Getting it right - the “irreducible minimum”.
Since as long ago as 1968, and the case of Ready Mixed Concrete, the tribunals and courts have used the "multi factorial” test, rather than one single test, to determine employment status. This involves the consideration of a number of factors, including what has become known as the "irreducible minimum" of three: personal service, mutuality of obligation and control, together with additional factors such as whether the individual can be considered as being in business on their own account and free to market their services to the world in general (remember these last two factors point away from employee or worker status towards a SEIC). Let’s look at each in turn, remembering that all the factors will be considered together to ultimately “paint a picture” of the relationship between the parties and determine into which category of employment status it falls.
Personal service and the right of substitution
Remember – personal service points towards employment and/or worker status. After determining that there is a contract (not necessarily in writing), the first question to ask is whether the individual undertook under that contract
to perform the work or services personally. Whether there is the requirement for personal service is often analysed by asking whether the individual has an unfettered right to offer a substitute to do the work in their place – if they do, this points away from a requirement for personal service and away from employee/worker status towards a SEIC. However, the case of Byrne Brothers noted that a limited power to appoint a substitute is not necessarily inconsistent with a requirement for personal service. That said, a pure, unfettered right to provide a substitute will be fatal to a finding that the individual is an employee, as there is clearly no requirement for personal service. It is vital to consider how fettering a right of substitution may still give rise to an obligation to provide personal service and suggest worker, and possibly, employee status as opposed to a SEIC.
Remember, what the written contract says is merely part of the evidence and does not determine the reality of the situation. The employer may say that a written contractual clause providing an unfettered right to provide a substitute is, in fact, the reality. But, the individual may say that it is merely a ‘boilerplate’ and the reality is quite different; in other words that their right to substitute someone else to do the work is fettered to such a degree as to amount to a requirement for personal service meaning they are employees or workers. After Uber, the starting point is to look at the evidence of what is actually happening in practice, rather than the contract, in deciding whether there is genuinely an unfettered right of substitution.
In the much-publicised case of Pimlico Plumbers, the court gave some useful guidance on the requirement for personal service and what constitutes an unfettered right to provide a substitute:
- An unfettered right to provide a substitute is inconsistent with an undertaking to provide services personally and inconsistent with an employment contract.
- A conditional right to provide a substitute may or may not be inconsistent with personal performance. It will depend on the precise contractual terms, the degree to which the right is limited or occasional and what is happening in reality. By way of example:
- A right to substitute only when the contractor is unable to carry out the work is consistent with personal performance and suggests worker and possibly employee status.
- A right to substitute only with the consent of another person who has an absolute and unqualified discretion to withhold consent is consistent with personal performance and suggests worker and possibly employee status.
- A right to substitute, limited only by the need to show that the substitute is as qualified/competent/capable as the contractor to do the work, whether or not that entails a particular procedure, is likely to be inconsistent with personal performance and may suggest SEIC status. The EAT case of Stojsavjevic and Turner v DPD Group UK Ltd considered this point and the decision from the tribunal is currently awaited.
Ultimately, in the Pimlico Plumbers case, despite the fact that the individual had a limited ability to offer a substitute in practice (he could send another Pimlico Plumber operative in his place; in essence, they could swap assignments) the Supreme Court held that it was helpful to assess whether the dominant feature of the contract remained personal service on his part. It held that it was and this fettering of his right of substitution was consistent with personal service and his status as a worker, not a SEIC.
But remember, there is a need to apply a multi-factorial test and worker status cannot be determined by a requirement to provide personal service alone; the statutory test also requires that the other party is not the customer or client of any business undertaking or profession carried on by the individual. For example, many sole-traders perform their services personally, but if they provide those services as part of their own business, they will not be workers.
