Day

December 3, 2020

Employment Status – Lessons from the Tax Tribunal

Employment Status – Lessons from the Tax Tribunal

Speakers: Adam McGlynn, Dan Evans

Key points of this talk were:

  • Obligations to determine employment status and the IR35 burden
  • The different status types and why they are important
  • The legal tests for determining employment status
  • Lessons from HMRC’s Upper Tribunal success in the recent Kickabout case


“A worker works under a contract of service, and in order for a contract of service to exist, there must be both an obligation for at least some work to be provided, and when that work is provided, there’s an obligation for that work to be completed. This is a mutuality of obligations.”

Dan Evans, Solicitor

In this webinar, the Employment team looked at the importance of employment status and IR35, as well as the obligations of intermediaries and employers. This webinar also looks at recent cases in the Upper Tribunal and what this means for businesses going forward.


“Gender is a spectrum” – gender-fluid employee awarded £180k for discrimination on the grounds of gender reassignment

“Gender is a spectrum” – gender-fluid employee awarded £180k for discrimination on the grounds of gender reassignment

Key Contact: Claire Knowles

Author: Rebecca Mahon

Rose Taylor worked at Jaguar Land Rover (JLR) as an Engineer for almost 20 years. From 2017, Ms Taylor identified as gender fluid/non-binary and used female pronouns (having previously used male pronouns). She resigned in 2018 after being subjected to abuse (amongst other things, being called “it”) and issues relating to the use of toilet facilities. Her grievances were, for the most part, ignored and no measures were put in place to “assist her transitioning”. She subsequently brought claims of constructive unfair dismissal, discrimination, harassment and victimisation (she was not allowed to retract her resignation) on the grounds of gender reassignment. She also brought claims on the grounds of sexual orientation, which the Tribunal agreed were well-founded but out of time.

The biggest issue that Ms Taylor faced, according to Ms Taylor’s solicitors, was proving that she had the protected characteristic of gender reassignment. The Equality Act 2010 defines the protected characteristic of gender reassignment as follows:

“A person has the protected characteristic of gender reassignment if the person is proposing to undergo, is undergoing or has undergone a process (or part of a process) for the purpose of reassigning the person’s sex by changing physiological or other attributes of sex”.

JLR argued that Ms Taylor, who identifies as gender fluid, did not have the protected characteristic of gender reassignment.

Referring back to Hansard comments made by the Solicitor-General during parliamentary debates on the Equality Bill in 2009, the Birmingham Employment Tribunal found that “gender is a spectrum” and that gender reassignment, as now enshrined in the Equality Act 2010, “concerns a personal journey and moving a gender identity away from birth sex”. The unanimous decision of the Tribunal was that Ms Taylor absolutely had the protected characteristic of gender reassignment and that her claims for constructive unfair dismissal, discrimination, harassment and victimisation were well-founded.

At a subsequent remedies hearing, Ms Taylor was awarded £180,000 in compensation.

This landmark ruling suggests that other complex gender identities which involve individuals proposing to undergo a process of moving their gender identity away from their birth gender, may also fall within the definition of gender reassignment under the Equality Act 2010. Employers therefore need to tread carefully and sympathetically when it comes to supporting transitioning employees in the workplace. It should also serve as a stark reminder to employers that compensation in discrimination cases is uncapped. It is therefore vitally important to regularly train all staff on issues of diversity and inclusion.

Acuity’s employment team have delivered well-received diversity and inclusion training to a number of clients in-house. Our extensive experience has taught us that diversity and inclusion training often involves tackling sensitive issues head-on. We, therefore, strive to deliver our training in a relaxed and supportive environment to ensure all staff gets the most out of every session. For an initial discussion regarding bespoke, in-house training, please contact the employment team today.

Employment Tribunals – Learning from Lockdown

Employment Tribunals – Learning from Lockdown

Key Contact: Claire Knowles

Author: Daniel Evans

The Coronavirus Pandemic has affected all areas of life and the employment tribunal system is no exception. The President of the Employment Tribunals (England and Wales), Judge Barry Clarke recently participated in an online Q & A where he answered questions about how the tribunal system has responded to lockdown and the ongoing complications that COVID 19 has presented.

