Earlier this month, the Supreme Court rejected HMRC’s appeal against the Professional Game Match Officials Ltd (“PGMOL”). This case, explored in more detail below, ruled on whether referees should be treated as self-employed for tax purposes, the decision reached here is increasingly relevant to the evolving state of UK case law on employment status.
This case has caused a resurgence in criticism over the lack of clarity individuals have over their employment status, imprecise legal tests have led to uncertainty over certain individual’s rights in their employment contract. This case is a timely intervention with the new Labour Government’s proposal on the horizon to convert the three statuses of employment to two, as currently reflected for tax purposes.
Employment status – the current framework
Under the current framework, there are three different categories of employment status:
- Employee
- Worker
- Self-employed
Although tricky to distinguish and at some points slight, the differences are important. Each category affords a different range of rights. Employees are entitled to a wider range of employment rights like protection from unfair dismissal after two years; whereas, workers are only afforded core employment protections like statutory paid holiday. Self-employed individuals have the least amount of legal protection – largely being determined by what they can negotiate in their service contracts.
HMRC v Professional Games Match Officials Limited (PGMOL) [2024] UKSC 29
Background
PGMOL hired full-time referees under employment contracts for Premier League matches. PGMOL treated them as self-employed, so the fees paid to them were not to be treated in the same way as an employee’s income (i.e. subject to income tax and national insurance). HMRC argued that they were employees and therefore should pay the relevant taxes.
The Supreme Court were to decide on two issues:
- Was there a sufficient mutuality of obligation to imply an employee/employer relationship; and
- Was the level of control sufficient to imply an employee/employer relationship?
The decision
It was decided in this case that the two crucial elements to determine employment status had been satisfied. Both parties had a mutuality of obligation towards each other (i.e. they were required to provide a service to one another while in a contract). It did not matter whether mutuality of obligations continued between matches where the referees were not considered “employed”; what mattered was that the elements were present when engaged.
The Supreme Court decided that PGMOL had a sufficient degree of control over the referees it was employing. It emphasised that each case is highly fact specific. In this case, the level of “control” did not include any direct instructions to an individual. The Supreme Court found in favour of a broader definition of control in that an employer is not required to (nor required to have the ability to) intervene in every aspect of the employee’s duties for that control to be considered sufficient.
The case has now been remitted back to the First-Tier Tribunal to decide whether the provisions of the contract as a whole and the relationship are consistent with that being a contract of employment.
How can employers distinguish between the three categories?
Statutory definitions can assist us in distinguishing employment status, but case law does the heavy lifting. Each category has been shaped by case law, and these cases will be fact-specific. Significant cases such as Autoclenz v Belcher [2011] UKSC 41, which determined that a Court may disregard the terms of a contract to focus on the genuine agreement of the parties, and Pimlico Plumbers v Smith [2018] UKSC 29, which set out significant factors in determining a “worker’s” employment status, have helped to establish the requirements needed to achieve each kind of employment status. Despite this, there is no one test used consistently.
Case law has established that, at a fundamental level, an employee must be under a sufficient level of control by their employer, they must perform their job personally, and they must have an obligation to perform work when required by their employer. Whilst these are the core tenets of an employment relationship, there is a non-exhaustive list of factors implying an employee/employer relationship – you can see a link listing these factors on the ACAS website, here.
There has been criticism of the current assessment of employment status, there is a clear appetite for a system which will allow for clearer differentiation between each status.
Employment status under the Labour Government
Following consultation, the Labour Party intends to condense the current system of employment status to a new two-tier system of “workers” and “self-employed” only. This will effectively afford anyone engaged under a contract of employment (regardless of whether they had previously been classified as an employee or a worker) the day-one rights that employees currently relish.
While beneficial for workers, it is unclear the long-term effect that this will have on employers. Unfair dismissal becoming a day one right significantly alters the power imbalance between employees and their employers, and it is uncertain how the Employment Tribunals will react to an anticipated and abrupt increase in claims issued.
Workplaces will have to re-evaluate several aspects of their employment practices including updating their policies and reviewing their employment contracts to be compliant with the new rules. Probationary periods are anticipated to become much more heavily utilised to protect employers from poor hires. Still, they are also much more likely to be scrutinised, and management of probationary periods, therefore, is all the more important.
Labour have committed to getting these changes across the floor quickly (within the first 100 days of government), initially suggesting that a bill could be expected by mid-October. As that deadline nears, employers should put plans in place to review their recruitment practices, probationary policies, and contracts once the Employment Bill has been announced and the precise details of the changes are clearer.
We have discussed the proposed Labour changes in detail at a recent breakfast briefing, you can find more information on the proposal here.
How can we help?
We understand that these changes represent a complicated area for which many are uncertain. These changes are based on a plethora of factors working against each other and will have adverse effects on the importance and prevalence of an employer’s hiring policy, tribunal claims, and costs to businesses.
If you feel you need help with any of the changes discussed above, please contact our Employment Law team.