The nature of substitution was considered by the EAT in Stuart Delivery Ltd v Augustine UKEAT/0219/18. The EAT upheld a tribunal's decision that Mr Augustine, a moped delivery driver, was a worker when undertaking pre-allocated "slots" (when he committed to be online for a certain amount of time and in a certain location to take jobs for a guaranteed minimum payment), as opposed to when he accepted "ad hoc" jobs (when he could log on at any time, in any location and be paid for each delivery job completed). Slots were released every Thursday via an online app for couriers to sign up to. Once they had signed up a courier could release a slot through the app. However, if no other courier accepted it, the original courier would either have to undertake the slot or face penalties (including loss of performance bonus and ultimately being removed from the service) for missing it. One of the issues before the tribunal was whether Mr Augustine's ability to release a slot via the app detracted from the requirement for personal service. The EAT upheld the tribunal's finding that it did not and that releasing a slot was not exercising an unfettered right to substitution. All a courier could do was release the slot back into the pool and only other couriers selected by Stuart Delivery could use the app to accept it. A courier had no control over who, if anyone, would accept a slot they had released. It was not a right of substitution at all but rather a right to hope that someone would relieve them of their obligation (and, if no-one did, it would remain their obligation to work the slot). Stuart Delivery Ltd has appealed to the Court of Appeal and the case is due to be heard on 21 October 2021. Watch this space!
Mutuality of obligation (MOO)
Remember – mutuality of obligation (MOO) points towards employment, and potentially worker, status. MOO is the obligation on an employer to provide work and the obligation on an individual to accept that work. MOO determines whether there is a contract in existence at all. Whilst it is essential for employee status, recent case law has found that in certain circumstances it may not be a requirement for worker status.
Carmichael v National Power  is one of the leading cases on MOO. Two individuals received letters from a power station operator which offered them "employment" as station guides "on a casual as required basis". The House of Lords agreed with the employment tribunal that the letter "did no more than provide a framework for a series of successive ad hoc contracts of service, or for services, which the parties might subsequently make". When they were not working as guides, they were not in employment. The company was not promising to offer the work, but merely "intimating" that it might be offered. In the same way, the guides were not agreeing to do the work, but merely intimating that they were open to invitations to carry out such work as and when their services were required. On that basis, the contract did not create any MOO and therefore could not be a contract of employment.
It is important to consider this case from the perspective of an over-arching “umbrella” relationship. The key point to note is that the umbrella arrangement did not amount to a contract of employment because of the lack of mutuality of obligation when the guides were not working. This must be contrasted with the position when the guides were offered a slot of work and accepted it – at that point there is MOO between the parties and arguably they would be either an employee or a worker during that assignment. Into which category they fell would depend on applying the other tests such as the requirement for personal service and the degree of control each party exercises over the work that was to be done. More on that later…
In ABC News Intercontinental Inc v Gizbert, the EAT was prepared to imply an obligation onto the individual where no express contractual obligation existed. Mr Gizbert was a TV reporter who could accept or refuse any assignment offered to him, although ABC were contractually obliged to offer at least 100 days' work a year. The EAT held that there was an implied obligation on Mr Gizbert to accept or refuse assignments in good faith. As he did not have an unfettered right to refuse work, the necessary MOO was present, and Mr Gizbert was deemed to be an employee throughout the umbrella arrangement. The EAT took into account the fact that ABC accepted he was an employee when actually working on an assignment, the high level of control ABC exercised over him during such assignments and his integration into ABC’s organisation (including contractual restrictions on working for competitors) in concluding that there was an overarching umbrella contract under which Mr Gizbert was employed by ABC even when he was not working on an assignment.
MOO was considered at length in the recent case of Nursing and Midwifery Council (NMC) v Somerville , taking into account the Supreme Court's decision in the Uber case. In Mr Somerville's case, the NMC submitted that MOO was also an essential requirement for worker status. The tribunal rejected Mr Somerville's alternative claim that he had employee status, deciding that there was no MOO as he was not required to offer a minimum number of panel sitting dates (he was a panel member chair of the Council's Fitness to Practice Committee) and was free to withdraw from dates he accepted (this is in contrast to the situation in Gizbert above).
