Extra time

Waqar Shah and Andy Norris analyse the latest decision of the Supreme Court in the case of Professional Game Match Officials Ltd, which has been referred back to the First-tier Tribunal.

Ask any football fan and they will wistfully explain that 90 minutes can seem an eternity when your team is up against it, facing formidable opposition. One can therefore only wonder how the referees involved in Professional Game Match Officials Ltd [2024] UKSC 29 will have felt having to wait just over 15 months for the Supreme Court’s judgment to be handed down, especially with the prospect of indefinite extra time following the decision to remit the case back to the First-tier Tribunal. While the case does not make new law and we have to wait for the determination of the First-tier Tribunal based on the specific facts, the Supreme Court’s judgment was worth the wait for its approval of the recent judgment in Atholl House Productions Limited [2022] EWCA Civ 50. We therefore have principles ratified by the Supreme Court which can be used to help to determine the tax status of many working across a variety of sectors in the UK. This can impact what benefits and rights apply to engagements and even broader, how to allocate relevant risk on M&A transactions.

Key issue 

The key question in this case was whether the engagements between the referees and PGMOL were an employment relationship for tax purposes, requiring PGMOL to deduct employment taxes at source as per ITEPA 2003 and to apply employer National Insurance contributions as per The Social Security Contributions and Benefits Act 1992. It has been a long-established principle that the building blocks of a contract of employment involve a mutuality of obligations between the purported employer and employee, as well as a sufficient degree of control by the putative employer of the putative employee.

Mutuality of obligations

Mutuality of obligations historically has been defined as the obligation of a purported employee to provide his own personal service and the reciprocal obligation of the employer to pay for that service. All that is therefore needed is the provision of services for payment. Indeed, it was held in PGMOL that the right to terminate a contract is irrelevant when considering whether sufficient mutuality of obligations exist at this stage.

PGMOL would offer matches to groups of referees on a Monday ahead of a match on the weekend. A referee could refuse an appointment, but PGMOL would want to know why. A referee would also have the ability to back out at any time prior to arriving at the ground on match day. The First-tier Tribunal found that where a referee accepted a match, a contract was formed. If the referee did not attend the match, the contract would fall away, without sanction, and no fee was payable.

The Supreme Court clarified that where there is a single engagement (such as officiating at a particular match), mutual obligations do not need to be in existence before the engagement commences (in other words before arriving at a match in the case of the referees). This principle would also apply to Uber drivers, as well as other ‘casual or seasonal workers’. Most importantly, and perhaps the point that will have the widest impact, is the confirmation that ‘there may be sufficient mutuality of obligations to satisfy one of the essential requisites of a contract of employment, even if the obligations subsist only during the period while the putative employee is working for the putative employer’. Put simply, the Supreme Court confirmed that the mutuality of obligations aspect can be judged purely during the time when the work is actually being provided (regardless of the gaps between such work) which is consistent with the judgment in Uber BV & others [2021] UKSC 5. There was no requirement for there to be an overarching contract of employment applying during the entire season; a contract of employment can exist during distinct individual engagements.

Applied to the PGMOL case, that meant that all that would be needed is to show mutuality of obligations from when the referee arrived at the ground on match day until the match finished and the referee’s match report was submitted on the following Monday. It would not be necessary to show that the referees were under contractual obligations before they arrived at the ground. Therefore, each individual engagement satisfied the mutuality of obligations test, being a necessary – but not of itself sufficient – condition to the existence of a contract of employment.

The Supreme Court confirmed that the nature and extent of the mutual obligations are then relevant in the later multi- factorial determination of whether the contract is one of employment (which takes place once it has been established that mutuality of obligations and the element of control exist). The previous case law considered that a lack of mutuality of obligations outside this period of work may suggest that someone supplying services on an ‘assignment-by-assignment’ basis tends to indicate a degree of independence, or lack of subordination, which is incompatible with employee status. However, that may place far too much weight on that one particular factor and so the facts of each case will be critical when determining whether the relationship is one of employment. The case law gives no more certainty than that each case will depend on, and will be decided on, its particular facts.

Control 

Interestingly, in the PGMOL judgment, when it came to looking at the element of control, there was an acknowledgement from the court that employment practices have evolved with the result that the court must be flexible when deciding whether a sufficient level of control exists. The days where the ‘vast majority of the workforce attended at a particular factory, shop or office between set hours to work in highly prescriptive roles have long gone’ and even more so since the coronavirus pandemic.

Another key principle from the PGMOL case is that there needs only to be a degree of control by the putative employer over an incidental matter for the arrangement potentially to be one of employment. Therefore, a flexible approach must also be taken when looking at the degree of control which is sufficient to indicate an employment engagement.

What is clear from the judgment is that control does not mean that the putative employer must stand over the putative employee’s shoulder to check what they are doing and direct them accordingly. The judgment refers to examples such as surgeons (who, in the middle of operations, are unlikely to be stopped by the head of a hospital to determine and approve what should be done at each step). Similarly, the captain of a cruise ship would not expect his employer to determine how he should specifically act in choppy waters. What is clear is the need for a framework of control and that some control must be exercisable by the putative employer even if only over incidental matters.

In most engagements, there are likely to be provisions governing how the purported employee should act, along with the ability of the putative employer to intervene and potentially to sanction the purported employee if those standards are not met. It is clear from the Supreme Court’s judgment that this is a sufficient level of control required to demonstrate at least a potential employment relationship. In other words, the degree of control does not have to be set at a particularly high level for control to exist to be able to move on to the multi-factorial consideration. A putative employer does not need to have a contractual right to intervene in every aspect of the performance of a putative employee. However, there must be control in a ‘sufficient degree to make that other master’ (Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497).

