IR35 detailed comment

Control

The issue

The issues here would appear to be whether there is anything either in the contract, or in the actual relationship between Individual and Client, in relation to this factor which

·         helps towards a decision on whether that relationship, had it been direct and without a company in between, would have been an employment contract - a contract of service - or a contract for services, or

·         would be inherently inconsistent with a contract of employment.

This test was expressed in a recent case as follows:

(the extent to which) on any given day (the 'employer') determined: " The thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done".  ^[1]

In other words, what, where, how, and when.

Legal issues, and the Revenue Guidelines

Guidelines:

Control - A worker will not be an employee unless there is a right to exercise ‘control’ over the worker. This may be a right to control ‘what’ work is done, ‘where’ or ‘when’ it is done or ‘how’ it is done. Actual control of this sort is not necessary – it the right of control that is important.

Where a client has the right to determine ‘how’ the work is done this is a strong pointer to employment. But it is not an essential feature of employment – many ‘experts’ who are employees are not necessarily subject to such control (for example, ship’s captain, consultant brain surgeon, etc).

Equally, a right to determine ‘what’ work is carried out is a strong pointer to employment. It will normally be a feature whenever a client needs a worker to undertake whatever tasks are required at any particular time or where the worker is required to work as part of a co-ordinated team.

A working relationship which involves no control at all is unlikely to be an employment (Ready Mixed Concrete(South East) Ltd v Minister of Pensions and National Insurance)  ^[2].  [3]

The following paragraphs are extracted from the Employment Status Manual, sections ESM1013-ESM1025:  [4]

(OVERALL)

What we are concerned with is the right to control what the worker has to do, where it has to be done, when it has to be done and how it has to be done. The engager may not be able to exercise control over all these aspects. If so, this does not necessarily mean that there cannot be employment although the greater the level of control there is, the stronger the pointer towards employment.

It is the right to exert control that is significant, not whether that right is exercised. In practice, the employer may rarely (or never) exercise this right, particularly where the worker is a skilled individual used to working on his or her own initiative.

The key question is could the engager exercise control?

Whilst a high level of control is a strong pointer towards employment, it may not be conclusive on its own and should be considered in the light of all of the relevant factors and the overall picture.

Where there is evidence of little control this does not mean conclusively that there is self-employment. However, it is unlikely that a contract of employment will exist where the engager has no right of control over the worker.

(WHAT)

In some cases the worker will clearly be subject to control over what he or she does, the employer, or his manager or foreman, will constantly give instructions on what to do. In others, the worker will choose what to do for him or herself.

For example, if a worker is taken on by a builder for general painting jobs on site and the worker can be moved from job to job as priorities change there is a right of control over what is to be done. This would be a strong pointer towards there being a contract of employment.

On the other hand if the worker contracts to complete a specific task and cannot be moved to another job, there is no control over what is done and this factor becomes neutral.

(WHERE)

A requirement in a contract for a worker to work at a specified place is more characteristic of a contract of employment, than one of self-employment. The ability of theatrical producers to transfer a variety comedian to any of their theatres was a factor in the case of Stagecraft Ltd v Minister of National Insurance (SC288/52) where it was found that there was a contract of employment (see ESM1017. Where a worker is required to work on the engager's premises it is also more likely that there will be a right of control over other aspects, especially where the work is integrated into the daily routine of an office or factory.

Where a worker can carry out work wherever he wishes, the contract is more likely to be a contract for services. However, you should be careful about making a judgement concerning status where the nature of the work dictates where it should be carried out. In such cases, this factor is not likely to be of any significance in determining status.

You should bear in mind that control over where work is carried out is only a pointer towards self-employment, which must be considered in the context of the overall contract. Working practices are becoming more and more flexible and many employees now work from home. You should not accept that a worker is self-employed just because he or she does not work at the engager's premises. This is particularly true where the engager covers any expenses that the worker incurs as a result of working out of the office.

(WHEN)

Most employees are required to work hours prescribed by their employer. Details of these hours and when they will be worked will normally be set out in the contract of employment or other documentation. The documents may also indicate flexitime and time off etc arrangements

There will be occasions when an employer exerts little control over when the employee carries out his or her duties. For example, skilled or senior employees may be left unsupervised to complete projects or duties as they see fit. Additionally, the lack of a requirement to work specific hours usually has only marginal importance.  This was the case in Robin Hamilton v The Secretary of State for Social Services (an unreported decision) when skilled production workers who were not required to work specified hours were found to be employees. In his judgement Hodgson J said

'So far as control is concerned, it does not seem to me that the mere fact that the men, being paid by the hour, were not required to work any specific number of hours per day or that they could take a rest when they wanted to is of more than marginal importance as a pointer towards the arrangements being contract for services.'

