Employment Rights, Status & PSCs
Partnership of East London Co-operative v Joanne Maclean
The claimant, (JM) provided her services as a nurse to the respondent (East London) via her personal service company, Maclean J Limited. She contracted with East London on the basis of being self-employed. Not only was she responsible for paying her own tax but she also provided details on an IR35 check that accorded with such a status. This arrangement worked well for nearly four years until relations broke down, and JM brought claims in the employment tribunal. The tribunal, firstly, had to decide whether she was self-employed, a worker or an employee. The employment tribunal found that she was both a worker and an employee. They held that:
- A contract existed between JM, in her personal capacity, and East London
- Working regularly created a mutuality of obligation, that is East London were obliged to offer work and JM obliged to perform it, and
- Since it was impractical for JM to arrange a substitute then this meant that JM was required to do the work personally.
East London appealed to the Employment Appeal Tribunal (EAT). They were successful (click here). The EAT overturned points 2 and 3, above, but not point 1.
Legal principle 1: Who was the contract between?
Before any consideration of employment status, a contract has to exist between the individual and the organisation they are claiming against. East London’s case directed the judge to the contractual chain, which was JM – Maclean J Ltd – East London, thus meaning no contract between East London and JM. However, the documentation (below with our underlining) did not entirely reflect what should have been that simple state of affairs.
Firstly
There was a payment authorisation document where JM said, “payment to Maclean J Ltd will discharge any liability owed by [East London] to me”.
Secondly
There was a “member agreement” which set out the main terms East London were offering. This document was a pro-forma which did not name Maclean J Ltd or JM herself, but it was headed as being between East London and an individual medic.
East London argued that the fact that they received invoices from Maclean J Ltd and that JM had completed an IR35 review (the result of which pointed to her being self-employed) should have been factors that were given more weight than the Tribunal did. The EAT, however, agreed with the Tribunal. The member agreement might have been a pro-forma, but it was written on the basis of contracting with an individual, not a corporate entity. The payment authorisation did mention a corporate entity, Maclean J Ltd, but, crucially, it also said that such a payment to Maclean J Ltd discharged liability to JM, personally. This was interpreted as East London being obliged to pay JM on a personal basis and because of this, the fact of her invoicing from her own company was viewed more of a payment mechanism than a crucial indicator of self-employment status.
Takeaway 1:
consider firstly who you are to be contracting with and then whether the contract you are going to be using does what you want it to do. East London’s problem appears to have been an overreliance on pro-forma documentation which was worded as being between them and individuals. Once you are dealing with a personal service company you should take care to have a specific commercial contract for that relationship, it being signed by the individual on behalf of that company, not in their own right.
Takeaway 2:
IR35 checks answer questions in relation to employment status for tax purposes, not for employment law purposes. They are different tests.
Legal principle 2: Mutuality of obligations
JM had no set hours; there was no obligation on East London to offer work nor on her to accept it. She would bid for hours, a month in advance, that she wished to work but there was no guarantee that this would be accepted. In accordance with this, although she worked every month, she did not work regular hours.
On this, the EAT disagreed with the employment tribunal. It is not enough to show mutuality of obligation arising simply by an individual working regularly for a number of years. There has to be something more, such as East London assuring her of getting a certain amount of work every week/month and JM committing to perform it. As there was no evidence of this then the finding of mutuality of obligation could not stand.
Takeaway:
commercial pressure in providing continuity of a service or work sometimes in practice leads to those independent contractors who are known to be reliable and skilled becoming, over time, assured of the amount of work they might be offered in order for them to commit to the work. Be aware that this type of practice might lead inadvertently to a mutuality of obligation, one of the perquisites for employee status.
Legal principle 3: Personal service
The employment tribunal found that it was impractical for JM to use substitutes because of the need to have knowledge of the work with East London as well as background and qualification checks. The EAT disagreed and said that what should have happened is that consideration be given to a similarly qualified substitute and the degree, if any, of restrictions on being able to use such a person. The facts here appeared to fall within the well-established fourth category from the Pimlico Plumbers case of 2017 (here) which said, at paragraph 84:
“…a right of substitution limited only by the need to show that the substitute is as qualified as the contractor to do the work, whether or not that entails a particular procedure, will, subject to any exceptional facts, be inconsistent with personal performance.”
Just to recap, the ability to delegate the work to others is incompatible with any form of employment relationship.
Takeaway:
some types of work require specialisms and qualifications that many individuals in the job market will not have, making the task of finding a substitute more difficult. In fact, many might not use substitutes at all because of this. But the correct test is whether the ability to substitute is genuine. If there is an easy-to-use process for a contractor to use substitutes and this is made very clear to them, then this will lean away from them being regarded as having to do the work personally, even if they choose not to.
Disclaimer: Chartergate Legal Services Ltd has drafted this update to provide you with a general overview of the relevant law and developments at the date of sending only. This update is provided as a general overview and should be taken as such. It is not a substitute for professional advice that is specific to your circumstances and should not be relied upon as such.
