Self-employed legal professionals and worker/employee status

Written by: Lucas Nacif

Many of you might be aware that there’s been a rise of law firms that adopt a consultancy model. Consultant firms such as Keystone Law, Gunnercooke and Setfords have lured lawyers from traditional law firms to join their firms on a self-employed basis, promising a range of benefits including greater flexible working and greater control over remuneration and charging rates. The consultancy model of law firms has proven to be a success. For example, Keystone and Gunnercooke are both in, or close to, the top-100 UK law firms based on turnover (see article here). There have also been traditional law firms that are increasingly using self-employed consultant lawyers.

Farore Law had acted for the Claimant in N Agada v LPC Law Limited (Case no 3201982/2019), an important case on worker status. The firm advised and represented the Claimant in the Respondent’s EAT appeal against the ET’s finding that the Claimant had worker status. The appeal was withdrawn by the Respondent earlier this year and so a hearing never took place. In light of the Respondent’s withdrawal of their EAT appeal, EJ Crosfill’s finding that the Claimant was a worker at LPC Law remains binding and could have a significant impact on LPC Law’s business model. It could also have an impact on the wider legal market and disrupt the consultancy model that many law firms are adopting. The purpose of this blog is to examine the implications that the withdrawal of the EAT appeal in LPCLaw might pose to the wider legal market.

This blog also addresses the recent Employment Tribunal (“ET”) decision of Ms J Williams v Sinclairslaw Ltd (Case no 1600509/2022), in which the ET held that a self-employed legal consultant of a law firm fell within the definition of an employee under the Equality Act 2010 (“EqA”) despite not having worker status. We also examine whether the ET’s interpretation of employee under the EqA in Sinclairslaw was correct and how such decision could affect the consultancy model of law firms.

Proliferation of self-employed lawyers in the legal sector

Law firms adopting a consultancy model promise a wide variety of benefits to lawyers who are considering becoming self-employed. For example, Keystone Law’s “Join Us” page states that the firm provides the following benefits to its lawyers:

• A management team that assists lawyers with business development, operational support and finance/compliance matters such as invoicing and anti-money laundering checks.

• Paralegal, secretarial and PA support.

• Law firm infrastructure, ranging from access to online research databases, meeting room facilities, client account facilities, 24/7 IT support, telephone answering and forwarding system and time recording tools.

• Professional indemnity insurance.

• Flexible approach to charge-out rates, allowing the fee-earner to choose whether to charge on a retainer, fixed-fee or hourly basis. Lawyers are also free to amend their normal rates to suit prevailing circumstances and to detail such arrangements in the relevant Engagement Letter.

• Lawyers are remunerated between 60% to 75% of fees depending on the origination of the client. Lawyers are provided with financial incentives to also refer work to other Keystone colleagues.

• CPD & training sessions offered to Keystone lawyers, as well as regular social events for its fee-earners.

Although the Keystone model offers lawyers flexibility and a minimal level of control and supervision, it still remains the fact that a Keystone lawyer is seen to be integral or integrated to the law firm’s operation. For example, Keystone refers to senior lawyers as “Partners” of Keystone Law. Keystone Law itself is ranked on legal directories such as Legal 500, even though the law firm is technically comprised of a group of self-employed lawyers. In light of this, the question remains whether a self-employed lawyer under a law firm such as Keystone would be a worker for the purposes of the Employment Rights Act 1996 (“ERA”) or in employment under the EqA.

The law

A “worker” is defined in s 230(3)(b) ERA as “an individual who has entered into or works under (or, where the employment has ceased, worked under)–

[…]

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual”.

The elements required for worker status are set out in Uber BV v Aslam and others [2021] UKSC 5 at §41:

“Limb (b) of the statutory definition of a “worker’s contract” has three elements: (1) a contract whereby an individual undertakes to perform work or services for the other party; (2) an undertaking to do the work or perform the services personally; and (3) a requirement that the other party to the contract is not a client or customer of any profession or business undertaking carried on by the individual”.

Employment under s 83(2)(a) EqA is defined as “employment under a contract of employment, a contract of apprenticeship or a contract personally to do work”. The term “contract personally to do work” allows individuals who contract on a personal basis, including those who are self-employed for tax purposes, to be protected under the EqA. Elias P stated in James v Redcats (Brands) Ltd [2007] ICR 1006 that the test is to ask whether the obligation for personal service is the dominant feature of the contractual arrangement.

