Employment law specialists, Lawspeed, look at the relevance of this ruling for other situations involving employment status, including IR35 and contractors.
The Supreme Court landmark ruling in Uber BV and others v Aslam that Uber drivers are workers entitled to worker rights may have much wider implications than establishing rights for ‘gig economy’ workers. It will be relevant to any case that involves a review of employment status, and so is particularly relevant to a range of situations, for example the off-payroll rules (IR35) and ‘self employment’ engagements.
The key conclusion from the Uber case is that employment status must always be determined with reference to the statutory definition of a worker rather than the terms of a contract. Taking a leaf out of the Matthew Taylor report the Supreme Court, in expressing its judgment, has adopted a new terminology, namely whether there is a relationship where one party is “sub-ordinate” and “dependent upon” the other, and as such is in a vulnerable position deserving of statutory protection.
The Uber case involved individuals working in a potential vulnerable position, but does this mean that anyone working in a subordinate and dependent position under the control of another is a vulnerable person? A simple answer would be ‘yes’ although as with all case law this answer can be nuanced dependent on the facts.
However the core take away is not the terminology, but the conclusion that normal contractual rules do not apply when considering employment status relevant to statutory protection. Any contractual provision which either directly or indirectly denies worker rights by attempting to define a different type of status, will have no effect, if the reality is that a worker relationship exists.
This would extend to even genuine contracts where provisions purport to deny rights which would otherwise exist. Typical tripartite recruitment supply contracts should not be affected as worker rights are not normally denied, an important point for supplying businesses.
This decision goes further than the position in the Autoclenz case and indeed the established tripartite recruitment law case of James v Greenwich. In both these cases the court had concluded in summary that terms in place must reflect the true nature of the agreement and only where they do not may the courts look behind the written agreement to determine the true intentions of the parties.
In other words where there is a dependency on the ’employer/hirer’ contractual terms that attempt to determine status, such as substitution clauses, statements of the status and those asserting there is no mutuality of obligation or control by the ’employer/hirer’ (‘exclusion clauses’), will have no effect. Indeed this merely reflects the principal that contracts should reflect the reality, not the reverse. A good contract will still be important to support the intended status of a contractor, but will not itself be the determining factor.
Whilst it is arguable that this would appear to have no impact on individuals who are not dependent upon the ’employer/hirer’, nevertheless the decision provides an important clarification about the degree of reliance that can be placed on certain clauses. HMRC will be interested as it could apply to ’employment status for tax purposes’ (i.e. without a requirement to establish vulnerability of the worker).
The Supreme Court also said: It should also be noted that the case assumes two important things that are also required to be defined as a worker a) that there is a requirement to perform work personally b) that the other party is not a client of a business undertaking or profession carried out by the individual.
Whilst it is established that (a) relies on the actuality of substitution, not just a clause, it would seem that (b) is determinative. If the hirer is a client of a business undertaking or profession carried on by the individual, the individual cannot be a worker, so in turn cannot be an employee. So the business undertaking and profession point is really the test. Where the client is not a client or customer as described the individual must be assumed to be a worker as a minimum.
However there is a worrying direction of travel emerging. This case could arguably affect tripartite arrangements as in a typical agency supply situation, currently protected by the decision in James v Greenwich. We must remember that Uber is a gig economy case. However if the principles are extended to all arrangements in contracts the fact that there are tripartite contracts in place could arguably be ignored if the individual is subordinate and dependent upon a hirer, for example where the supply has been for a long period.
There are several important messages to be gleaned from this. First, the suggestion that a statement in a contract, whether to avoid general or tax issues, can convert status will not wash. Indeed this reasserts a long established position that may have been lost in translation by some advisers over the years, leaving that approach largely outmoded. That is not to say that such provisions may not help, but they should not be relied upon to any material extent and certainly will not provide a secure status position on their own.
Second, HMRC now has an additional and up to date weapon in its armoury when considering status for tax purposes. Although the point in question was whether an individual has worker status, the principles could be applied when assessing employment status for tax purposes such as under the IR35 tax rules.
Third, nothing changes the rule that when assessing actual status there must be a requirement for personal service and that employment status cannot exist where the hirer is a client of a business run by the individual. However note that the IR35 tax test excludes the possibility of using the ‘client of a business undertaking test’, as the intermediary is excluded from consideration, so highlighting the difference between actual status and status for tax purposes.
In conclusion, having the right contract in place that reflects the actual arrangements, not the other way round, remains sound advice. However Parliament also urgently needs to resolve by way of legislation the entire minefield that is employment and worker status.
Further IR35 information
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Susie Hughes © Shout99 2021