Some examples given in the PGMOL case included the ability to refuse to offer further matches, and to determine the level at which referees were able to participate in a ‘merit pool’ at the end of the season. While these sanctions occurred after the engagement ended, the Supreme Court determined that this ‘played a significant part in enabling PGMOL to exercise control over the referees in the performance of their duties’.

It is not easy to conceive of circumstances where a putative employer will not want to retain some element of control over the work performed. Even in circumstances where the work is highly specialised, some degree of control will almost inevitably be present in the form of sanctions should the work not be to standard. Given there was a wealth of factors in Atholl House which pointed towards self-employment and yet that case was still ‘finely balanced’, the degree of control available to the putative employer could be a significant factor in the determination of status particularly in those cases where there are fewer factors pointing towards self-employment. This may lead to the result that even if a putative employer uses standard form contracts for all its engagements, the tax status outcome in each case may depend on the particular circumstances of the relevant contractor; with some being treated as employees and some as self-employed. This will unfortunately not be straightforward.

Looking at the whole picture

On one view, these takeaways could be seen as lowering the bar for determining whether an engagement contains sufficient mutuality of obligations and control for there to be possible employment for tax purposes. But as also considered by the Court of Appeal in Atholl House, these first two limbs of mutuality of obligations and control as in Ready Mixed Concrete are not of themselves sufficient to determine employment status; they are only pre-conditions and the whole picture of the working relationship must be considered once it has been established that the pre-conditions have been satisfied. In effect, those two limbs are preliminary hurdles which need to be reached before moving on to consider the totality of the working relationship (including at this stage as part of the bigger picture, the nature and extent of the mutuality of obligations and the nature and degree of control, ie not just whether they exist but the extent to which they exist).

The Supreme Court emphasised in PGMOL that there has been undue focus in some cases on the mutuality of obligation and control elements, treating all other terms of the contracts and surrounding circumstances with less significance. Instead, genuine attention should be paid to the ‘cumulative effect of the totality of the provisions [of the contract] and all the circumstances of the relationship created by it’ (White v Troutbeck SA [2013] EWCA Civ 1171). If courts were to focus only on those two pre-conditions, their approach would be ‘unduly restrictive’. However, putative employers may want to focus on them – after all, if one is absent from the engagement, there is no possibility of employment status applying.

Employment law 

While the PGMOL case is a tax case and not an employment case, it does centre around employment status. The judgment is therefore also likely to impact on employment related claims and in particular those seeking to argue that their engagement is more than self-employment. It is likely to be more of a concern for those employers who tend to engage individuals directly on a self-employed basis. While this will always be fact specific, there will be cases, such as those working in the gig economy, where it will now be simpler for such individuals to establish that the work they performed was in fact employment (whether that be as a worker or employee) entitling them to certain employment rights (such as the national minimum wage or a pension), which they would not benefit from if they were self-employed. This is the case even where they are engaged in short term individual engagements and there is no overarching contract applying between contracts. However, even if individuals engaged under individual engagements were found to be employees, they will likely lack the ‘continuity of service’ required for some employment related claims; most notably, unfair dismissal.

Consequences 

Although this is not an ‘IR35’ case, because the referees were engaged directly by PGMOL and not via an intermediary such as a personal service company, it will nevertheless impact the wider approach to the hiring of flexible workers and therefore potentially affect IR35 engagements. As noted above, the fact that the referees in question had separate and distinct full- time jobs outside their refereeing engagements might mean that the judgment is of even more interest to occasional or gig workers. The judgment suggests that it will not be enough in and of itself for such workers to rely on the fact that they do not have to accept a role/job in order for them to be treated as self-employed.

It would be surprising if HMRC does not undertake further investigations into relevant arrangements. Putative employers should take steps now to consider whether any engagements might be treated as employment (with all the tax, interest, and penalty implications that may bring), thinking also about whether there is scope for unexpected employment rights to exist for those whom it intended to engage on a self-employed basis. It would also be prudent for both end users and suppliers to review their IR35 compliance processes and related contracts with the aim of identifying at the very least any historic issues and also ensuring that status determination tools and procedures take account of this latest case.

For HMRC, now would be a timely (if not, long overdue) opportunity to review the CEST tool and to what extent reliance can be placed on its determinations, past and present. Although we are a matter of weeks away from the Employment Rights Bill being published (expected October 2024), the Labour government has not indicated that worker status issues or indeed, what is meant by ‘self-employment’ will be dealt with at this time. One might ask when that day will come given the years of uncertainty for workers, and purported
employers, in this area. 

 

First published in Taxation on 7^th October 2024.

further information

If you have any questions or concerns about the topics raised in this blog, please contact Waqar Shah or Andy Norris. 

about the authors

Waqar Shah is a Partner in the Dispute Resolution department, focusing on the resolution of complex tax matters. He acts for high net worth individuals and corporate clients across all sectors in respect of HMRC disputes and investigations across the full range of taxes.

Andy is an experienced employment lawyer and advises both employee and employer clients on a wide range of employment matters. He regularly advises employer clients on grievance, disciplinary and performance matters, TUPE-related issues, exit strategies and the negotiation that goes with this, and redundancies and re-organisations, as well as assisting with drafting employment contracts, handbooks and policies and settlement agreements.