The EAT did not accept the NMC's argument that MOO was also a prerequisite for worker status, provided an overarching contract existed between the parties under which an individual agreed to perform services personally and had done so under a series of separate contracts (as in Mr Somerville's case). The EAT also noted that, in Pimlico Plumbers, the Supreme Court did not suggest that MOO was an inherent requirement for a positive finding of worker status. The EAT did not accept that Uber lays down a general test that for worker status to arise there must be MOO in all cases.
The EAT's decision in Somerville again exposes the difficulties associated with the existing case law on status and the fact that further cases on the thorny issue of worker status are inevitable. However, the EAT was clear that the absence of any obligation on an individual to accept and perform some minimum amount of work was not fatal to establishing worker status in circumstances where there was an overarching contract with the employer. The fact remains that the existence, or otherwise, of some kind of MOO has, in practice, played a very significant part in determining worker status and is likely to remain so, particularly where there is no overarching contract between the parties under which an individual agrees to perform services personally and has done so under a series of separate contracts – as in the Somerville
Remember – control by the employer points towards employment status. In the key case of Ready Mixed Concrete, the judge said that "control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done". He made it clear that all these factors need to be considered together to determine whether one party has control to a sufficient degree over the other for the latter to be deemed subordinate to and dependent on them.
There are several ways in which control can be exhibited in an employment relationship. At the outset, an employer will commonly dictate the terms of the contractual relationship, and during the engagement will have the power to subject the employee to disciplinary procedures, require compliance with their internal procedures and retain the right to manage the relationship by issuing orders and directions. However, case law also recognises that employees, particularly senior employees or directors, apply their own skill or expertise without direct supervision by the employer.
The cases have tended to focus on the extent to which the individual is controlled in the manner in which they carry out their tasks during the engagement. So, for instance, when determining whether an employment agency or the business at which the work was done, was the employer, the courts place a great deal of weight on who exercised day-to-day control over the individual.
The question of control is not determined by whether the worker actually exercises day-to-day control over their own work but rather whether there is a contractual right of control over the worker. In the case of Troutbeck SA v White, the fact that two housekeepers were allowed autonomy in the way that they carried out their duties, as the owners of the house they looked after were absent most of the time, was not a factor pointing away from employment: "It does not follow that, because an absentee master has entrusted day-to-day control to such retainers, he has divested himself of the contractual right to give instructions to them".
Many employees, including skilled professionals, have a great deal of autonomy over the way in which they carry out their work (for example, a surgeon, a ship's captain and a footballer). The starting point lies in the express terms of the contract; if the express terms do not provide which party has the right of control, the question must be answered in the usual way by considering whether any term as to control may be implied. Following the Uber case, it is vital to remember that the question of control will be determined by looking at the cumulative effect of all the provisions in the employment agreement and what happens in practice and not just what is, or is not, set out in the written contract.
An employee engaged under a contract of service would commonly:
- Be told their place of work and their working days and hours.
- Be subject to the employer’s day-to-day direction and rules and policies relating to employees, particularly in relation to standards at work.
A SEIC would usually have a greater degree of freedom in their method of working than an employee. They would normally:
- Work more independently from the "employer" and be less likely to be required to submit to the same controls or supervision exercised over an employee.
- Determine their own working days and hours.
In the case of Bannerman v Euroscot Engineering Ltd, Mr Bannerman worked for Euroscot Engineering without any express agreement as to his employment status, but he took the lead on matters such as business development, improving productivity and processes and in connection with advice about a project in the Middle East. In respect of many of these matters he had a high degree of autonomy. The EAT found that while Euroscot's managing director retained the power to make strategic decisions, Mr Bannerman was otherwise in control of his work. While Euroscot had ultimate control over some matters, the degree of control it exercised was insufficient to justify the conclusion that Mr Bannerman was an employee. As such, he was not an employee; although personal service and mutuality of obligation were made out, Euroscot did not exercise the requisite degree of control over Mr Bannerman. Consequently his claims for unfair and wrongful dismissal failed.
The much-publicised case of HMRC v Atholl House Productions Ltd ,
involving the journalist and broadcaster Kaye Adams, found that Ms Adams was not an employee for tax purposes under IR35. The tribunal considered the multifactorial tests in Ready Mixed Concrete as follows:
- Was there mutuality of obligation between the parties?
