The "Conduct Reg's" are virtually unenforceable against your intermediary

[Rory Dwyer]

Surely this is a very key message here that seems not to being emphasised.

Dear Northern Lad Uk,

You are quite correct because to argue that position would be a contradiction.

If I were on the one hand to argue that for IR35 purposes that I had not passed over direction or control to any significant degree then wouldn't it then be a dichotomy for me to then argue that I had passed over 'the predominant control' to the hirer for the purposes of the EAA on the other hand ?

Therein lies the conundrum.

And the situation is even worse for the hirer.

As I have said all along, I am not arguing the rights or wrongs of any given position, just the position itself as viewed by the law.

But knowing the position will, in my opinion help everyone (Contractors and Intermediaries) understand what they need to do respectively without relying on misconceptions.

[DirtyDog]

For the record, CNL, which had to cease trading because of the damages incurred, was at all times providing individuals in their opinion "not under the predominant control of the hirer" but I do accept that this will not always be the case with other intermediaries.

Have you shut down then?

(Serious question - as I've said before, I've had quite a few dealings with a number of people there, some of whom I get on well with and like on a personal and professional level, so am just wondering what's happening there)

[DirtyDog]

Surely this is a very key message here that seems not to being emphasised.

If you have to rely on only one of the three tests, then your case is significantly weakened anyway.

[Rory Dwyer]

Have you shut down then?

(Serious question - as I've said before, I've had quite a few dealings with a number of people there, some of whom I get on well with and like on a personal and professional level, so am just wondering what's happening there)

Well CNL was only ever a incubator entity, this event related to SAP Contractors, it never had anything to do with Oracle Contractors per se or the majority of the people involved with Oracle Contractors.

Someone else made that erroneous link.

Cease trading means something completely different to shutting down.

[Rory Dwyer]

If you have to rely on only one of the three tests, then your case is significantly weakened anyway.

Dear Dirty Dog,

I believe that you are missing the point, the intermediary does not have to prove that the contractor is a disguised employee or inside IR35,

The conundrum for the contractor is to swear on oath, in a court of law, at the risk of perjury, the level of control that does exist 'in reality' or if they happen to lie, what they can prove, what the level of control was/is.

They would have to show enough significant control to have achieved the predominant control whilst at the same time being mindful that all that they show could be used by the HMRC that they are therefore inside IR35 regardless of the two lesser tests of disguised employment.

They also have to get their end client to join them on this endeavour and the risks for the end client are equally high if not higher.

It is not an argument I would relish in presenting, but I would be quite happy to challenge it.

[Rory Dwyer]

Have you shut down then?

(Serious question - as I've said before, I've had quite a few dealings with a number of people there, some of whom I get on well with and like on a personal and professional level, so am just wondering what's happening there)

Dear Dirty Dog,

Thanks for asking, OracleContractors.com is alive and well. The individuals that work there are highly professional, likeable individuals, and the company is doing very well.

This event related to SAPContractors.com, other than the contractor concerned, no other contractor had monies withheld regardless of the damages that were inflicted.

The shareholders/directors took the damages like any respectable, professional company with integrity would.

[Wanderer]

Well, I for one, who if maintaining, I was outside of IR35 for tax purposes and was seeking to prove I was inside the "Conduct Regs" would be in a very precarious position.

No, it's actually much worse than that. It's not the conduct regulations which put the contractor in a precarious position, it's the fact that they are engaged by an Employment Business that is the problem. This is because an employment business is defined in the Employment Agencies Act 1973 as supplying workers to work under the direction and control of the hirer. So here's the real bombshell:

Any worker engaged by an agency with a contract stating that the Agency is acting as an Employment Business is legally defined as being contracted to work under the direction and control of the end client

So now what.

What if the agency could write up a contract that DOES NOT state that they are "operating as an employment business" with respect to the engagement. Now, if this is in fact true then there is no problem but if it's a grey area (which it almost always is) then it's a huge problem for the agency because it leaves them facing criminal charges under the Employment Agencies Act if someone (rightly or wrongly) decides to try and argue the point about the capacity the agency is acting in. Not a happy situation for the Agency.

