Whom do you work for, the agency or the client? A court decision made on October 31st 2007 will provide the answer. It's important to know the issues even now.
The Court of Appeals (Civil) announced a reserved decision on James v. Greenwich on October 31, an unusual move which means we won't know the substance of the ruling until the judges decide to announce it--probably within a week or so.
Key To Employment Rights and IR35
''This decision is crucial to determining whether a contractor may have the same rights and benefits as one of the client's employees. But even more important: this same case law is used to determine whether or not you are inside IR35,'' says Theresa Mimnagh, a lawyer with the Hove-based Lawspeed legal consultancy which specialises in contractor and recruitment affairs.
Agency or Client?
The basic story is simple: contractor James worked for five years delivering parcels for Greenwich Council, but this was contracted for through an agency. James didn't get regular work all the time though, the agency sent someone else to do the job when James was out sick.
The last time James v. Greenwich went to court, which was in December 2006, the agency position was reinforced: ''in deciding whether a worker supplied to an end-user client by an employment agency is in law an employee of the agency's end-user client, the passage of time is not by itself sufficient to mean that a contract of employment can or should be implied and this is so even if the arrangement continues for longer than originally expected,'' the courts said. So it doesn't matter how long you work for the client; that won't change your status
IR35 Not Time Dependent
Note that the Revenue has often used the 'period of time' argument to claim contractors are inside IR35--the ''rolling contract'' argument in which a contractor accepts one 3-month contract, and then another has often been finger-pointed by the Revenue as being inside IR35. That's not so since this ruling.
Further, the burden of proof is now on the contractor: says the court '' if agency-supplied workers wish to assert that they are employees of the end user (for example with a view to claiming unfair dismissal) then, assuming the original agency arrangements were genuine, it will be necessary for them to show that there have evolved mutual obligations binding worker and end-user which are incompatible with those arrangements."
Mutuality of Obligation Is Hard To Prove
What this means is that you have to show an ''obligation'' to work: when the client wants you to work you do so, and the client is obliged to give you work (an employee obviously has to receive paid work from the employer every working day).
Most contractors work on projects which run for a specific period of time, and involve a specific deliverable. If this is not the case, and the contractor is doing all sorts of work for the client who is providing it regularly, the contractor may well effectively be an employee. This view was supported by another recent case, P.James v. Redcats which the Employment Appeals Tribunal ruled on in February, 2007.
But the February case dismissed a claim for employment rights, and, indeed, the burden of proof is now on the Revenue to show that there is mutuality of obligation in claiming that you are inside IR35, as Mimnagh points out.
The burden of proof for mutuality of obligation is on whoever is trying to show employment status be it HMRC or the contractor
Theresa Mimnagh-Lawspeed
One fact made it very difficult for James to make this case: the contractor changed agencies while working for the Council, as opposed to trying to become an employee. The Tribunal found that this circumstance was very significant; if you seek to work for agencies instead of the client, you probably aren't an employee, the argument ran. Again, this argument makes it difficult for the Revenue to claim that you are within IR35 since, as a contractor, you probably work for lots of different agencies, whether for the same client, or for others.
We all hope that the complexity of thes issues will be simplified in the upcoming ruling, but that is a great deal to hope. What is really needed is a clear definition of self-employment in law, for one part. For the other part, contractors who are attacked with IR35 status should have a clear claim to employee rights. But those two parts need to come from new legislation, and we must continue to press the Government to take action on them.
Published: Monday, November 05, 2007
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