Contract lawyer (UK) Roger Sinclair Egos Ltd

Intention - It is the reality of the relationship that matters. It is not enough to call a person "self-employed" if all the terms and conditions of the engagement point towards employment. However, if other factors are neutral the intention of the parties will then be the decisive factor in deciding employment status (Massey v Crown Life Insurance Co (1978)ICR590).[1]

The following paragraphs are extracted from the Employment Status Manual, section ESM1101: [2]

What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters. Nevertheless the intention of the parties has to be taken into account. The intention can be decisive where the relationship is ambiguous and where the other factors are neutral.

For example, tour couriers were found to be independent contractors because this was the declared intention of the parties, and the other factors were neutral. (W F and R K Swan (Hellenic) Ltd v The Secretary of State for Social Services, QBD (1983) (unreported).)

Lord Denning summarised the position in the Court of Appeal in Massey v Crown Life Insurance CO(l 978)

'The law, as I see it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it ..... on the other hand, if their relationship is ambiguous and is capable of being one or the other (either service or agency), then the parties can remove that ambiguity by the very agreement itself that they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them.'

This view was adopted by Lord Justice Stephenson in Young and Woods Limited v West (1980) IRLR201 to show that a false label had been used in Mr West's engagement as a sheet metal worker.

As a general rule the Courts have attached greater significance to an expression of intention where they have confidence in the bona fides of the parties than they have where there is suspicion of concealment or misrepresentation.

When you have gathered all the facts, you should stand back and look at the bigger picture. If you consider that the case is borderline, you should then, and only then, look at the intention of the parties. Where there is mutual intention for a contract of employment or for a contract for services, that will determine the status of the worker.

The cases seem to show that the intent of the parties

· may be decisive where other factors are evenly balanced

· cannot change the nature of the relationship, where that is already clear.

Comment

what would the position be likely to be in relation to this factor for a hypothetical employee? Logic and experience suggests that in the case of a hypothetical employee, the contract would probably make clear, either expressly, or (perhaps more commonly) by use of language (employer, employee, position, etc) that employment status was the mutual intention of the parties.

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 in the case of a hypothetical obviously self-employed person or consultancy, the contract would contain an express declaration of non-employment, for the sake of certainty and as a protection for the engager against employment rights claims; such an express declaration might not be included if eg the substance of the contract itself was so far removed from the possibility of the relationship being of the employment-type that it was blindingly obvious - although even then it might be included.

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/ir35/guidance.htm

[2] http://www.inlandrevenue.gov.uk/manuals/esmmanual/part1000/esm11101.htm

Intention of the Parties

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

Guidelines