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IR35: Addison Lee ruling reinforces that working conditions override written contract

Contractors were served another reminder to play close attention to their working practices to avoid IR35 risk last week, after another company was defeated in an employment tribunal.

In the case of Gascoigne vs Addison Lee Ltd, Judge Joanna Wade ruled that former courier Chris Gascoigne was a worker for the private hire company. This is in spite of the written contract, which stated that Mr Gascoigne was an ‘independent contractor’.

This is the latest in a string of employment tribunal cases whereby gig-economy workers have successfully claimed workers’ rights, following recent cases involving Uber and CitySprint. It won’t be the last case of its sort, with an Addison Lee appeal also looking likely.

Given that the same employment laws underpin IR35, it also reminds contractors that a contract alone won’t guarantee their IR35 status. It’s essential to maintain careful working practices to stay outside of IR35, or else you could risk losing thousands of pounds to tax.

Does the Addison Lee case satisfy the key tests of employment?

Though a contractual clause was included to demonstrate that Mr Gascoigne and Addison Lee had no obligations toward each other, a mutuality of obligation (MOO) was evident throughout the working engagement.

The court found that when a job was made available, there was an assumption shared between both parties that Mr Gascoigne would be available for work. Only in exceptional circumstances would the job be refused.

Judge Wade also noted that the full extent of control exercised over the couriers was rarely, if ever tested, largely as a result of MOO and the willingness of couriers to cooperate for fear of otherwise not receiving future work.

Despite this, there was enough evidence to indicate that a significant amount of control was present. Judge Wade pointed towards the fact that Mr Gascoigne’s work would be designated and supervised by a ‘controller’, with whom Mr Gascoigne was in constant contact with throughout each working day.

It was also clear that Mr Gascoigne was required to perform the work personally, with the circumstances not lending themselves to any form of substitution.

Autoclenz case used to override the contract

Judge Wade sought to determine what the true agreement was by applying the lessons learned from Autoclenz v Belcher (2011), the landmark ruling demonstrating that ‘sham’ contracts cannot be used to create a business-to-business relationship.

Much like the Autoclenz case, there was clear evidence of an inequality of bargaining power between Gascoigne and Addison Lee, with the courier unable to renegotiate terms.

As Martyn Valentine of employment status law specialists The Law Place explains, the precedents set in the Autoclenz case mean subsequent cases grant little weight to contracts which deviate from the working practices:

“If the contract doesn’t reflect the working practices, it merely becomes one of many factors used to determine employment status, rendering it far less important. It’s still relevant, but the working practices always take priority.

“However, the contract itself still sets out the rights and obligations of the parties, and for the contractor to disregard it entirely would be a disservice on the basis that the contract could have some very adverse clauses that affect their business.”

Job descriptions could pose IR35 risk

A key stumbling block for Addison Lee was its own recruitment material. Judge Wade alluded to material on Addison Lee’s website inviting couriers “to join our growing fleet”. The same material also implied that couriers were provided with guidance and directions, implying control.

“Website verbiage can be dismissed as advertising puff, but when it differs so starkly from the contractual wording, alarm bells must ring,” commented Wade.

As Valentine highlights, contractors also need to pay attention to wording in recruitment material, otherwise it could have an adverse effect on a future IR35 defence:

“IR35 is broad enough to encompass any factor relevant to the engagement, including the initial job description. So it can be dangerous for a contractor where a recruiter has advertised for a specific position but the terms themselves are remarkably different.

“A contractor needs to be mindful of IR35 right from the start. In many cases, problems caused by HR or recruiters posting job descriptions without having a full understanding of the distinction between a contract for services and a short-term employment contract can complicate an IR35 defence further down the line.”

Gascoigne vs Addison Lee Ltd - key lessons for contractors

The key point for contractors to remember is that the notional contract – i.e. the working practices - will always override what is written on paper. The paperwork may display all of the trademark signs of a contract for services, but a tribunal judge will always consider the bigger picture, and may even dismiss a contract entirely based on this.

But this isn’t to say that the contract in itself is of no importance when considering IR35, as ContractorCalculator CEO Dave Chaplin highlights:

“If the contract is tight, and is matched by equally tight working conditions, there is less chance of HMRC pursuing a contractor through the courts. A tight contract is essential for closing down an investigation early, but only if it aligns with the working practices.”

The judge’s referral to the Autoclenz case is also good news for contractors with questionable contract terms. Contractors might use Autoclenz as a defence in a scenario where an agency or client is unwilling to renegotiate contract terms, providing their actual working practices leave them comfortably outside of IR35. The only concern if using this defence is that an investigation could become lengthy and therefore costly.

“The primary concern for contractors is making sure that they aren’t agreeing to work in a position that is caught by IR35 in the first place,” concludes Chaplin. “The paperwork is secondary, and good paperwork will help to close down an investigation quickly.”

Published: 07 August 2017

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