So the agency follows the example of Contractor Networks Ltd and their contract states that they ARE acting as an employment business (even though none of the parties consider that they are). Now a savvy contractor wants that employment business statement struck out because it makes their contract fail the D&C test for IR35 which is not good. So, does the agency remove that statement and leave themselves open to potential criminal charges OR do they leave it in there and try to convince the contractor that them being an employment business is meaningless with regards to D&C so don't worry about it.

So let's say the agency leaves that clause in there but makes it clear that there is no D&C in the relationship so they aren't acting as an employment business (even though they have explicitly stated in the contract that they were) so everything is happy.

Then the agency whips out a copy of the opt out of the Agency Conduct regulations for the contractor to sign. Now why would the contractor want to sign this opt out? The contractor has just been told that they aren't engaged by an Employment Business so the conduct regulations aren't relevant. Indeed, if a contractor did sign the "opt out" of the Agency Conduct Regulations they would be admitting that the agency was acting as an Employment Business which makes them fail the D&C test for IR35....


So to summarise, if there is no Direction and Control then the Agency is NOT acting as an "Employment Business" so therefore the Agency Conduct Regulations don't apply and there is no need for the contractor to sign an opt out because they regulations don't apply. I'm perfectly happy to accept that compromise.

[Rory Dwyer]

Dear Wanderer,

I am not sure that logic holds water in parts. But it does go some way to highlighting the difficulties faced by all parties, knowingly or unknowingly.

An intermediary can call itself an Employment Business or not (should they so wish), like a consultancy but not have any intent of supplying an individual on any specific engagement supplied by the Work Seeker to be working under the pre dominant control of the hirer.

Your scenario takes no account of the intents pre contract and any changes during the engagement which may then alter the levels of control, (without the intermediary agreeing to or maybe even being aware of) such that they are now under the predominant control of the hirer, during the term of the engagement.

Additionally, this would also place an over reliance on the contract, over and above the reality, very much like the substitution clause.

As I explained previously, only a court of law of competent jurisdiction can make the determination as to the legal status of any given contractual relationship. so no party can know for sure the exact legal status of a contractual relationship until after the judgement and any subsequent appeals.

This judgement will be always be a case of mixed law and fact and any contract terms could be overruled based on implied terms, business efficacy, statute, etc.

But if a contractor is operating outside of IR35 and does argue in front of a judge that they had in fact passed over predominant control, as previously explained, this would be a major contradiction in the evidence in front of the judge.

Additionally, the contractor who entered an engagement not being under the predominant control who then during the engagement ( assuming it was not contractually restricted) did then become under the pre dominant control of the hirer then in all fairness, they should stop operating outside of IR35 for tax purposes.

Obviously, there would be little point in doing so.

In my view, if the contractor and intermediary believe the engagement to not be under the predominant control of the hirer at the contract construction and acceptance stage then due to the ambiguity of the law, the contractor and work seeker should opt out of the "Conduct Regs".

Should the contractor not opt out, then in my view, this would be a very clear acceptance that predominant control had existed, with all of the legal connotations that could ensue.

An area of this discussion which has not been explored, is the position of the hirer, based on my research, no client in their right mind would wish to declare acceptance of the predominant control of the work seeker or person supplied by the work seeker assuming the individual was the sole director of the PSC.

If I was a hirer of psc's, I would be telling the intermediary I would only accept those psc's who had opted out. An act that may lead to a criminal charge if it was stated by the intermediary.

Of course, the majority of what has been discussed, is only relevant should there be an issue arising.

One of the other reasons for bringing this topic to people's attention, is that this legislation is going through red tape review at the moment and if any changes are to be made, now is the time to propose any changes via your respective professional bodies.

[Rory Dwyer]

Dear Wanderer,

If I may, I have responded to certain assertions in this post

Any worker engaged by an agency with a contract stating that the Agency is acting as an Employment Business is legally defined as being contracted to work under the direction and control of the end client

RORY : This is not correct, as in the case of BIS v CNL, where the contract did state that CNL was an employment business but also that the level of control was not predominant.