In Pimlico Plumbers Ltd v Smith [2018] ICR 1511, Lord Wilson stated that the correct test is whether there is an obligation of personal performance. However, there may be cases where the ET can adopt the dominant feature analysis, for example, where the Claimant has the right to substitute. Following the Uber decision, the ET should focus on the practical reality of the working arrangements and have regard to the purpose of the legislation, which is to give protection to vulnerable individuals who are in subordinate and dependent position in relation to a person or organisation who exercises control over their work.

What if a Claimant is not in “employment” under the EqA?

If a lawyer is unable to establish that he or she is an “employee” under EqA, the lawyer can still benefit from anti-discrimination protections if the lawyer is:

• A “contract worker” under s 41 EqA. S 41 protects the contract worker (such as an agency worker) from being discriminated against by the end user of their services. For s 41 to apply, the lawyer has to provide services to the end user (eg a client or the law firm) through an intermediary. This might include providing services through an agency or a personal service company.

• A member of a partnership under ss 44 or 45 EqA.

• A member of a barristers’ chambers or advocates’ stables under ss 47 and 48 EqA.

Arguably, there is a lacuna within the law. Although self-employed barristers receive protections under the EqA, other self-employed lawyers don’t. Unless a self-employed lawyer can demonstrate that he or she is a contract worker under s 41 EqA or a member of a partnership under ss 44 or 45 EqA, then the lawyer only benefits from protection against discrimination if they fall within the definition of employment, which is an argument for giving employment under the EqA a broad interpretation.

The decision in Agada v LPC Law

LPC Law is a law firm which relies on a network of advocates. These advocates are mostly LPC or BPTC graduates who have not secured a training contract or pupillage. LPC Law has systems in place to ensure that their unqualified advocates can conduct their hearings lawfully under the Legal Services Act 2007. Advocates are instructed and supervised by in-house solicitors and an Advocacy Manager at LPC Law. LPC Law’s systems ensures that their unqualified advocates are allowed to conduct advocacy where proceedings are heard in chambers.

LPC Law’s business model is premised on the basis that its advocates are self-employed, although its advocates are subject to a significant degree of control/supervision from LPC Law’s Advocacy Manager and their in-house solicitors. Ms Agada was an advocate at LPC Law from March 2018 until March 2019. She presented an ET1 against the Respondent on 19 August 2019, bringing claims for whistleblowing detriment, pregnancy discrimination and holiday pay. A preliminary jurisdictional issue in the case was on Ms Agada’s worker status. This resulted in a twoday preliminary hearing in March 2021 before EJ Crosfill at the East London ET, where the Claimant was represented by Farore Law. The Respondent argued that she was self-employed and referred to various aspects of her working arrangement which pointed to self-employment, such as the fact that advocates were paid on a case-by-case basis, had no set working hours, were free to decline the offer of work from the Respondent and were required to indemnify LPC Law against all liability, damage and expense of “whatever nature incurred or suffered by LPC Law or any third party as a result of a breach of [the Advocate Service Level Agreement]”.

EJ Crosfill held that Ms Agada was a worker, allowing her to continue with her discrimination, whistleblowing detriment and holiday pay claims. The judge took into account the following factors in determining the Claimant’s worker status:

• The Claimant was contracted to do work for the Respondent. LPC Law’s Service Level Agreement imposed obligations on both the Claimant and the Respondent. For example, the Claimant was required to register as a Data Controller and the Respondent was required to obtain indemnity insurance on her behalf. EJ Crosfill found that “the purpose of that contract was to govern the relations between the parties in the anticipation that some work would be
offered and accepted”.

• There was sufficient mutuality of obligation to give rise to a contract. The Judge held that, when the Claimant accepted and undertook any job, she did so under a contract to do work for the Respondent.

• There was a requirement of personal service in the Claimant’s contract with the Respondent. The Judge took into account the fact that the Respondent carefully recruits and trains advocates and that, although the Claimant could obtain a substitute to carry out her work, the Respondent had the right to veto any substitute (eg the Claimant could only use substitutes provided that they were trained by LPC Law). As such, the right to delegate work was limited
and not inconsistent with the dominant purpose of the contract being the provision of services personally; see Pimlico Plumbers Ltd v Smith [2017] ICR 657 and [2018] ICR 1511.

• The Respondent had a high degree of control over the Claimant. For example, the Claimant had to report to an Advocacy Manager to whom she would send court reports and obtain feedback.

