In August this year, Justin Bieber made the decision to appoint his wife, Hailey Bieber, as his manager, seemingly ignoring many an old adage about working with partners and family members. It is, however, a situation that we often find clients require assistance navigating. Putting a spouse or other family member on the payroll is often helpful to smaller businesses and makes particular sense in family businesses. But what if the relationship breaks down and you want to take them off the books? Are you at risk of a claim for unfair dismissal? Or redundancy pay? Do you have to give statutory notice? What does Justin need to consider about the arrangement he has in place with Hailey and how easy would it be to undo?
Helpfully, the first thing to look at can often be the hurdle that stops any claims against the company in their tracks: employment status. If employee (or worker) status cannot be established, there are few, if any, claims available to a scornful spouse.
Given the usually informal nature of these kinds of arrangements, each case will have to be examined carefully and on its own facts. However, here’s a few key things to consider when determining if your spouse is an employee.
Employee Status
A person is an ‘employee’ if they have ‘entered into or works under a contract of employment’. A contract of employment is a contract for service or apprenticeship, whether express or implied, and whether oral or in writing.
A written contract would be useful, although not critical, in determining the nature of the arrangement. Given the fact that these arrangements are usually informal in nature, it is common for no written contract to exist. In these instances, we would be looking at the true, underlying nature of the relationship to see if 3 critical qualities exist:
- personal service
- control
- mutuality of obligation
We need all 3 of above for a person to be considered an employee. Failure on any one of them is detrimental to the claim that a person has employee status. So, what are the requirements of each of these qualities?
Personal Service
This test requires us to ask if the individual undertook under the contract to personally perform work or services. Much of the case law on this point focusses on the ‘personal’ element, to discover if the ‘employee’ is required by the contract to personally undertake the work or if someone else could have been substituted in to do the work.
The fact that Justin specifically replaced his former manager with Hailey indicates that her personal service is required and is a necessary part of the arrangement and so we can conclude that Hailey does meet this condition for employee status.
However, if in reality the appointment is superficial and the spouse is actually doing no work, then establishing personal service will be difficult for any estranged spouse.
Control
This gets at the amount of control that the ‘employer’ exerted over the ‘employee’ in the carrying out of their duties. Critical to this aspect is what work is done, how it’s done, when it’s done, where it’s done, etc. A lack of direct supervision is not detrimental to establishing this is met, however. Where the individual brings expertise or works in a field where a level of discretion as to how a job is done is appropriate, this criterion can still be met.
Hailey’s role as manager, while possibly affording her a large amount of discretion, will be largely dictated by Justin and his schedule, assuming she is involved in meetings and setting up events for him. Indicating that Justin has a significant amount of control over how Hailey fulfils her duties as manager and that their arrangement would meet the threshold of this criteria.
Mutuality of Obligation
Finally, it would need to be shown that there is a mutuality of obligation between the employer and employee. The obligation on the employer is to provide work (and pay a wage/salary) and the obligation on the individual to accept and perform that work. This is often where the true nature of the arrangement becomes clear. Is there reciprocity in the arrangement? Does the individual get a wage and in return work for the company? Or if it is a sham arrangement and they actually do nothing in reality, then the absence of there being any obligation on the “employee” to actually do any work would undermine an argument they have employment status. If either side of this is absent, the arrangement would fail to meet this criterion.
Assuming Hailey is earning a salary for the work she is doing and is performing the duties associated with the title of manager in return, it seems as though her role would meet this final criterion too.
Protections for employees
Now that we have established Hailey’s employee status, what are the risks that Justin would be open to if he were to end the arrangement? First and foremost, if employee status is established any dismissal needs to be treated as it normally would. Justin would need to consider a potentially fair reason to dismiss Hailey and ensure he is following a fair procedure. Dismissing Hailey without giving her employee status requisite thought would leave Justin open to claims of unfair dismissal (subject to any minimum service requirements), notice pay, and statutory redundancy pay.
However, had Hailey failed to meet any of the necessary elements – personal service, control or mutuality of contract – her lack of employee status would knock out any of the statutory claims available to employees.
If you find yourself in a situation where you’re unsure how best to approach the dismissal of an employee (or family member) or have been on the receiving end of a dismissal that you don’t think is fair don’t hesitate to contact the Blackadders Employment Team, working in Aberdeen, Dundee, Edinburgh, Glasgow and across Scotland.
