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IR35 lesson: Latest Addison Lee ruling proves working conditions override paperwork

An employment tribunal case has reinforced the importance of prioritising the working conditions over the contractual paperwork for contractors when assessing IR35 status.

In a second employment tribunal defeat in as many months for Addison Lee, Judge David Pearl ruled that three drivers for the courier service had wrongly been classified as self-employed contractors and instead should be granted worker status.

This is despite several contractual clauses defining the drivers as self-employed, again proving that the contract can easily be overridden in court when working practices differ.

These same employment laws govern IR35, and the ruling serves as a stern reminder to contractors to secure a full analysis of the working conditions for IR35 status before accepting a contract. Failure to do so could result in a heavy tax bill.

Addison Lee ruling - how was employment status established?

By assessing the working practices, Judge Pearl found evidence to suggest that the arrangement satisfied the key tests of employment. Two of which, ‘control’ and mutuality of obligation (MOO), were recurring themes, and featured heavily throughout the case:

  • Drivers were subject to an induction
  • Drivers were required to comply with Addison Lee’s Driver Operating Guide
  • Sanctions could be issued if drivers turned down work
  • Vehicles had to be serviced regularly and dress codes were issued
  • Addison Lee would contact drivers who hadn’t worked for three or four days

Key to the MOO determination were the fixed hire costs that drivers incurred using Addison Lee vehicles. To cover these overheads, drivers were obliged to take on work. In return, Addison Lee needed to provide work to its drivers to sustain its business, in what the Judge referred to as a symbiotic relationship.

As ContractorCalculator CEO Dave Chaplin points out, this factor draws distinct comparisons with the landmark case of Autoclenz v Belcher (2011):

“Similar to the Autoclenz case, the need to cover the costs incurred places the drivers at a distinct disadvantage and creates an inequality of bargaining power. It’s only right that the Judge cast aside the contract paperwork in this instance, as was the case with Autoclenz.”

How did Addison Lee establish control and MOO?

As seems to be increasingly the case in the gig-economy, the court found that Addison Lee exercised control over its drivers through its use of technology and the sanctions it imposed. MOO was also found to be present as a result of these factors.

The court heard that each driver was issued with a handheld XDA, notifying them of jobs whilst enabling the Controller to monitor their movements. Drivers were obliged to accept each job upon notification, and needed to provide an acceptable excuse if they were unable to do so. If the Controller determined that a reason was unacceptable, drivers could be subject to sanctions, a clear indicator of control.

The contract itself also noted that, when logged into an XDA, a driver would be deemed “available and willing to provide services”, providing a further strong indication of MOO.

Gig-economy firms ‘can’t have their cake and eat it’

“The technology was clever, but had built in a whole host of rewards and motivators that were akin to controlling the drivers and creating a mutuality of obligation by proxy,” notes Chaplin.

“These firms need to consider whether they want to use less technology and enable actual self-employment, or use all the other sophisticated techniques available to exercise control whilst treating their workers as such. They can’t have their cake and eat it anymore. Not after all these recent rulings.”

IR35 – how important is the contract paperwork?

The evidence was overwhelming, and directly contradicted several contractual clauses inserted by Addison Lee to portray an engagement of self-employment. As a result, these clauses were dismissed by the court.

For example, one clause in the contract stipulated that drivers were under no obligation to provide their services to Addison Lee at any time, which in return had no obligation to provide work at all.

Another clause simply stated: “Drivers who provide their services to Addison Lee are self-employed and contracted to provide services to, and receive services from, Addison Lee on the terms of this agreement.”

The striking out of these clauses, along with several others, shows the terms of a written contract are irrelevant if they fail to reflect working realities.

Addison Lee ruling – IR35 lessons for contractors

This is the latest in a line of rulings reinforcing that the working conditions are the critical factor when evaluating both employment and IR35 status. The importance of the contractual paperwork depends on whether it reflects the true agreement between the parties.

If it does, the contract may help to prevent a protracted IR35 investigation, though alone it cannot determine a contractor’s status. If it doesn’t align with the working practices, it is not worth the paper it’s written on. After having your working practices assessed there is however some value in having your contract paperwork reviewed by a qualified lawyer.

Prior to signing a contract, contractors need to [in this order]:

  1. Assess the working conditions
  2. If outside IR35 then have the contract examined to ensure alignment with working practices

A quick, easy and free way to comprehensively assess your working conditions is to use IR35Testing.co.uk. The online test takes just 15 minutes and gives an instant answer. It covers every factor and takes just 15 minutes to complete before providing an instant result.

Published: 29 September 2017

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