When the Hunter Becomes the Hunted…
Judgment Fact File:
| Parties: | Makdani v Newcode Partnership Limited |
| Jurisdiction: | Employment Tribunal |
| Main Legal Considerations: | Employment status |
| Key Facts / Arguments: | Background: In 2018 Makdani, an accountant who had previously been supplied as an agency worker, agreed with Newcode’s suggestion that he do the company’s bookkeeping on a direct contract going forward. Makdani said that he had one ready-made contract that they could use. That contract said he was a self-employed contractor, paying his own tax and NI, but also that he would be entitled to all the statutory rights of an employee as well as paid annual leave and sick pay. The contract was, essentially, a mixture of self-employed and employee status. The following year, the contract was amended as being between Newcode and Makdani’s PSC, AMPK Ltd. In 2023 the relationship soured and Newcode terminated the agreement.The claims: Makdani claimed that he was unfairly dismissed, requiring him to qualify as an employee. He also claimed that he suffered a detriment due to whistleblowing, requiring him to qualify as a “worker” within the extended definition for whistleblowing claims. Newcode defended the claim on the basis that as a self-employed contractor, the Tribunal had no jurisdiction to hear Makdani’s complaints. Preliminary point: Did the contract between the parties give Makdani employment/worker status?Makdani’s position: That the written contract between the parties clearly gave him employee status. Newcode’s position: The contract was contradictory and, irrespective of what was written, the reality of the relationship, viewed as a whole, was one of self-employment. |
| Judgment: | Conclusion: The Employment Tribunal decided that Makdani was neither an employee (due to lack of control and lack of mutuality of obligation) nor a worker, and not a worker via the extended definition for whistleblowers. In summarising the Supreme Court in Uber, the Tribunal considered that it was relevant, for worker status, to consider: The levels of remuneration and who fixed these.Who drafted and imposed the contractual terms?Was the individual obliged to provide services, and the company obliged to offer work?Could suitably qualified substitutes be provided to carry out the work? The answer to those questions would show whether there was, as in Uber, a system tightly controlled for the alleged employer’s benefit with little input from the individual. The Tribunal found that such was not the situation in this case. |
Commentary & Key Takeaways:
- The normal roles reversed. This case is a good illustration that where, even if a Claimant drafts the contractual terms, a Tribunal will continue to look beyond them to establish the true nature of the relationship. Mr Makdani was, understandably, hoping that what was written down would be enough! It would have been interesting, however, to see what would have happened if Newcode had drafted those terms.
- The bargaining power (I) and behaviour of the parties. The Tribunal found that the way Makdani had drafted the contract meant that the terms were entirely beneficial to him, in that he got the flexibility and tax efficiency fruits from the label “self-employment” but also all the statutory protections that an employee would get, such as redundancy pay, the right not to be unfairly dismissed, notice pay etc. The Judge found that Newcode had taken no advice on those terms. The Tribunal considered that this led to one of two options. Either Makdani intended to be a self-employed professional and, as an accountant, having a greater understanding of what that meant in relation to the tax advantages, or, that that he knew or understood that he was an employee/worker but sought to hold himself out as self-employed before HMRC in order to claim a tax advantage to which he knew he was not entitled – thus amounting to a fraud on the Revenue. The Tribunal found the former to be the case, but we can imagine that it must have been an awkward hearing for Mr Makdani!
- Bargaining power (II). Makdani also negotiated what the remuneration would be. Whilst it is not entirely unusual for an employee/worker to have some negotiation over pay, getting Newcode to agree that statutory employee protection rights applied to someone who professed to be self-employed was highly unusual. The Tribunal found that his including those employment rights in the contract was not done out of belief that he was an employee, but in order to limit his financial risk. This is all indicative of his independence and dominance.
- The extended definition of worker for whistleblowing. Parliament deliberately widened the ability for individuals to be protected from detriment or dismissal due to having made protected disclosures. This includes circumstances where “(i) he is or was introduced or supplied to do that work by a third person, and (ii) the terms on which he was engaged…are or were in practice substantially determined not by him but by the person for whom he worked, by the third person or both of them”. In Mr Makdani’s case, whilst he was supplied to do the work by his PSC, the terms were almost entirely determined by himself, so he was not even caught by the wider definition.
In conclusion: It is rare for a company, when looking for an individual to provide services, just to rely on that individual having “something they prepared earlier” for the contract. Nevertheless, the fact of the individual doing this was something at the forefront of the Tribunal’s deliberations. It would not be advisable to entirely follow Newcode’s way of contracting, but allowing the self-employed contractor to dictate some of the important terms is a mark of their independence and so going toward demonstrating that they provide services for a customer rather than employer.
This case is also very interesting for the conundrum faced by Mr Makdani, which was either he knew he was self-employed when he drafted the contract or that the terms provided by him to the company “…would amount to a deliberate attempt by an experienced accountant to evade income tax and National Insurance. “. It must have been an awkward hearing for Mr Makdani, on the one hand not wanting to collapse his case before the Tribunal by admitting the former, but also not wanting to endanger his professional status with a finding of fraud.
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.
