Contract lawyer (UK) Roger Sinclair Egos Ltd

The obligation to provide services exclusively for one master is a pointer towards employment. However, exclusive services clauses are not only found in contracts of employment. They may also appear in contracts for services. A self-employed individual running an agency for an insurance company may be precluded from selling any other company's policies. Similarly an author may agree to write for only one publisher.

The absence of an obligation to provide exclusive services is not necessarily a pointer towards self-employment. A full-time worker could only exercise his/her right to work for others by working outside the normal working week and this may effectively preclude him/her from taking other jobs making an exclusive services requirement unnecessary.

In many cases an employer will have no objection if an employee works elsewhere during his own time. Part- time employees are not normally restricted to working for one employer, they can usually take other jobs.

In the PCG Judicial Review case, it was said:

…the question of whether the service contractor himself has, prior to that engagement, performed or is, simultaneously with that engagement, performing [an important contrast to the duty of fidelity ordinarily owed by an employee], or will subsequently, after the termination of that engagement, perform, services for others, and is to be construed as carrying on business on his own account, is and must be a central consideration.

That this is in fact accepted by the Revenue is clear from the Examples given by the Inland Revenue in the February Guidance referred to in paragraph 18 above. The fact, as analysed in that document, that

"Charlotte and her company have a business organisation - including an office and associated equipment based at Charlottes home ... a variety of clients and all her contracts have been, fairly short term"

Of course, whether such pointer is determinative may depend upon the nature of a particular assignment. She may be self-employed for much of the year, and yet, in relation to a particular assignment, perhaps by virtue of its length or its specific arrangements, she may be considered as an employee for the purposes of IR35. There must he careful consideration of this by the inspector; and sufficient information must be given to the inspector by the service contractor and his accountant in order for him to reach the appropriate conclusion. [2]

Case law suggests that

· non-exclusivity may be a minor pointer towards self-employment

· exclusivity may be a minor pointer towards employment

· non-exclusivity is not however inconsistent with employment

· neither is exclusivity inconsistent with self-employment.

Overall, the contractual position on exclusivity is probably of minor importance. Where however non-exclusivity is in fact 'exercised' with multiple engagers, then it acquires additional weight by influencing the conclusion which I address under 'Personal Factors'.

Comment

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

· be restricted from simultaneously working for a competitor of the employer

· probably also be required not to undertake any other work, without the employer's consent

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

· possibly, particularly if the services were in any way commercially sensitive, accept a restriction against providing services to a competitor of the engager

· generally, be otherwise unrestricted by contract from undertaking other work.

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

If you're another lawyer or an accountant reading these pages, I'd be happy to discuss any points arising with you - particularly if you'd like to debate any points where you disagree with my views - mail me!

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[1] http://www.inlandrevenue.gov.uk/manuals/esmmanual/part1000/esm1105.htm

[2] R v PCG 2^nd April 2001

Exclusivity

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.

Legal issues, and the Revenue Guidelines

The Revenue's guidelines are silent on this point.

The following paragraphs are extracted from the Employment Status Manual, section ESM1011 & 1105: [1]