Lockdown

Judge Clarke confirmed that the immediate impact of lockdown was a massive growth in unheard claims due to the large number of hearings that were cancelled during the early lockdown period in Spring 2020. The tribunal system has now prioritised the hearing of these cases which means that any claims which have been issued since have to go to the ‘back of the queue’. In the worst pressed tribunals such as Central London and Croydon there are now delays of up to 2 years with newly issued claims being listed for hearing at the earliest in 2022.

Cloud Technology

On a more positive note, Judge Clarke noted that the lockdown has led to a huge acceleration in the use of the Cloud Video Platform which is a remote access system that enables hearings to take place through the internet. Judge Clarke confirmed that the Cloud system is now being used to hear even relatively complex claims. It can be used exclusively (where all of the hearing is conducted remotely) or as a hybrid hearing where some witnesses give evidence via the Cloud but some participants attend the tribunal in person. 

Judge Clarke’s assessment of the Cloud is overwhelmingly positive. Whilst the system cannot fully replicate a conventional courtroom it has proved itself a more than adequate substitute in the majority of cases. It offers considerable advantages such as a massive expansion in the physical capacity of the tribunal system and a reduction in the amount of travel necessary for participants.

Whilst there was a good deal of scepticism about the use of the Cloud in its early stage, industry feedback has been overwhelmingly positive, and even hardened sceptics have been won over.  Providing safeguards are built into the system to ensure that parties can object to the Cloud where its use is inappropriate, Judge Clarke considers that the Cloud is now a permanent feature of the tribunal system which will outlast the pandemic. 

What other plans do the Employment Tribunal have? 

To the extent that social distancing measures will permit, some in-person hearings will now begin although it is likely that hybrid hearings will be more common. This flexibility will permit the Employment Tribunal to both ensure it can comply with social distancing rules and ensure participants who have health concerns are still able to participate without unduly exposing themselves to risk of infection.

Comment  

The Employment Tribunal is currently focusing its efforts on maximising the number of hearings that can take place and is encouraging all parties to be open to utilising remote hearing technology where the Judge considers it in the interests of justice to do so. The Employment Tribunal is also currently reluctant to use remote hearing technology in more complex cases that involve multiple discrimination and/or whistleblowing complaints or in any case where the hearing is likely to last 5 days or more. It is therefore likely that more complex cases will suffer significant delays, either until social distancing measures allow the hearing to be heard in-person or when the Employment Tribunal is confident that remote hearing technology will not undermine its ability to serve justice on such matters. 

It is therefore unlikely that the Employment Tribunal will return to full operational capacity while continued public health guidance on responding to the pandemic requires the public to comply with social distancing measures. Even then it will be several months or even longer before the system can clear its current backlog of cases.

For advice or assistance with any Tribunal matters please contact our employment team. 

Lessons from HMRC v Kickabout Productions Ltd

Lessons from HMRC v Kickabout Productions Ltd

Key Contact: Claire Knowles

Author: Rebecca Mahon

The Upper Tax Tribunal has overturned a decision of the First Tier Tribunal regarding the IR35 rules, finding in favour of HMRC. In its comprehensive judgment, the Upper Tax Tribunal provides a masterclass in determining employment status for tax purposes.

Employment status and IR35

All employers should already be aware of IR35, or the “intermediaries legislation”, or the “off-payroll working rules” to some extent. These are rules introduced by HMRC to help tackle “bogus” self-employment arrangements that seek to benefit from a more attractive tax treatment. They apply when company “A” contracts with company “B” for services, and those services are carried out by an individual who owns/has a material interest in company B. When company A pays company B for the services, it will pay company B without PAYE deductions and it will be up to company B to make appropriate PAYE deductions from the payments that it makes to the individual that carried out the services. However, it is possible for company B (which, in effect, is the individual) to “fiddle the books” in this scenario by, for example, paying themselves the minimum wage and for the majority of his/her income to come from dividends (which are taxed at a lower rate than employment income).

