Some employment contracts may not be worth the paper they are written on following a recent landmark decision by the Court of Appeal.

Employment law specialists at Browne Jacobson are urging employers to ensure employment contracts accurately reflect the true relationship and status of their workers.

The Court of Appeal case concerned 20 car valeters who were regarded as self-employed contractors by their employer Autoclenz whilst working at its premises at Measham, Derbyshire.

The valeters argued that they were employees, and not self employed, and were therefore entitled to, among other things, holiday pay. Autoclenz said the valeters were recruited as self-employed contractors and were not entitled to any statutory rights.

The Court of Appeal agreed with an earlier decision by an Employment Tribunal that the valeters were in fact employees. 

James Tait, an employment law specialist at Browne Jacobson, said: "The written contract is still very important but it has to reflect the reality. This case stresses the importance of making sure that all relationships with contractors or other workers are reviewed regularly to ensure that businesses still understand the relationship correctly.

"For example, it may be that an individual is engaged on a self employed basis but as time goes on the relationship changes to such an extent that they ultimately become part and parcel of the hirer's business. It may be that there is now an employer and employee relationship, even though no new contracts have been entered into.

"Alternatively, the parties may in fact enter into a relationship which was simply mislabelled from the outset. Sometimes this is done with the knowledge of one or both parties. As with this case, the car valeters were never genuinely self employed, and even though they entered into the relationship on that basis, this did not prevent them being found to be employees at the end of the day.

"The consequences of not getting contracts to reflect the true relationship right at the outset are potentially severe. There could be tax issues for the employer, not to mention other basic rights such as entitlements to redundancy payments, unfair dismissal protection and maternity rights. With statutory redundancy entitlements having recently increased this month, and legislation protecting employees becoming ever more protective, the cost of getting this wrong will only get worse year on year."