"What if the agency could write up a contract that DOES NOT state that they are "operating as an employment business" with respect to the engagement. Now, if this is in fact true then there is no problem but if it's a grey area (which it almost always is) then it's a huge problem for the agency because it leaves them facing criminal charges under the Employment Agencies Act if someone (rightly or wrongly) decides to try and argue the point about the capacity the agency is acting in. Not a happy situation for the Agency."

RORY : I am pretty sure that this is not the case, I don't believe there are any potential criminal charges on any declaration, only on breaches should a judge decide predominant control existed such that the judge found that the intermediary was in fact an employment business as defined by the EAA.

"So the agency follows the example of Contractor Networks Ltd and their contract states that they ARE acting as an employment business (even though none of the parties consider that they are). Now a savvy contractor wants that employment business statement struck out because it makes their contract fail the D&C test for IR35 which is not good. So, does the agency remove that statement and leave themselves open to potential criminal charges OR do they leave it in there and try to convince the contractor that them being an employment business is meaningless with regards to D&C so don't worry about it."

RORY : I think this logic fails due to my two previous points. In the case of CNL, the contractor had opted out and the hirer was aware of the opt out.

In addition, the hirer's direct line representative if front of the judge stated that he did not control the contractors as his level of technical knowledge was insufficient to do so. As well as both the contractor and the client signing contracts which stated that there wasn't control let alone predominant control. Much to the chagrin of the prosecuting barrister.

"So let's say the agency leaves that clause in there but makes it clear that there is no D&C in the relationship so they aren't acting as an employment business (even though they have explicitly stated in the contract that they were) so everything is happy. "

RORY : Only a judge can ultimately decide the status, subject to any appeals.

"Then the agency whips out a copy of the opt out of the Agency Conduct regulations for the contractor to sign. Now why would the contractor want to sign this opt out? The contractor has just been told that they aren't engaged by an Employment Business so the conduct regulations aren't relevant. Indeed, if a contractor did sign the "opt out" of the Agency Conduct Regulations they would be admitting that the agency was acting as an Employment Business which makes them fail the D&C test for IR35.... "


"So to summarise, if there is no Direction and Control then the Agency is NOT acting as an "Employment Business" so therefore the Agency Conduct Regulations don't apply and there is no need for the contractor to sign an opt out because they regulations don't apply. I'm perfectly happy to accept that compromise.

"

RORY : In my opinion, there is a distinct between direction and control for IR35 purposes and predominant control for EAA purposes just as there are different levels of control required for controlled associated companies legislation.

So in summary, in my humble opinion, if an individual is operating a PSC and operating through an intermediary, Employment Business or otherwise (contractually undeclared), they should insist on opting out of the "Conduct Regs" if they are also operating outside of IR35. To not do so would be an IR35 indicator and declaration that the contractor understands and accepts that predominant control exists between the work seeker and the individual supplied by the work seeker and the hirer. This declaration may be used by the HMRC in any investigation to support their IR35 position.

Secondly, the hirer should be insisting on an opt out for all individuals supplied by a PSC Work Seeker.

Thirdly, the intermediary should reflect what they honestly believe is the real situation and then act accordingly.

Regardless of the above, all parties, in my opinion, should act with honesty, integrity and in good faith.

[malvolio]

"

RORY : In my opinion, there is a distinct between direction and control for IR35 purposes and predominant control for EAA purposes just as there are different levels of control required for controlled associated companies legislation.

So in summary, in my humble opinion, if an individual is operating a PSC and operating through an intermediary, Employment Business or otherwise (contractually undeclared), they should insist on opting out of the "Conduct Regs" if they are also operating outside of IR35. To not do so would be an IR35 indicator and declaration that the contractor understands and accepts that predominant control exists between the work seeker and the individual supplied by the work seeker and the hirer. This declaration may be used by the HMRC in any investigation to support their IR35 position.

Secondly, the hirer should be insisting on an opt out for all individuals supplied by a PSC Work Seeker.

Thirdly, the intermediary should reflect what they honestly believe is the real situation and then act accordingly.

Regardless of the above, all parties, in my opinion, should act with honesty, integrity and in good faith.

Yes, agree. Shame the rest of that post is nonsense though.