Usually, self-employed workers are not subject to extensive control over when the work is carried out. There may be an agreed deadline by which the specific work, or stages in the work, should be completed. However, within this deadline, the worker will usually have freedom to do the work at times to suit himself or herself. On the other hand, workers engaged under contracts for service may be subject to considerable restrictions where commercial pressures dictate. For example, if working on large sites where access is limited to normal working hours, the worker is not going to be able to work as and when he or she pleases. In such circumstances the limitations put on when the work can be carried out tells us nothing about the status of the individual and other factors will have to be considered.

(HOW)

In the case of Market Investigations Ltd v Minister of Social Security ((1968) 2QB1 73) (see ESM1012) a market research interviewer was found to be an employed earner. Great importance was attached to the control the company could exercise over the way in which the interviewer carried out her assignment. The worker had to follow detailed instructions when carrying out the work. This was a major factor in the Court's decision that she was an employee.

In a case involving a person who ran Weight Watching groups, it was found that she was 'tied hand and foot' over the manner in which she was to work, she could not be an independent contractor. The case is Narich Pty Ltd v The Commissioners of Payroll Tax: Privy Council decision number 38 of 1982). This is an Australian case but the law in that country is, for all practical purposes, the same as in the UK.

This form of control is absent if the worker is free to carry out the work in whatever way he or she likes. The only check that the engager might have is that the work must be to a satisfactory standard and subject to a final quality control check. This does not give the engager the right to control how the worker does the work. All that is happening is the engager is confirming that the contract has been complied with.

The presence of control over how work is done is a strong pointer towards employment. However, its absence is only likely to be a mild pointer towards self-employment. This is because many employees are experts in their particular fields with particular skills and specialist knowledge and are not subject to such control..

Many employees are professionals or skilled worked workers where control over how they work is not really appropriate and they do not work under the direct supervision of their employer. Examples of such jobs cited by the courts include the master of a ship, an engine driver, a head chef and a consulting engineer.

In the case of Morren v Swinton and Pendlebury Borough Council (1965) IWLR576, relating to a civil engineer who worked for the Borough Council, it was said

'Clearly superintendence and control cannot be the decisive test when one is dealing with a professional man or a man of some particular skill and experience. Instances of that have been given in the form of a master of a ship, an engine driver or a professional architect, or as in this case, a consulting engineer. In such cases there can be no question of the employer telling him how to do work, therefore the absence of control and direction in that sense can be of little, if any, use as a test.'

In Hall v Lorimer, it was said:

The Crown's representative suggests that the production company has extensive control over Mr Lorimer.  It dictates the hours to be worked, the date he shall work.  He has no discretion in these matters.  The Crown's representative accepts that the production company has no control over Mr Lorimer's skill in performing his functions and that Mr Lorimer must use his judgement, but the scripts of scripted programmes indicate control is exercised through what I might call stage directions.  The Crown's representative contrasts this with an independent contractor who supposedly would have a choice of views and exercise control himself over all other aspects of a vision mixer's functions.

I cannot see that control of the kind adumbrated helps very much towards solving the problem.  If you accept an engagement for your services as a vision mixer, you must be provided with details of the data, time, and place, and of the period of time you are likely to be required.  If you are part of a team to produce a show, it is inevitable that someone must organise it. You must attend rehearsals if they are necessary. If you play in an orchestra, you must pay attention to the conductor. In the production of a play, you must pay attention to the stage directions or to the producer's directions. That applies to the leading actor and actress, but they do not for that reason become 'employees'.  The independent contractor posited by the Crown's representative could hardly exist in the context of the production of a programme in conjunction with other people.

·         Thus here, the facts that the What, the Where, and the When were pre-specified constraints of the task itself were regarded as unhelpful when considering the question of control.

·         In the case of the How, the fact that he was part of a team, and had to comply with constraints which were also essentially constraints of the task itself were equally regarded as unhelpful when considering the question of control - despite the claim in the Revenue Guidelines that being 'required to work as part of a coordinated team' amounted to a 'strong pointer to employment'!

