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Weight Watchers are employees!

Posted on 20th November 2011
Case law

The Upper Tribunal (a tax tribunal) had to consider if meeting leaders who run Weight Watchers classes were employees for tax purposes or self-employed. Although the tests applied in tax cases and in employment cases differ, this case illustrates the importance of employers getting the practical arrangements right and not just the label.

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Weight Watchers (UK) Ltd v HMRC FTC/57-59/2010

Background

In this case Weight Watchers paid its meeting leaders on a self employed basis. The leaders were paid to conduct meetings and to weigh and collect payment of fees from members. Leaders also earned commission on the sale of Weight Watchers products. Although, in theory, leaders had absolute discretion about how to run their meetings, in practice they had to follow strict rules and guidelines laid down by Weight Watchers. The written terms of the arrangement was set out in a number of documents including one which described the leaders as "independent contractors". There were also terms relating to restrictive covenants and a form of substitution clause.

The decision

The tribunal held that the leaders were not truly self-employed but worked under the control and direction of Weight Watchers. In particular the tribunal focused on the fact that the way the leaders had to operate did not, in practice, reflect what the contractual terms provided for. The written terms were criticised in part as being drafted by lawyers with the intention of trying to camoflage the true nature of the relationship between the parties. The tribunal also found that the substitution clause was not genuine because it was qualified and, in any event, was infrequently applied.

The outcome for Weight Watchers is an expensive obligation to pay arrears of tax, NIC, penalties and fines based on a number of years' liability. As yet there is no appeal but the decision has been criticised by some as highlighting how the HMRC has departed from previous practices.

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