• Although the Claimant was free to decline any job that she did not wish to do, the ET accepted that if the Claimant declined work having said she was available or delayed in accepting instructions, this would lead to a conversation with the Respondent’s allocation team. The judge accepted that the Claimant would come under pressure to accept the work that she was allocated and that if the Claimant was willing to take on more work, the allocations team would provide her with better instructions.

• The Claimant’s role in the Respondent’s business was not ancillary. Without advocates, LPC Law could not function at all. On the facts, advocates such as the Claimant were integrated into the Respondent’s business in a significant way.

• The Claimant did not run a business as a freelance advocate, of which the Respondent was just a client. Rather, she was an advocate working for and within a business operated by the Respondent, which marketed its services as an advocacy provider. The Respondent protected its client relationships through restrictive covenants. If the Claimant performed well in court, any goodwill generated would largely benefit the Respondent’s business.

• Although the terms under which the Claimant was engaged were non-exclusive, the freedom to work elsewhere was limited by the terms of the restrictive covenants. The restrictive covenants prevented the Claimant soliciting work from the Respondent’s actual or prospective clients, which prevented her from marketing her services directly to those clients. However, the Claimant was free to obtain similar advocacy work with other solicitor firms at the same time as working for the Respondent, as was the case with other advocates at LPC Law. The judge noted, however, that the freedom to provide services to third parties was not fatal to her claim to worker status, as was the case in Uber BV. The fact that a person does the same or similar work for third parties is a factor, but is not determinative of, the question whether the other party to the contract is a client or customer of the business undertaken by the putative worker.

The EAT appeal in LPC Law

LPC Law appealed EJ Crosfill’s judgment in November 2021 and passed the sift stage at the EAT in July 2022. A hearing was meant to have taken place on 28 February 2023 and 1 March 2023. However, LPC Law chose to withdraw their appeal earlier this year, presumably to avoid the risk of the EAT creating precedent that might undermine the self-employment model operated by LPC Law and other law firms.

We believe that it is likely that the EAT would have upheld EJ Crosfill’s decision. His Preliminary Hearing judgment is well-reasoned and consistent with the recent case law on worker status, such as the Pimlico Plumbers and Uber decisions. As noted by the Supreme Court in Uber, the written agreement of the parties is not decisive in determining worker status, and it is not even the starting point. Rather, courts are required to look into the substance, not the form, of the working relationship.

The Sinclairslaw decision

Sinclairslaw is a law firm with offices in England and Wales that specialises primarily in education law. The firm is comprised of “Directors” (statutory directors of the law firm), “Consultants” (lawyers working on a self-employed basis) and Solicitors, Trainees, Paralegals and Support Staff who appear
to be employed by the firm.

In Sinclairslaw, the ET held that a self-employed lawyer at Sinclairslaw fell within the definition of an employee under the EqA despite not having worker status under ERA.

The Claimant was a solicitor specialising in family law who qualified in 1985. In 2010, the Claimant had discussions with the Respondent to join the law firm’s Cardiff office to undertake family work as a consultant. The Respondent invited the Claimant to join the firm on a self-employed basis to develop the firm’s family law practice in Cardiff. The parties agreed that the Claimant would be remunerated by receiving a share of fees generated by her (37%) and that the Claimant was responsible for the costs of renewing her Practising Certificate and family law panel memberships.

EJ Jenkins held in Sinclairslaw that the Claimant was not a “worker”, as the “irreducible minimum” of personal service, control and mutuality of obligations were not present. The judge reached the following conclusions:

• The intended relationship between the parties at its inception was one of self-employment. The Claimant referred to herself as “self-employed” and was remunerated by reference to a percentage of paid bills submitted by the Respondent in respect of the Claimant’s work. The parties had also agreed that the Claimant would be responsible for paying for her Practising Certificate, panel memberships and that the Claimant would have little or no supervision from the Respondent.

• Control “includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when, and the place where, it shall be done”; Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. On the facts, the Respondent in Sinclairslaw did not have those powers over the Claimant. The Respondent did not have the power to, or certainly did not in practice, control the way in which she undertook her work as a consultant.

• There was no mutuality of obligation present. The Respondent did not have an obligation to provide work, nor was the Claimant obligated to do any work that was provided in the context of any referrals made by the Respondent. The only obligation on the Respondent was to pay the agreed percentage of the fees billed by the Claimant in respect of her files, upon receipt of payment. The lack of any material level of mutuality of obligation was evident from the fluctuation of billings over the period of the Respondent’s relationship with the Claimant.