- Yes. As the BBC had to provide a minimum fee to Ms Adams even if she did not provide a broadcasting service. If she could not provide services, then the BBC had the responsibility of locating another broadcaster.
- Was there a requirement for personal service?
- Yes. Ms Adams was also expected to provide a personal service as she could not provide a substitute if she was unavailable.
- Did the BBC have control over Ms Adams?
- No. While the editorial team had the final say over what content was broadcast, in reality, Ms Adams had control over what happened during the broadcast and it was highly unlikely that the BBC’s editors would ever exercise significant control over the show. Although the written contract claimed that the BBC had exclusive rights to use Ms Adams’ services, in reality, it did not have control over any other contracts Ms Adams chose to enter into with other media organisations and she was free to enter into other such agreements with other organisations.
- Were there any other factors to displace the conclusion that Ms Adams was an employee?
Yes, the contracts were in standard form drafted by the BBC, suggesting they were intended to be heavily modified. It was also noted that Ms Adams did not receive any holiday or sick pay.
The tribunal concluded that the written contract did not reflect the true arrangement between the parties and the reality did not reflect an employment relationship. The question of whether she was a worker did not fall to be decided as, under IR35, where she was not an employee she was not liable for PAYE. HMRC have appealed the decision to the Court of Appeal. No date has been listed but watch this space!
In Pimlico Plumbers, the Supreme Court held that the evidence showed that Pimlico exercised tight control over Mr Smith and the court considered that the overall picture clearly pointed away from him being a SEIC. Decisions in the employment tribunals in other "gig economy" cases, such as Addison Lee Ltd v Gascoigne and Dewhurst v Citysprint UK Ltd, have taken a similar approach to the question of control/subordination. They have considered other factors including whether the individual bears any financial risk, whether they are held out to customers as an integral part of the business (as might be the case if they are required to wear a uniform), whether the individual had any power to negotiate terms, and whether the written contract reflected the reality of the arrangements.
The case of Clarkson v Pensher Security Doors Ltd illustrates how fine the line can be between worker status and that of a SEIC. The EAT upheld a tribunal's decision that Mr Clarkson was not a worker but carried on a business undertaking of which Pensher Security Doors Ltd was a customer. However, the tribunal found that he came very close to the dividing line between the two, since it found that Mr Clarkson undertook the work personally and there was mutuality of obligation between him and Pensher. Despite the fact that Mr Clarkson worked consistently for the company for over two years; Pensher provided most of the equipment used and any required materials; Mr Clarkson did not have accounts drawn up and only submitted an invoice to Pensher after the event, the EAT found that Mr Clarkson was offering a service to a customer as a business undertaking and was neither an employee nor a worker.
Relevant factors which led to this conclusion were that Mr Clarkson:
- Was not integrated into the business of Pensher and there was nothing to indicate that he played any part in that company.
- Came and went as he chose, and determined how and when he worked, subject to any practical emergencies and deadlines. There was only a limited degree of control by Pensher.
- Was not involved in company procedures such as appraisals.
- Was not paid when he did not work.
- Had specialist skills which gave him a stronger bargaining position in the marketplace.
The EAT also commented that the business undertaking exception could apply even where an individual did not market their services commercially, as it is possible to market one's services through the "old boy" network or other local contacts.
The irreducible minimum of personal service, mutuality of obligation and control are not the end of the story. As in the case involving Kaye Adams, the courts and tribunals will look at the picture as whole to determine the employment status of an individual. Following the Uber case, the spotlight has fallen firmly back on the issue of control as a key determining factor. This is because of Lord Leggatt’s policy decision to offer protection (of at least worker status) to those individuals who are truly in the vulnerable position of subordination and dependency, rather than in business on their own account. That said, all the factors must be taken together and analysed as a whole. An exercise which is both fact specific and subject to complex case law. Neither of which make this an easy task for both lawyers and employers alike.
In the third and final blog in this three-part series, we will look the at the other tests used by the courts and tribunals to determine employment status.