·         Overall, each of the four elements of control amounted to no more than constraints of the task itself - cooperating in a production, in conjunction with others.

Case law appears to suggest:

·         if there is no right of control, then the relationship cannot be employment

·         control has four aspects - What, Where, When, and How

·         if there is control on all four aspects, the relationship is likely to be employment

·         if one or more of these aspects of control is absent, control is not likely to be a conclusive factor

·         in the case of a highly skilled professional, the control test is less likely to be useful in deciding status;  in particular, the lack of control over 'how' does not help either way

·         constraints imposed by the nature of the task itself (and perhaps also those which are otherwise objectively justifiable) cannot reasonably be regarded as 'control' at all, and do not help either way

·         in the case of a highly skilled professional, being part of a team cooperating on a production in conjunction with others does not affect the issue.

·         additional constraints imposed by the engager, and negotiated and incorporated in the contract, which whilst over and above those which can objectively be regarded as necessitated by the nature of the task itself, are nevertheless accepted and binding on both parties at the outset.  This may be taken to represent a degree of control - greater or less, according to the extent of the constraints;  this emerges from Market Investigations v MSS [5] and from Narich Pty Ltd v Commissioners of Payroll Tax [6] - in both of which cases substantial control over 'how' appeared to be the decisive negative factor. 

Logic also suggests

·         the right of the engager to require changes on a day to day basis, in circumstances where the Individual would be failing to comply with the contract and thus in breach if (s)he were to refuse, may represent a high degree of control.

·         where the Individual has the right to make changes on a day to day basis, without the requirement for obtaining the consent of the engager, this clearly suggests that there is no right of control

Submission to 'control in a sufficient degree to make that other master' is an element of the irreducible minima.  Where there is no such submission, the hypothetical relationship cannot be employment.  [7]

Note also that here we are considering rights to control, not necessarily the actuality.  Where there are express rights to control in the written contract, the question of whether or not they are exercised is immaterial.  But where there are no such express rights in the written contract, then unless such a submission to control could be implied under the general legal provisions governing implied terms (possible in certain circumstances, depending on the nature of the services), and unless that contractual provision (or the lack of it) can be shown to be a 'sham', then the irreducible minimum has not been met.  The best way of being prepared to counter any argument that the lack of such a submission is a 'sham' must be on occasion to decline a request from the client for change -or to be able to say that no such request has ever been made.

Conclusion

what would the position be likely to be in relation to this factor for a hypothetical employee?  logic and experience suggests that a hypothetical employee would probably

·         WHAT - be engaged in a position, and be subject to direction as to 'what' within the overall scope of the general nature of that position

·         WHEN - generally be required to work regular hours, and possibly additional hours when the general needs of the employer's business so required

·         WHERE - generally be required to work at the place required by the employer, possibly within certain overall limits (eg if a change in requirements to work regularly at a place necessitated a move of home)

·         HOW - generally be required to work in the manner required by the employer, except perhaps where such a requirement trespassed on the individual's exercise of his / her own specialist skills.

what would the position be likely to be in relation to this factor for a hypothetical obviously self-employed person or consultancy (eg Andersens, or by PWC, or EDI?)  Logic and experience suggests that a hypothetical obviously self-employed person or consultancy would probably:

·         be engaged for a task, and be entitled to decline a request for redeployment - even if the task to be redeployed to was also within the Individual's field of expertise.

·         be entitled to choose when to perform the services, within constraints of overall timetables, and within any other constraints imposed by the nature of the task itself, including security considerations (as opposed to the engager's mere personal preference) - although possibly within any additional constraints also imposed by the contract, over and above those imposed by the nature of the task itself - but not otherwise be subject to direction as to 'when'.

·         be entitled to choose where to perform the services, within any constraints imposed by the nature of the task itself, including security considerations (as opposed to the engager's mere personal preference) - although possibly within any additional constraints also imposed by the contract, over and above those imposed by the nature of the task itself - but not otherwise be subject to direction as to 'where'.

·         generally be required to provide the services to objective standards defined by the nature of the task itself, including security considerations (as opposed to the engager's mere personal preference) - although possibly within any additional constraints also imposed by the contract, over and above those imposed by the nature of the task itself - but not otherwise be subject to direction as to 'how'.

do the facts here actually provide a helpful pointer towards either view?

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