• The Claimant was perfectly content to take advantage of her self-employed status for tax purposes and there was no indication that she received sick pay or was a member of any pension scheme.

Although we agree with EJ Jenkins’ conclusions on worker status, we do not believe that the Claimant’s tax status is a relevant consideration in determining her worker status under ERA. As noted by EJ Crosfill in LPC Law, “Section 230(3)(b) is concerned only with those individuals who are not employees. Any such individual would be required to account for tax and national insurance on the basis that they were self-employed”.

EJ Jenkins went on to conclude that the Claimant was an employee for the purposes of the EqA. The judge noted that the definition of “employment” in s 83 EqA refers to a “contract personally to do work”. EJ Jenkins stated that “[c]learly, a contract existed between the Claimant and the Respondent” and that the focus is whether, in essence, the Claimant was a business on her own account, with the Respondent only being a client of that business, or whether there was an element of subordination in their relationship. The judge noted that there was nothing to indicate that the Claimant actively marketed her services to the world in general and that, “whilst there was no prohibition on the Claimant carrying out work for others, as a matter of fact she did not do so over a period of some eleven years. In my view, she was very much recruited to work for the Respondent as an integral part of its operation”.

We consider the ET’s conclusion on “employee” status to be correct. Although the Claimant was free to carry out work for others, the dominant feature of the contract was for the Claimant to provide personal service to the Respondent, as one of main purposes of recruiting the Claimant was for her to help the Respondent develop a family law practice in the Cardiff area. This justifies the judge’s conclusion that she was “recruited to work…as an integral part” of the Respondent’s operation.

Implications for the wider legal sector

The LPC Law and Sinclairslaw decisions may have significant implications for the wider legal sector. Although law firms such as Keystone Law, Gunnercooke and Setfords promote a “consultancy” model, these decisions illustrate that a self-employed lawyer may nonetheless be a worker under the ERA or an employee under the EqA. Much depends on the extent to which the law firm exerts control over the lawyer and the extent to which the lawyer is providing personal service to the law firm.

Law firms such as Keystone Law may be able to avoid a finding that their lawyers are “workers” for the purposes of the ERA provided that there are minimal levels of control or supervision over the fee-earner’s practice. However, decisions such as Sinclairslaw demonstrate that a self-employed lawyer may be protected under the EqA if the nature of the consultancy arrangement is a contract “personally to do work” under s 83(2)(a) EqA.

In our view, it is difficult for these law firms to avoid a finding that their self-employed lawyer is not an “employee” under the EqA. As noted by Lady Hale in Bates van Winkelhof v Clyde & Co LLP [2014] ICR 730, a case concerning s 230 ERA, “the law now draws a distinction between two different kinds of self-employed people. One kind are people who carry on a profession or a business undertaking on their own account and enter into contracts with clients or customers to provide work or services to them… The other kind are self-employed people who provide their services as part of a profession or business undertaking carried on by some-one else”. Lady Hale went on to comment that although s 83(2) EqA 2010 “does not include an express exception for those in business on their account who work for their clients or customers”, a similar qualification had been introduced in Allonby v Accrington and Rossendale College (C-256/01) [2004] ICR 1328, where the ECJ held in an equal pay claim that a “worker” is someone who “performs services for which he receives remuneration” and should be distinguished from “independent providers of services who are not in a relationship of subordination with the person who receives the services”.

Further reasons why it is increasingly difficult for law firms to avoid a finding that a self-employed lawyer is in employment under the EqA is demonstrated by the recent CJEU decision of C-356/21 J.K. v TP S.A.. In that case, the CJEU held in a preliminary ruling that Article 3 of the Equal Treatment Directive must be interpreted as precluding national legislation which has the effect of excluding from the protection against discrimination on grounds of sexual orientation the refusal to conclude or renew with a self-employed person a contract concerning the performance of specific work. The CJEU confirmed in J.K. that the Directive is meant to be construed broadly and that the protection conferred by the Directive “cannot depend on the formal categorisation of an employment relationship under national law or on the choice made at the time of the appointment of the person concerned between one contract and another”.

Although the J.K. judgment was decided after the end of the UK’s transition period on 31 December 2020, this decision is nonetheless persuasive, given that the EqA was introduced to implement EU Directives such as the Equal Treatment Directive. The J.K. decision suggests that a broad interpretation of s 83(2)(a) EqA may be consistent with the legislative purpose of the EqA.

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