'IR35 Friendly' Contracts not really so friendly

[meanttobeworking]

you don't *have* to look on here you know....

[LisaContractorUmbrella]

The lawyers seem to think that this was a pretty landmark case as it put aside a number of previously accepted ideas:


the claimants signed documents that expressly defined the
relationship and the work was given on that basis only.
Nonetheless, the court put the written terms aside, looking
at what was expected and what happened in practice

Consistent Group Ltd v Kalwak is not authority that a
written term can be disregarded only where the parties
jointly intended to mislead others

the court disregarded all the fiscal and other consequences
of its decision, which were ‘by no means all one way’

such a case can open retrospective claims about
deduction from wages, holiday pay and other rights of
employees and workers that are not available to the self-employed.

(above comments by Timothy Brennan QC

[eek]

The lawyers seem to think that this was a pretty landmark case as it put aside a number of previously accepted ideas:


the claimants signed documents that expressly defined the
relationship and the work was given on that basis only.
Nonetheless, the court put the written terms aside, looking
at what was expected and what happened in practice

Consistent Group Ltd v Kalwak is not authority that a
written term can be disregarded only where the parties
jointly intended to mislead others

the court disregarded all the fiscal and other consequences
of its decision, which were ‘by no means all one way’

such a case can open retrospective claims about
deduction from wages, holiday pay and other rights of
employees and workers that are not available to the self-employed.

(above comments by Timothy Brennan QC)

It might have worked if they hadn't been following the same working patterns for 16 years prior to the new paperwork. Nothing changes the fact that they looked and smelt like employees for 16 years regardless of what the paperwork said.

Also the idea that they weren't going to get work is stupid. Its a car auction house flogging 100 cars a day minimum when open all of which require a little touchup before going under the hammer.

[Fred Bloggs]

It doesn't surprise me but it does disappoint me. It was a clear case of caught by IR35 but trying to avoid it as a tax dodge.

Worse its designed to allow them to pay their workers peanuts.

I agree with your thoughts, there are thousands of unscrupulous businesses where they call their employees "self employed". I know several local to me. It's all about the employer avoiding national insurance. IR35 shouldn't be the issue, clamping down on the bad employers should be what counts in these cases.

Myself, I always think that if you look like an employee, behave like an employee (as in cases like this) then the likelihood is that come the day your IR35 status is challenged, you will lose.

[John Antell]

The lawyers seem to think that this was a pretty landmark case

The decision of the Supreme Court in Autoclenz v Belcher www.johnantell.co.uk/pdfs/AutoclenzvBelcher.pdf is considered in legal circles to be a major change to the approach to written employment contracts. However it is important to distinguish between:

a.) actual contracts

b.) the IR35 “hypothetical contract”

As far as actual contracts are concerned, the longstanding general principle is that if two parties sign a written contract which, on the face of it, is intended to be the entire agreement between the parties, then the court will not allow either party to claim that other, different, terms were agreed orally or by conduct. There are some limited exceptions to this, but that was the general rule.

The reason for this rule is that if two businessmen very sensibly put down what they are agreeing in writing – not just a brief email but a comprehensive statement of what they are agreeing – the reason why they are doing this is precisely so that there is no dispute later about what was agreed. It would defeat the object of certainty if, after the agreement is signed, one party could allege that despite the contract saying that the fee rate is £100 per hour, in fact there was an oral agreement that it should only be £80 per hour. So in order to provide certainty the court generally will refuse to hear one party’s allegation that something different was agreed orally, and will look only at the written contract. (As I say there are exceptions but that is the general principle).

What the Supreme Court decided in Autoclenz v Belcher was that this strict rule should no longer apply in the case of actual employment contracts. Lord Clarke said:

The position under the ordinary law of contract is clear. It was
correctly summarised thus by Aikens LJ in the Court of Appeal:
“87. … Express contracts (as opposed to those implied from
conduct) can be oral, in writing or a mixture of both. Where
the terms are put in writing by the parties and it is not alleged
that there are any additional oral terms to it, then those
written terms will, at least prima facie represent the whole of
the parties' agreement. Ordinarily the parties are bound by
those terms where a party has signed the contract...

21. Nothing in this judgment is intended in any way to alter those principles,
which apply to ordinary contracts and, in particular, to commercial contracts.
There is, however, a body of case law in the context of employment contracts in
which a different approach has been taken. Again, Aikens LJ put it correctly in the remainder of para 89 as follows:

“But in cases of contracts concerning work and services, where one
party alleges that the written contract terms do not accurately reflect
the true agreement of the parties, rectification principles are not in
point, because it is not generally alleged that there was a mistake in
setting out the contract terms as they were. There may be several
reasons why the written terms do not accurately reflect what the
parties actually agreed. But in each case the question the court has to
answer is: what contractual terms did the parties actually agree?”
22. In this context there are three particular cases in which the courts have
held that the ET should adopt a test that focuses on the reality of the situation
where written documentation may not reflect the reality of the relationship:
...

The critical difference between this type of case and the ordinary
commercial dispute is identified by Aikens LJ in para 92 as follows:

“92. I respectfully agree with the view, emphasised by both Smith
and Sedley LJJ, that the circumstances in which contracts
relating to work or services are concluded are often very
different from those in which commercial contracts between
parties of equal bargaining power are agreed. I accept that,
frequently, organisations which are offering work or requiring
services to be provided by individuals are in a position to
dictate the written terms which the other party has to accept.
In practice, in this area of the law, it may be more common
for a court or tribunal to have to investigate allegations that
the written contract does not represent the actual terms agreed
and the court or tribunal must be realistic and worldly wise
when it does so. ...”

35. So the relative bargaining power of the parties must be taken into account
in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the
circumstances of the case, of which the written agreement is only a part. This may be described as a purposive approach to the problem. If so, I am content with that description.


So this is an important change of approach in the case of actual employment contracts in that it is now clear that actual working practices can be used to show what the true agreement is even when there is a formal contract.

However this has always been the case for the IR35 “hypothetical contract”. In 2001 in R (Professional Contractors Group) v IRC, Mr Justice Burton said:

It appears to me clear that the Revenue must bear in mind that under IR35 they are not considering an actual contract between the service company and the client, but imagining or constructing a notional contract which does not in fact exist. In those circumstances, of course the terms of the contract between the agency and the client as a result of which the service contractor will be present at the site are important, as would be the terms of any contract between the service contractor and the agency. But, particularly given the fact that, at any rate at present, a contract on standard terms may or may not be imposed by an agency, or may be applicable not by reference to a particular assignment, but on an ongoing basis, and may actually bear no relationship to the (non-contractual) interface between the client and the service contractor, such documents can only form a part, albeit obviously an important part, of the picture."

And this was quoted in the later case of Usetech v Young:

47. It seems plain that Burton J. was of the opinion that all relevant circumstances would fall to be taken into account in determining the contents of the hypothetical contract between the worker and the end user..


So, in summary, for actual contracts between an individual worker and an employer, the recent decision of the Supreme Court in Autoclenz v Belcher, does represent a significant change, but for the IR35 hypothetical contract (where there is a limited company in the contractual chain) it is business as usual.