IR35 effectively gives HMRC the powers to assess, but for the existence of company B, if the individual would have deemed employment or worker status with company A. If the answer is “yes”, HMRC can seek to recover the amount of tax that should have been paid (to the extent it hasn’t already been paid) in relation to the services from company A and/or the individual.

The effectiveness of IR35 in its present form has been routinely brought into question. As such, from April 2021, company A will be required to carry out its own assessment as to whether, but for company B, the individual would have deemed employment status and if so, it will need to make PAYE deductions from the amounts paid to company B. These rules already exist in the public sector.  Please refer to our website Know-How pages for further articles on these rules and our “IR35 Assist” tool which helps companies in making their assessments as to whether a subcontracted  individual would have deemed employment or worker status.

Supervision, direction, control

HMRC have historically focussed on three key indicators when considering whether an individual has employment status for tax purposes: supervision, direction and control. The more supervision, direction and control that a company (or the “end client”) has over its contractor, the more likely that contractor is to have deemed employment status in the eyes of HMRC.

The focus of HMRC tends to be narrower than what an employment tribunal will look at when considering issues of employment or workers status. For example, an employment tribunal will often consider wider factors such as the intentions of the parties, the degree of financial risk taken on by the contractor and how the contractor appears to the outside world. Ultimately however, both the tax and employment tribunals will look at the overall circumstances of the relationship to determine, but for the existence of an intermediary, the individual would be an employee of the end client.

Ready Mixed Concrete and the “irreducible minimum”

In the Kickabout case, both the First Tier Tribunal and the Upper Tax Tribunal turned to the “famous” case of Ready Mixed Concrete. Within this case the Employment Tribunal upheld that a “multiple” test must be applied when determining employment or worker status, and shuns the suggestion that there can ever be one single determinative factor. In Ready Mixed Concrete, it was established that a court must always consider (as part of the “multiple” test) whether:

  • an agreement exists to provide the servant’s own work or skill in the performance of service for the master (“personal service”) in return for a wage or remuneration;
  • in the performance of that service, the master has a sufficient degree of control over the servant (“control”); and
  • the other provisions are consistent with a contract of service (“other factors”).

If all of these things are apparent, it is possible for a “hypothetical” contract of employment to exist. However, if any one of these things are absent, a contract of employment cannot (in theory) exist. These three factors are therefore referred to as the “irreducible minimum”.

Other factors: “mutuality of obligation”

Arguably, the most important “other factor” in the irreducible minimum is whether there is a mutuality of obligation to do work, and for work to be provided. Without this, it is unlikely that a contract of service will be held to exist and so any additional “other factors” are largely irrelevant.

Background of the Kickabout case

Mr Hawksbee was contracted, via his personal service company (Kickabout) to present a radio show for Talksport (the Hawksbee & Jacobs Show). He was required to present the show 222 days each year and Kickabout was paid £525 +VAT per episode. The contract was for 2 years (albeit at the time of HRMC’s challenge, the show had been running for 18 years) and both parties had to give 4 months’ notice to terminate early. Whilst Hawksbee and Jacobs wrote the content for the shows, they would need to factor in things like advertisement breaks, regular news updates etc. in line with OFCOM requirements. The show was “live”, but there was around a 14 second delay before broadcast and the Talksport producers had the ability to quickly “dump” content if it breached OFCOM requirements.

The findings of the First Tier Tribunal

Considering Ready Mixed Concrete, the First Tier Tribunal concluded:

  • There was an obligation on Hawksbee to provide a personal service; but
  • Talksport had “relatively narrow” rights to control “what” services Hawksbee could be required to perform. Hawksbee could be obliged only to present the show and perform some ancillary obligations relating to promotion of the Talksport brand; and
  • the “bare minimum of mutuality of obligation” was present, because Talksport had no obligation to provide Hawksbee with any shows to present. Therefore this was not “strongly indicative of an employment relationship”.

