Engaging with Ltd Co Contractors – The Importance of the Contractual Chain
Judgement Fact File: Partnership East London Co-operatives Ltd v Miss J Maclean [2025] EAT 142
When businesses engage with Ltd Co Contractors, often referred to as Personal Service Companies (PSCs), the focus for many, quite rightly, is on IR35. There are however significant employment law ramifications if businesses get it wrong. A key risk area to navigate concerns getting the contractual chain right. This means ensuring that the engaging business contracts with the PSC and NOT the individual. This sounds like a simple concept but is often found wanting when matters get contentious. A recent example of this is the case of Partnership East London Co-operatives Ltd v Miss J Maclean where a failure to adequately document the contractual relationship led to some employment law exposure. See the judgment fact file below for more detail:
| Parties: | Respondent: Partnership East London Co-operatives Ltd (PELC) – The Appellant, in the appeal, was a not-for-profit organisation providing urgent care services. Claimant: Miss J Maclean – A qualified nurse and Clinical Streamer. |
| Jurisdiction: | The case was heard by the Employment Appeal Tribunal (EAT) on an appeal by the Respondent. |
| Main legal considerations: | The central legal consideration in this appeal was the proper application of the test for employment status and worker status,in the context of a claimant using a personal service company.The ET had found that the Respondent contracted with the Claimant personally and that she was an employee and a worker.The key issues, on appeal, were: whether PELC contracted with the Claimant or her personal service company (PSC),whether there was mutuality of obligations (MOO), such as to establish employment, and whether there was an obligation upon the Claimant to provide a personal service. |
| Background: | Miss Maclean, a qualified nurse, worked for PELC at Urgent Treatment Centres between August 2018 and March 2023. At the outset, she approached PELC directly and expressed her interest in a position. Thereafter, she completed a standard NHS application form described as an application for employment. She did not attend an interview but was given a checklist with standard requests for documents for contractors as well as employees. She signed two key documents. Firstly, a Payment Authorisation Declaration (PAD), which: authorised and requested PELC to pay all sums due to the PSC, that the PSC would discharge any liability owed by PELC to Miss Maclean, andthat the second document (the Members Agreement) under which clinical services were provided was between PELC and Miss Maclean as an individual nurse. Secondly, a Members Agreement (MA). The ET was provided with an example of this document, which referred to doctors, as opposed to nurses. Within this document, there was no obligation on PELC to offer any sessions (i.e., shifts) and no obligation on Miss Maclean to accept them. The express terms of the contract did not guarantee she would be offered any particular shifts, nor oblige her to accept any shifts. In practice, she bid for whatever shifts she wanted each month and was not guaranteed to get all the shifts she requested. However, once she had been allocated a shift, she was committed to working it, and PELC was committed to paying for it. Miss Maclean submitted invoices and was paid gross and was responsible for her own tax and national insurance contributions, operating through her PSC. In February 2021, Miss Maclean completed and submitted an IR35 status assessment form, in which she stated (the ET found incorrectly) that she had sent a substitute to do the work and had paid the substitute. |
| The Respondent’s case | Firstly, PELC argued that the ET did not properly consider the two key documents, particularly the MA and the PAD. On the one hand, the ET relied upon some terms of the MA, but on the other, it said that it did not accurately set out the terms of the relationship (the contract point). Secondly, PELC argued that the ET made a perverse finding or one that was insufficiently explained. The particular findings challenged included a finding of there being a natural inference that the Claimant agreed to undertake at least a reasonable amount of work and that the Respondent agreed to offer and pay for it throughout the relevant period (the MOO point). Thirdly, PELC challenged the ET’s finding that substitution would have been impracticable and that references to it in the IR35 determination and associated documentation were not operative (the substitution point). |
| The Claimant’s Case | Miss Maclean argued that, even based on the contents of the MA, the contract was between herself personally and PELC. The reality of the relationship established that she was an employee. because she had agreed to undertake at least some reasonable amount of work, and PELC had agreed to offer at least some reasonable amount of work and pay for that work. Furthermore, she had never provided a substitute, and she was fully integrated into PELC. |
| Judgment: | The Employment Appeal Tribunal upheld and allowed PELC’s appeal, in part. The EAT rejected the contract point on the basis that it was open to the ET to conclude that some of the provisions in the documents were accurate and that some were not. The ET first had to consider with whom PELC had contracted (i.e., the Claimant or her PSC), and having done that by reference to the MA and the PAD, it wasn’t precluded from going back to the same documents to address the elements of employee and worker status. The EAT accepted the MOO point. The ET’s finding that the Claimant worked regularly for the Respondent for several years was insufficient to support the ET’s finding that she was an employee throughout the period of the relationship. Instead, some of the findings appeared to suggest that she was only a worker during each period of each shift. The EAT also accepted the substitution point. The ET’s reasoning was inadequate. The ET’s finding that it would have been impracticable to send a substitute suggested that the right of substitution was not a true reflection of what the parties expected because it was incapable of being effective. However, the ET had not provided reasons as to why the right was impracticable and thereby why the right to substitute was not a true reflection of the agreement between the parties. |
Commentary & Key Takeaways
This case provides a useful reminder of the legal tests for employment status and the importance of getting the contractual documentation right. Although the Respondent succeeded in part, many of their difficulties arose from the poor quality of the contractual documents that undermined the integrity of the contractual chain. As there was a personal service company within the contractual chain, all the contractual documentation should have been clearly between the PSC and the Respondent.
Secondly, in this context, working regularly for a party was, in itself, insufficient to establish that Miss Maclean had been an employee throughout the period of the relationship. There can be MOO during an engagement, without there being MOO between engagements. In other words, an individual can have a series of individual engagements rather than one overarching, continuous contract.
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