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John Williams is a brave man. Anyone who decides to spend up to £8000 of his own money – by his own reckoning – in legal fees to fight a corporate giant like Hewlett Packard deserves respect.
A little over two years ago John’s company JMW Software had just renewed a contract with his agency Certes Computing Limited to supply his services to HP – having contracted at HP since 1996. John is a computer engineer with over 30 years experience in the industry and in the autumn of 2000 he had been negotiating with Certes and HP to try and get his working relationship into line with his contract terms with Certes. John was concerned to clarify his rights of substitution. He had the right in his contract with Certes – subject to Certes’ written approval – but had become aware that HP had told the agent that they would not accept a substitute.
He was well aware of the IR35 implications of contract terms versus working reality and was trying to make the agents and HP see that for IR35 purposes his right of substitution needed to be reflected in the reality of the relationship. He was also trying to make his fellow contractors aware of the implications of IR35 and of the employment law issues that IR35 might lead to. According to John, having renegotiated his contract the week before, he was told by HP on the following Monday that his contract was to be terminated.
A two year battle
This was the start of his two-year fight. He claimed against HP and the agency for unfair dismissal. He went to an employee tribunal in the spring of 2001. During the hearing he agreed to drop the claim against the agency but pressed his claim against HP on the basis that he was employed to provide his services personally, that he was engaged to supply general support services, that he was integrated into the client and that the client controlled when and where he worked. After a delay of six months between the hearing and the verdict the ET found that he was not an employee of HP.
Their decision seems to have hinged mainly on the lack of a “contractual nexus” between HP and John Williams. In essence there was not the necessary mutuality of obligation between the parties that is required to establish a contract of employment.
Despite being advised by a barrister that he had little chance of being allowed to appeal John applied to appeal the decision and at an appeal hearing in the spring of 2002 was encouraged when the judge allowed his appeal on all the grounds put forward by John.
That appeal was heard today, 11 December, in London by a High Court judge, the Honourable Mr Justice Elias, assisted by Mr K Edmundson and Mrs A Gallico. Brave man that he is John represented himself. He knew he had a tough task ahead as the Counsel he had consulted on his appeal had told him that his chances of success were remote. He decided to keep his costs down by not being represented at the EAT by his lawyers.
John spent about two hours presenting his case. It was clear that the late decision not to have legal representation had left John with little time to rehearse the legal arguments and to familiarize himself with the layout of the supporting bundles of evidence. The EAT showed some patience as he struggled to find document references – often having to rely on Miss Rose, the lawyer for the respondent, to supply the details.
John’s lack of legal experience also showed up as he sought to challenge the facts that had been presented at the ET and Mr Justice Elias was forced on a number of occasions to gently remind John that it was not the place of the EAT to reopen issues of fact that had been established and considered by the EAT.
Nevertheless John stuck to his guns to argue his main points claiming that the ET had ignored certain facts that were pertinent to the case or had made errors in law in assessing the facts. In respect of the main issue – lack of a contractual nexus – John argued long and hard that Certes were really only acting as HP’s agents and that HP had, by virtue of their conduct on a number of occasions taken actions that showed that they rather than Certes were controlling the details of the relationship between his company and the agency.
In response Miss Rose kept her arguments short. She refuted a number of matters where John had sought to show that it was HP and not Certes who had dealt with key issues regarding his contract and she cited the 2001 EAT decision in another case involving HP – the case of Hewlett Packard Ltd versus Mr M O’Murphy – where HP successfully overturned the earlier ET decision that Mr O’Murphy was an employee of HP.
The Decision
After retiring for about 30 minutes Mr Justice Elias delivered the EAT’s decision. They noted that while Mr Williams was claiming employment rights from HP it was clear that his initial concern was to ensure that his company’s contract with Certes and the contract between Certes and HP reflected his belief that he was self employed in the context of IR35. While he had argued that it would be unfair to be taxed as a disguised employee of HP under IR35 but to be denied employment rights from HP, he had in fact derived considerable benefits as a contractor to HP in terms of rates of pay well in excess of those received by HP employees.
They considered that the ET had properly considered all the relevant facts that had been argued before them. They had considered his arguments about the reality of the situation being that he worked for HP but they decided that you could not infer a relationship between HP and himself merely because he carried work for HP and received a payment from Certes that came from HP via the agent and less the agent’s commission. At the end of the day he was working at HP because his company had a contract with Certes to provide his services to Certes and Certes had a contract with HP to supply services to HP.
They also concluded that the only agreement that did exist between HP and Mr Williams – a n HP confidentiality agreement that Mr Williams had signed was not evidence of the degree of mutuality of obligation that was required for an employment relationship to exist and was merely the sort of agreement that could be expected to be used by businesses where issues of confidentiality arose.
Mr Justice Elias noted that there were issues about the way in which inserting an agency into a relationship might deprive workers of employment rights but understood that the Government was examining such matters.
In conclusion the EAT agreed with the ET that there was no contractual nexus between Mr Williams and HP and they upheld the judgment of the ET.
Implications for Contractors
What are the implications for contractor of this EAT decision? Probably very little in as much as it reflects the decisions reached last year in the O’Murphy appeal (EAT/612/01). It shows again that, despite working at a client for long periods under conditions which seemed to require personal service and where the client had a high degree of control over what the contractor does and where and when he does it and integration, for employment law matters it is very difficult to establish the necessary mutuality of obligation that is required to ensure an employment relationship.
John Williams has been following his own a high-risk strategy for fighting IR35. Despite the costs of this claim he is not unhappy with the result. His aim all along has been a lose-win strategy. He never wanted to be an employee of HP. He now has two decisions – from an ET and, more importantly, an Employment Appeal Tribunal, which state categorically that he is not an employee of his client HP. He hopes that these “losses” is will provide him with a “win” when it comes to IR35 – by demonstrating to the Revenue that he clearly cannot be a disguised employee of his clients.
This is a brave step to have taken. Firstly there is the key issue of whether mutuality of obligation, which is so difficult to prove in the context of an employment claim, will be equally hard to demonstrate in tax status? This has not really been tested as yet. The Revenue has always argued that under IR35, which looks at the hypothetical relationship between the worker and the end client and ignores the intermediary, the issue of mutuality of obligation will not depend on quite the same factors as in an employment law case. Employment law looks at the contractual reality but IR35 constructs an alternative reality. Until this issue is dealt with by the Courts we are unlikely to know for sure just how it will be dealt with under IR35 legislation.
So John may have spent a lot of money without establishing this key IR35 issue. He has also fought a case which, for IR35 purposes only covers a short period of contracting that is subject to IR35 – the period after 5 April 2000. Nevertheless he has obtained some clear statements from the ET and the EAT that many of the attributes of his relationship with HP do little to indicate that he was an employee of HP and these factors should hold equally true under tax status.
On a practical issue the case reinforces the importance of ensuring that all key facts are presented at the initial ET and that their import is fully discussed at that tribunal. New facts are difficult to introduce at a later stage and if facts are not properly considered at the initial tribunal then an appeal can only act if the decision appears to be perverse in the light of the facts.
So a brave man has had his day in Court. We will have to wait and see if his sacrifices do much to help his fellow contractors.
Kevin Miller © Shout99.com 2002
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