The Supreme Court held that the individual match contracts on which part-time football referees were engaged contained sufficient mutuality of obligations and control that they could give rise to employment status for tax purposes. The Court sent the case back to the First-tier Tribunal (FTT) to assess whether those contracts were in fact employment contracts.
Background
For tax purposes, there are two categories of employment status: employee or self-employed. Employment status is determined by case law established principles. Under those principles, mutuality of obligations (the individual agreeing personally to perform a service in return for remuneration) and control (the individual being subject to the employer's control in relation to when, where and how the service is performed) are together considered an "irreducible minimum" requirement for an individual to be classed as an employee. Where these two factors are present, a court considering the question of employment status must also examine all relevant factors to determine, as a matter of overall assessment, whether an employment relationship exists.
Facts
Professional Game Match Officials Ltd (PGMO) provides referees and other match officials for a range of professional football matches in England. Some of the referees worked on a part-time basis alongside other employment.
The part-time referees were appointed on an annual basis and were offered engagements to officiate at individual matches through a software system. Engagements for weekend games were typically offered on the preceding Monday. Referees could refuse engagements, but PGMO would generally request a reason. A referee could withdraw from an engagement after accepting it, but would usually only do so due to illness or other work commitments. PGMO was also entitled to change engagements after they had been accepted. When a referee accepted an offered engagement, a contract was formed under which the referee agreed to officiate at the match and submit a match report, and PGMO agreed to pay the referee's fee. If a referee failed to attend the match, they would not receive their fee but nor would they be subject to any sanction; the contract would simply fall away. PGMO could take disciplinary action against a referee for breach of match day procedures.
HMRC considered that the part-time referees were employees of PGMO, such that PGMO should have deducted income tax and National Insurance contributions from their fees. PGMO challenged this assessment before the FTT. The FTT held that the individual contracts that were formed in respect of each engagement were not contracts of employment as there was insufficient mutuality of obligations and control.
HMRC was unsuccessful in its appeal to the Upper-tier Tribunal, but succeeded before the Court of Appeal. PGMO then appealed to the Supreme Court.
The Supreme Court unanimously dismissed the appeal. In relation to mutuality of obligations, the Court drew a distinction between overriding or umbrella contracts, which govern continuous employment, and individual contracts such as those at issue in this case, which govern single engagements. For the former, mutuality of obligations must include a continuing obligation to perform work and a corresponding continuing obligation to pay for such work. For the latter, by contrast, the only period for which mutuality of obligations is required is the period of the engagement itself. In this case, therefore, it was sufficient that there was mutuality of obligations in the period from the referees' arrival at the ground on a Saturday to the submission of their match report on the following Monday. In fact, mutuality of obligations arose earlier, from the point in the preceding week when the referee accepted the offer of an engagement for the weekend match. In the Court's view, the fact that either party could cancel the engagement without penalty did not prevent mutuality of obligations from being established.
On the issue of control, the Court held that it is not necessary for an employer to have a contractual right to intervene in every aspect of an employee's performance of their duties. A sufficient framework of control may take many forms and is not necessarily confined to the right to give direct instructions to the individuals concerned. Applying those principles to the present case, the Court concluded that the contractual obligations imposed on referees as to their conduct during an engagement from acceptance of the match to the submission of the match report, and as to their conduct during a match, was capable of meeting the control test for employment status purposes. The Court also thought it relevant that PGMO had the right to impose disciplinary sanctions on the referees; even if those sanctions only took effect after the end of an engagement, they played a significant part in enabling PGMO to exercise control over the referees in the performance of their duties.
Although the judgment was focused on mutuality of obligations and control, the Court took care to emphasise that these factors – while necessary for an employment contract – are not necessarily sufficient. Once they are established, it is necessary to consider the cumulative effect of the contractual provisions and all the circumstances of the contractual relationship. In the present case, for example, the right of both parties to terminate an engagement without penalty, and the extent of the control that PGMO could exercise over the referees would both be relevant factors in the overall assessment of whether there was a contract of employment. The Court therefore sent the case back to the FTT for it to determine, taking into account all relevant factors, whether the individual match contracts were contracts of employment.
What this means for employers
The Supreme Court's decision reiterates that, where mutuality of obligations and control are established, it will still be necessary to consider all of the circumstances to identify whether the relationship is one of employment. However, the Court's approach to the question of control does appear to lower the bar as to what level of control is sufficient to support employee status in some situations. This, combined with the Court's clear acceptance that mutuality of obligations can exist in individual short-term engagements, means that findings of employee status for individuals engaged on such arrangements may become more likely.
This will be of particular concern to employers who make significant use of freelancers, for whom the tax liabilities – in particular, employers' NI contributions – may be significant if more of their freelancers are found to be employees. Organisations that engage with freelancers operating via PSCs will need to consider whether their status determinations might change due to the decision in this case.
Many health clients engage bank staff or use bank providers to do so. In our experience, the majority of those bank staff are engaged as workers or employees during the assignments they work but their contracts exclude them having an ongoing worker/employment relationship. In those situations the engager of the bank staff also deducts tax and NI through PAYE. That approach aligns with the Court's decision so we think it has limited impact for those who use it. For those who maintain there is no worker/employment relationship during assignments this decision could impact on them both in terms of the bank staff having certain statutory employment rights and their pay being subject to deductions under PAYE. Those employment rights include the right to transfer under TUPE and to unfair dismissal protection/statutory redundancy pay where they have sufficient continuous service.
