weight Watchers having the last word in relation to arrangements (date, time and place) and that they retained ultimate control.

The judgement covers a lot of old ground but it does clarify the understanding of many of the key principles and as it is an Appeal case it will be binding on the lower tier tax tribunal.