The First Tier Tribunal noted that the strongest indicators of employment status were the degree of Hawksbee’s economic dependency on Talksport and the fact that Hawksbee had been presenting the show for 18 years without interruption. However, applying the irreducible minimum, it was not satisfied that an employment relationship could be said to exist.

The analysis of “control” and “mutuality of obligation” provided by the Upper Tax Tribunal

The Upper Tax Tribunal disagreed with the findings of the First Tier Tribunal.

Considering the matter of control, it noted the following points:

  • Talksport could control “where” and “when” Hawksbee performed his duties. It also had material rights of control over “what” tasks Hawksbee performed because it had the ultimate right to decide on the form and content of a particular episode of the show. The fact that, in practice, Talksport was content to give Hawksbee a high degree of autonomy did not alter that conclusion. Quoting Langstaff J in Wright v Aegis Defence Services (BVI) Ltdthe “control” test is focusing on the right of control and not how, or if, that right was exercised in practice”.
  • Talksport had little practical or contractual control over “how” Hawksbee performed his duties. However, referring to the 2020 Upper Tribunal decision in Professional Game Match Officials Limited v HMRC: “… a practical limitation on the ability to interfere in the real-time performance of a task by a specialist, whether that be as a surgeon, a chef, a footballer or a live broadcaster, does not of itself mean that there is not sufficient control to create an employment relationship”.

When looking at the issue of “mutuality of obligation”, the Upper Tribunal considered that:

  • “in the context of the contract as a whole, the express engagement of [Kickabout] for a fixed period to provide the services was sufficient to constitute a binding commitment by Talksport to provide at least some work. This is not a case where the contract provided merely a framework within which Talksport would offer particular pieces of work … There was no need for a separate offer of particular pieces of work, given the engagement to carry out the services for a fixed term, in the same way as a company engaging a person as ship’s captain is necessarily agreeing to provide the ship in question
  • The right for either party to terminate the contract on four months’ notice was indicative of an obligation on Talksport to provide work and “makes little sense if Talksport is entitled simply to stop providing shows for Mr Hawksbee to present”.
  • The fact that Kickabout was contracted to provide the services for 222 days’ each year would make it extremely difficult for Hawksbee to earn a living by working full-time for anyone else. The Upper Tribunal said, therefore, that the conclusion that Talksport was not obliged to offer Kickabout or Hawksbee any work at all was “so contrary to business common sense as to call into question whether it was the true effect of [the contract]. Business common sense points, on the contrary, to a conclusion that [the contract] set out a contractual regime under which, in normal circumstances, Mr Hawksbee was, during the term of that contract, to be provided with a show to co-present on every weekday between 1pm and 4pm”.

Comment

Whilst there is nothing which is earth-shatteringly “new” in the Upper Tribunal’s judgment, it does provide a useful steer on some points which were previously very much open to interpretation. In particular (in relation to control) the reemphasis of the point that an inability to interfere with the services provided by the contractor in “real-time” is not fatal to the existence of an employment/worker relationship will be a worrying conclusion for a number of “specialist” consultants. The fact that the Upper Tribunal found that an engagement to provide services for a fixed term and the existence of a notice period were indicative of a mutuality of obligations will need to be taken into account by businesses and their lawyers when drafting consultancy agreements going forward. Perhaps the most interesting and novel point, however, is the determination of the Upper Tribunal that it would be “contrary to business sense” for a contractor to accept terms that would make it very difficult to earn a living if work was subsequently not provided by the company, and accordingly where contracts require a high level of commitment from the contractor in question, this in turn may indicate an obligation on the company to provide work (notwithstanding any statements within the contract which suggest otherwise).

What this case also emphasises is the importance of a properly drafted consultancy contract that has thoroughly assessed the individual terms of the engagement and that they reflect a genuine self-employed engagement.

For more information regarding the application of IR35, employment status or our “IR35 Assist” tool, please contact our employment team.