Given the current economic climate small business employers are increasingly turning to freelancers as a way to reduce their fixed obligations compared with having permanent staff. This has both positive and negative implications for employment rights, as well as unexpected copyright ownership issue.

A freelancer is someone who supplies their services or skills on a self-employed basis. The term "freelancer" is used interchangeably with "independent contractor" or "consultant". "Self-employed" refers to the engagement of someone who has control over how and when to provide the services. Taking on freelancers often involves no long-term mutuality of obligations, so it can involve taking on an individual ad hoc for a short assignment.

Hiring a freelancer has a number of positive implications for employers, particularly as the freelancer has limited statutory rights as they are not "employees". It is imperative employers ensure a "freelancer" is actually a self-employed person as defined by employment law. The most important factors indicating self-employed status are that: the employer is under no obligation to offer work to the freelancer; the freelancer has the ability to control how and when they work; and the freelancer is able to provide their work to whomever they choose.

"Self-employed" personnel are generally not entitled to rights on termination of employment under the Employment Rights Act 1996; including the right not to be unfairly dismissed and the right to receive a statutory redundancy payment. Freelancers are also not entitled to paid statutory sick pay, pension rights or maternity rights and they are responsible for paying their own tax and national insurance contributions.

On the downside for employers, they have less control. In addition, freelancers may not feel loyalty towards the employer so it is important to put robust confidentiality clauses in place when drawing up agreements with freelancers.

Employers must also remember that discrimination laws apply to all those who are ‘in employment'. This is deliberately wide so as to include freelancers, provided they are under an agreement to perform the work they do personally.

If employers choose to hire freelancers after making redundancies, they must be careful to avoid unfair dismissal claims from former employees who may feel their role was not "redundant". To ensure this does not happen, employers should consult with their solicitor during the redundancy process.

One final danger with hiring freelancers is the issue of copyright. Let's say you are a greetings card business and hire freelance designers just before key annual deadlines such as Mothers' Day. Although you have paid them for their efforts, you are shocked to find their designs appearing in shops under the names of rival companies. However, no copyright infringement may have taken place. Anything created by employees in the course of their employment belongs to their employer, but the same is not true of freelancers. The starting point is that copyright belongs to the freelancer and not the employer. In theory, the freelancer could stop you from using what you have paid for!

In practice, courts sometimes imply terms into your contract with the freelancer to give the company rights, but the position is far from certain and depends on the circumstances. A business could end up having to spend a small fortune trying to persuade a court that you should really own or have a right to use what you already thought you had paid for. If you want to own the copyright, have exclusive rights to control its use and clear rights over how you can use it, you need a properly drafted written legal contract at the outset of your relationship with the freelancer that makes all this absolutely clear.

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