Consultancy agreements for the self employed

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Our employment law team are specialists in advising on consultancy agreements and self-employed contracts. If you would like to retain us as your legal adviser, please refer to the employment contracts page or call us on 0845 225 2635.

Employment status: is this genuine self-employment?

It is very important to ensure that, in terms of the actual reality of the agreement between the parties, (as appose to what is merely written down!) the individual is genuinely self-employed. For more on this, take a look at our section on employment status.

Key terms in a consultancy agreement

Usually in a consultancy agreement you would expect to see:

• Termination provisions setting out notice periods etc. Unlike a contract of employment there is no statutory right to claim unfair dismissal, however there may be claims for damages arising out of wrongful breach;
• Employment status: there is usually a clause which sets out that the parties agree that the individual is self-employed and not an employee or a partner. This is not “determinative” – in other words, just because this is what the parties agree, does not mean that the courts will agree too! Such clauses sometimes contain an indemnity making the individual liable for any costs which arise out of the status being wrongly applied.
• A definition of the services. This can be very important in some circumstances in order to establish whether the contract has been performed properly.
• A “substitutes clause”. This is often included as any requirement for the personal service of the individual may make the agreement more like a contract of employment. A substitutes clause determines that the individual may send someone else to do the work. In reality whilst such clauses are included to protect the parties’ position it will only be effective if the clause is actually used.
• An insurance clause. Generally speaking it is a good idea for all sorts of reasons if the individual has their own insurance, e.g. public liability insurance. Apart from the protection it offers the individual it also makes the individual “look like” a self employed person as no employee would have such insurance.

What is the risk?

If the parties wrongly attribute self employed status on someone who is actually an employee, there are three principle (substantial) risks:

• The individual may claim unfair dismissal on termination;
• The Inland Revenue may wish to have had tax and national insurance deducted at source and may wish for an account of sums owed;
• The individual may be entitled to holiday pay (this may be so even if they are a “worker” as appose to an employee.