The Supreme Court has (finally) delivered judgment in HMRC v PGMOL, providing much needed guidance on mutuality of obligations and control. Although HMRC v PGMOL largely upholds crucial judgments such as Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, and Windle v Secretary of State for Justice [2016] ICR 721, its significance to contractors, recruiters and hirers cannot be overstated.
Background
The appellant, PGMOL, provides employed and nominally self-employed referees to UK football matches. HMRC argued that the self-employed referees should have been classified as employed and subject to tax and National Insurance contributions deductions. The question of the litigation was whether the over-arching contracts and individual contracts for matches constituted contracts of employment or contracts for services. The issues were (1) whether there was a sufficient degree of mutuality of obligations, i.e., an obligation for a referee to provide the agreed service personally and for PGMOL to pay for those services, and (2) whether a sufficient degree of control existed to satisfy the long-established common law test in RMC.
Of note, the referees were issued with a procedural document and were required to comply with the FA’s rules and regulations. In a manner comparable to Uber BV and others v Aslam and others [2021] UKSC 5, an event management system allowed referees to accept or decline offers. When a referee accepted an offer of a match, a contract was formed which required the referee to officiate at the match in question and submit a report for a fee. These contracts for 2015-16 were the subject of the appeal.
As the judgment affected RMC stages 1 and 2, the case was remitted to the First-tier Tribunal for reconsideration based on all the contractual provisions and the relationship between the parties, albeit at a further cost to the appellant. It is beyond the Supreme Court’s jurisdiction to interfere with a finding of fact.
Why is this judgment critical to contractors and the IR35 legislation? The key tests of employment status in RMC are equally relevant in determining whether an engagement involving a contractor’s engagement is caught by the IR35 legislation, as explored below.
Mutuality of obligations
The court considered whether a sufficient degree of mutuality of obligations arose in each match (i.e., on an assignment-by-assignment basis) rather than the overarching contract subsisting between matches.
This judgment upholds the key principle of mutuality of obligations that the mere existence of a bilateral contract involving personal service is insufficient; the individual contracts (being the point of the appeal) involving the referees created a sufficient degree of mutuality of obligations because the engagement required a referee’s services for the entire duration of a match. Correspondingly, it can be inferred that where a contractor has been engaged to deliver a project, and the contract is competently drafted, the threshold for mutuality of obligations will not be met. Nevertheless, Lord Richards quoted from MacKenna J in RMC regarding the importance of addressing the ‘the cumulative effect of the totality of the provisions [of the contract] and all the circumstances of the relationship created by it’.
Lord Richards sought to distinguish authorities such as Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 and Carmichael and another v National Power plc [1999] 4 All ER 897 which concerned an overarching contract and McMeechan v Secretary of State for Employment [1997] IRLR 353 which involved an individual contract. In McMeechan, Waite LJ observed that ‘Each engagement is capable, according to its context, of giving rise to a contract of employment’ [at pp 555-556]. Accordingly, Lord Richards concluded that for the referees, there was ‘sufficient mutuality of obligation in the period from their arrival at the ground’, but this is ‘a necessary but not sufficient condition to the existence of a contract of employment, and that the Court of Appeal was correct so to hold.’
The fact that either party could cancel the contract after acceptance was not relevant, but it may be reconsidered when the case is remitted to the First-tier Tribunal.
Control
As for control, PGMOL upholds existing authorities that a ‘sufficient framework of control’ (per Buckley J in Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318) must exist. A framework of control exists where ‘there is lawful authority to command so far as there is scope for it’ (per Dixon CJ in Zuijs v Wirth Brothers Proprietary, Ltd (1955) 93 CLR 561, 571), as confirmed in RMC.
If there is no scope for a client to control a contractor (and its representative) in any aspect of the performance of the services, then a contract of employment cannot exist. Indeed, Lord Richards quoted from Buckley J in Montgomery, [a] ‘contractual relationship concerning work to be carried out in which the one party has no control over the other could not sensibly be called a contract of employment.’
In the present case, Lord Richards agreed with the Court of Appeal that contractual obligations (both before and during a match) created a sufficient framework of control but added that the right to impose sanctions reinforced the apparent right of control over the referees. While it is trite to say that control is fact-specific, the existence of a right of control overrides any practical limitations on exercising the right. Further, Lord Richards confirmed that control must be based on the terms of the contract in question, but the bar is not set so high that ‘an employer must have a contractual right to intervene in every aspect of the performance of by the employee of his or her duties’. In Uber, control manifested in performance indicators which, according to Lord Leggatt, subjected drivers to a ‘classic form of subordination that is characteristic of employment relationships’. Lord Richards drew parallels with PGMOL and agreed with Elisabeth Laing LJ that the ‘the assessment system gave PGMOL a significant lever with which to influence the performance by [National Group referees] of their individual engagements, and was, thus, plainly capable of being relevant to the question of control’ (Commissioners for His Majesty’s Revenue and Customs (Respondent) v Professional Game Match Officials Ltd (Appellant) [2021] EWCA Civ 1370).
Summary
PGMOL provides valuable guidance for contractors. Where a contractor is engaged to deliver a project, and the contract has been competently drafted to eliminate ongoing mutuality of obligations and any right of control, then the risk of a protracted enquiry involving a fact-finding exercise to determine the factors which negative a finding of employment is dramatically reduced.
This judgment should eliminate the practice of contracts being falsely (or fraudulently) determined as outside IR35 when the contractor’s contractual obligation is to supply a named individual to undertake a role under a degree of control by the hirer for a specific duration. All too often, misguided recruiters and hirers fall into the trap of potentially cheating the public revenue by asserting in a document purporting to be a valid status determination statement that an engagement for the supply of a project manager (or similar) for a fixed-term is outside IR35, i.e., self-employment.
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