Those interested in the tests for employment status continue to be rewarded by the stream of gig economy cases working their way upwards from the Employment Tribunal (ET), the Employment Appeal Tribunal (EAT) and beyond.
In parallel, the Tax Chamber of the First-tier Tribunal (FTT) has been grappling with the issue of employment status as it arises in a legislative context colloquially known as IR35. These provisions are intended to tackle disguised employment. Briefly, if a worker contracts through a personal service company (PSC) with an end client, IR35 interposes a hypothetical contract between the contractor and the end client, and asks whether that contract would be one of employment. If the answer is “yes” then the PSC is treated as the contractor’s employer and the payments to the PSC by the end client are taxed accordingly. In this way, specialist tax tribunals have come to deal with questions usually dealt with only by the ET.
Two recent decisions, one of the EAT and one of the FTT, have considered the test for employment status and have made some interesting (though not necessarily informative) comments about mutuality of obligation.
Mutuality of obligation was the first limb of the test for employment status posed in Ready Mixed Concrete (South East) Ltd v Minister of Pensions & National Insurance  2 QB 497. Within this formulation were two separate issues:
- Was there an obligation on the “employee” to perform work personally?
- Was there any obligation on the “employer” to provide work and a corresponding obligation on the “employee” to accept and perform it?
It is the latter of these two with which we are concerned.
In Gascoigne v Addison Lee Ltd UKEAT/0289/17, the EAT rejected the employer’s appeal against the ET’s determination that its bicycle couriers were limb (b) workers. The main ground of appeal was that there was no sufficient mutuality of obligation.
The couriers were issued with GPS devices through which they could receive jobs from a control room. They were not obliged to accept these jobs, though there was no button to decline them and the evidence was that they would experience gentle pressure from their controllers to accept all jobs offered to them. This was said to result in an expectation that the courier would accept and perform all work offered to them.
The EAT upheld the finding of the ET that there was sufficient mutuality of obligation at all times during which the courier’s GPS device was turned on. Even though there was no explicit contractual requirement for a courier to accept a job, and where the couriers were paid by the job and not for the time between jobs, the EAT found that the expectation that work would be offered and accepted has hardened into a legal obligation, providing the requisite mutuality.
Unhelpfully, neither the EAT nor the ET informed us how one should distinguish between expectations that had hardened into legal obligations, and those that hadn’t.
Expectations also made an appearance in the FTT decision in Jensal Software Ltd v HMRC (16 May 2018). This was an IR35 case where a contractor was engaged through a PSC but found by the FTT to be self-employed upon the application of IR35. There was an added complication in that there was also an agency interposed between the PSC and the end client.
The contractor provided his services under a series of contracts between the PSC and the agency, sometimes back-to-back, sometimes with a gap in between. The contractor was paid a daily rate and had no contractually set hours; he was contractually entitled to be paid irrespective of the numbers of hours worked (a pointer away from employment). There was evidence of an internal recruitment document which passed between the end client and the agency which set out the contractor’s daily working hours as 7.5 hours (a pointer towards employment). In dismissing the relevance of this document, the FTT characterised it as no more than an expectation.
One is left to wonder which expectations are those which are relevant to mutuality of obligation and those which aren’t.
In the application of the employment status test, mutuality of obligation often plays second fiddle to other tests such as “control” and “business on their own account”, and this is perhaps reflected in the rather cursory way in which authorities such as those above deal with the matter. Coincidentally, the Taylor Review recommended a legislative rebalancing of the test for employment status, with an enhanced emphasis being placed on the issue of control.
However, until such a rebalancing takes place, whether at a legislative or judicial level, mutuality of obligation remains a key part of the test for employment status. Which is why it is worrying to see HMRC promoting an online tool for determining employment status (“Check employment status for tax“), which entirely omits to deal with the question of mutuality of obligation (as distinct from the question of personal service and rights of substitution).
HMRC claims that it will stand by the results produced by this online questionnaire for employment status as it pertains to tax issues. It is therefore troubling to see that the question of mutuality (an area where we can see the law is still developing in a less than perfectly coherent manner) is entirely excluded from consideration. The putative “employee” is being denied the opportunity to address a key limb of the test for employment status where the law is unclear and there is ample room for argument and legitimate difference of opinion.