Employment status: HMRC gets a red card
In a case against HMRC, the upper tribunal found individual football referees to be self-employed. The case shines a harsh light on HMRC’s view of mutuality of obligation and has implications for the CEST tool.
The case (UKUT 0147) concerned football referees engaged by Professional Game Match Officials Limited (PGMOL) and whether they were self-employed individuals when officiating at league matches, or employees of PGMOL. The appeal relates only to the National Group of referees who undertake their match duties in their spare time.
The referees won the first round at the FTT. The decision has again gone in favour of the match referees at the UT, making the decision a binding precedent.
Mutuality of obligation
The UT concentrated on mutuality of obligation (MOO) in relation to the individual contracts and the overarching contract, and also looked at the element of control in the individual contracts.
HMRC submitted that mutuality of obligation is relevant only to the question of whether there is a contract at all. If there is a contract, whether it contains an obligation to provide services personally, and obligations which are in some way “work related”. It is not to question whether such a contract is one of employment or for services. This fits with the interpretation of mutuality that HMRC uses in its CEST tool.
Is there a contract in existence at all?
HMRC’s argument stems principally from Elias J’s judgement in Stephenson v Delphi Diesel Systems Ltd  ICR 471. Elias J said that the significance of mutuality was solely that it “determines whether there is a contract in existence at all…” but, that case concerned an agency worker.
The relevance in Stephenson was whether there was a contract in existence at all between the agency worker and the client, bearing in mind that there is an agency intervening in the relationship. It seems that the statement made by Elias J was very much fact specific to that case, so HMRC applying the argument to the facts of the referees' case hasn’t quite worked.
Employee and employer obligations
The UT went through the case law on MOO in fine detail and then derived the following propositions as to the required content of the mutual obligations:
- For the employee the minimum requirement is an obligation to perform at least some work and an obligation to do so personally. In line with the principles of substitution, it would be inconsistent with that obligation if the employee could decide never to turn up for work.
- The minimum requirement on an employer is an obligation to provide work or, in the alternative, a retainer or some form of consideration (which need not necessarily be pecuniary) in the absence of work. The UT thought it would be insufficient to constitute an employment contract if the only obligation on the employer was to pay for work if and when it is actually done.
- In both cases, the obligations must subsist throughout the whole period of the contract.
The UT dealt with the requirement of MOO in relation to the overarching contract. In reliance on the principles above, the UT concluded that the FTT was correct to conclude that there would be insufficient MOO to characterise the overarching contract as a contract of employment. This would be in the absence of an obligation on PGMOL to provide at least some work.
However, HMRC contended that the FTT was wrong to conclude there was no obligation on PGMOL to offer work and no obligation on the referee to accept it. HMRC submitted that references in the Code of Practice where referees are “expected” to adhere and are “expected” to do various specific things, including “be readily and regularly available for appointment to matches” are to be construed as legal obligations.
“Expected” or “obliged”?
The UT was not persuaded that the use of the term “expected” is to be read as “obliged”. “The fact that the drafter of the Code of Practice has used both “obligation” (stating expressly that the referees are “not obliged to accept any appointments to matches offered to them”) and “expectation” (stating what referees are nevertheless expected to do) demonstrates an understanding of the difference in meaning between the two phrases, and an intention that each is respectively to be read according to that different meaning.”
The analysis by the UT of the wording used in PGMOL’s legal and non-legal documents shows how important the drafting is and how much attention needs to be paid to understanding whether documents are contractual or not.
HMRC also submitted that the “realistic and worldly wise” approach mandated by the Supreme Court in Autoclenz v Belcher  UKSC 41, should have determined that mutual obligations existed.
Realistic and 'worldly wise'
In Autoclenz, the court pointed out that it is more common for a tribunal to investigate allegations that the written contract does not represent the actual terms agreed, and that the court must be “realistic and worldly wise” when it investigates those written terms.
HMRC, therefore, argued that in taking a “realistic and worldly wise” approach there was an obligation on PGMOL to provide some work and an obligation on the referees to perform it if asked and that would constitute a contract of employment.
The UT disagreed, as it considered this case was to be contrasted with an ‘ordinary’ situation. “[W]here an entity whose function is to provide the services of a number of highly qualified individuals from a limited pool of talent on a regular basis for important commercial events would wish to impose a legal commitment on its staff to work.”
In contrast, in the present case, the referees were highly motivated and wished to make themselves available as much as possible such that “there is no need for a legal obligation”.
The court considered HMRC’s real complaint is that it just “disagrees with the conclusion the FTT reached.” The UT said that even if it did agree with HMRC, that would be insufficient grounds to permit the tribunal to interfere with the FTT decision. In the UT judgement, the express terms of the overarching contract negating any obligations to offer and take on work reflect the true agreement.
The FTT found that in relation to the individual contracts each engagement constituted a separate contract in which there was some level of MOO. There was some obligation for the referee to officiate as contemplated (unless he informed PGMOL that he could not) and for PGMOL to make payment for the work actually done, but the FTT thought that this was insufficient to render them employment contracts.
The right of the referee having accepted an engagement to officiate at a single match and then to withdraw from the match because of injury or work commitments or for any other reason, without breaching the contract, was inconsistent with the obligations of an employee. As was the right of PGMOL to cancel an appointment once made.
HMRC argued that so far as PGMOL were concerned, mutual obligations were satisfied by PGMOL’s obligation to pay if the referee worked. This argument was again rejected by the UT which held that there was insufficient MOO to create a contract of employment.
The FTT identified the test for establishing control as requiring a “sufficient framework of control” in the sense of “ultimate authority”, rather than there necessarily being day-to-day control in practice. The FTT added: “This means some contractual right of control, in the sense of the employer having the right to step in, even if that right is not exercised in practice and even if the individual is engaged to exercise his or her own judgment about how to do the work.”
The FTT concluded: “Overall, we are not persuaded that PGMOL had a sufficient degree of control during (and in respect of) the individual engagements to satisfy the test of an employment relationship”.
In the UT judgment, the authorities established that there is 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, but that does not of itself mean that there is not sufficient control to create an employment relationship. It is also important to note that most of the authorities contemplated a relationship of a longer-term than a single engagement.
Error on control
When it came to control, the UT considered that the FTT had, in fact, erred in law. Although, this did not necessarily mean that PGMOL did exercise sufficient control over the referees in the context of each individual contract to render them employees.
In order to reach a conclusion on the issue of control, the UT considered that a full evaluation would need to be undertaken but, that given their conclusion on mutuality of obligations, it was unnecessary to undertake the task themselves or to remit it to the FTT.
No error on MOO
Ultimately, the UT concluded that there was no error of law in the FTT’s conclusions that there was insufficient mutuality of obligation in relation both to the overarching contract and the individual contracts. It follows that there was no error of law in its conclusion that the referees in the National Group were engaged under contracts for services, they were not employees, and the appeal was dismissed.
HMRC has already declared that it is going to appeal this case. This case is very thorough on the issue of mutuality though, so it is hard to see how HMRC would appeal it. It is more likely then to be appealed on the point of control but then that is unlikely to outweigh the lack of mutuality.
It will be interesting to see what avenue HMRC will use to challenge this case. Hopefully, it will bring some much-needed clarity on the issue of mutuality of obligation and in turn, an amendment of the CEST tool.
You might also be interested in
Rebecca is a leading expert in ‘employment status’ and IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35...