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Employment Status – Weight Watchers UK Lose the Battle

09 April 2012

The recent case of Weight Watchers UK Ltd. (WW) v HM Revenue and Customs (HMRC) serves as a reminder to employers of the dangers of having contractual arrangements in place that do not match the reality of the employment arrangements of those engaged to carry out work for your organisation.

WW operated on the basis that its Leaders – former members engaged to arrange and conduct meetings for others wishing to lose weight by following the WW Programme – were self-employed, not employees of the company. The contractual relationship of those who had undergone the training necessary to become a Leader was based on a form entitled ‘Conditions Relating to Weight Watchers Leaders’, plus periodically updated policy booklets containing various mandatory provisions, such as rules regarding membership of WW. The conditions described a Leader as ‘an independent contractor and not the servant of WW’, and required them to pay their own Income Tax (IT) and National Insurance Contributions (NICs). Whilst Leaders had the discretion to fix the time, date and place of meetings, all such arrangements required specific approval from the Area Sales Manager (ASM) and were paid for by WW. Leaders were only paid if they conducted the meeting themselves. However, the conditions did contain a substitution clause, whereby a Leader who did not propose to take a meeting could find a suitable replacement. If this was not possible, the agreement stated that WW would find a replacement if asked to do so and that the Leader would give their ASM as much prior notice as possible. Where a substitute was used, that person was paid directly by WW.

However, in 2007, HMRC ruled that the Leaders were employees of WW for the purposes of IT and NICs. WW appealed against the decision.

The First-Tier Tribunal found that, on balance, the terms and conditions of the contractual relationship between WW and its Leaders were characteristic of contracts of service as opposed to contracts for services, meaning that the Leaders were employees of WW.

The Upper Tribunal agreed and dismissed a further appeal. In doing so, it took a purposive approach to the issue, paying due regard to the practical realities of the relationship in question, as is called for by the decision of the Supreme Court in Autoclenz v Belcher.

In the Upper Tribunal’s view, WW exercised a high degree of control over its Leaders, who were contractually obliged to deliver the WW Programme. There was also mutuality of obligation, as it was only when a replacement Leader had been found, or failing that the meeting cancelled, that the original Leader’s work-related obligations in relation to that meeting ceased entirely. The Upper Tribunal concurred with the First-Tier Tribunal that the Conditions did not make the replacement Leader the original Leader’s delegate but gave rise to a new contract, in relation to the particular meeting, between WW and the substitute. The Leader’s right not to take a particular meeting was not therefore ‘unfettered’, as was argued by WW.

Lastly, the Upper Tribunal found nothing in the arguments put forward by WW that was sufficient to disturb the ‘on balance’ conclusion that, taken as a whole, the Leaders were employees of WW rather than independent contractors.

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