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Following on from our recent article on the Lockheed Martin case two legal experts provide their analysis of how evolving employment law impacts the long-term contractor and associated IR35 status. Tim Tremaine, a systems administrator, was under contract with Lockheed Martin for five years until they replaced him with a cheaper contractor willing to work for £10 an hour less. Mr Tremaine alleges that he was unfairly dismissed, with no redundancy or offer of alternative work. Roger Sinclair, legal consultant at Egos, told CUK that for a successful outcome of unfair dismissal “the individual would have to show that there was a contract of employment between himself and the client; that need not be written and could be an implied contract of employment.” Brookson, a quality provider of Composite Companies to contractors, explained to us the factors affecting this case: “The longer the assignment the more important it is for the client and the contractor to be entirely clear in their obligations to each other - the longer an individual works with a client the greater the risk for both parties of the individual being treated as an employee of the client unless the obligations are made clear and are regularly monitored.” “It is possible to do this even where there is an intermediary in place such as a one man limited company/composite company and/or agency. Obviously the length of an assignment is not the only factor an employment tribunal would look at to determine whether or not someone has become an employee of an end client, they would also look at factors such as mutuality of obligation, control, and being part and parcel of the end client’s organisation.” “It appears that Mr Tremaine is seeking to argue that mutuality of obligation has developed between himself and the end client Lockheed.” Brookson address the issue of contractor independence from an end client/agency by continually assessing the working practices of its Members. TreasureGuard, a market leader in IR35, accounting and employment law, also talked to Contractor UK and gave the following analysis on the effects of employment status on contractor’s rights and tax liabilities: “The case of Tim Tremaine at Lockheed Martin, reported on CUK last week, shows how employment law has diverged, differentiating what makes you an employee for tax purposes and what makes you an employee for unfair dismissal, holiday and other employment benefit rights. “Tim Tremaine has contracted through an agency at Lockheed Martin for several years. He has operated out of his own limited company and having recently been undercut in the price he charges by another contractor, has sought to claim unfair dismissal and the attached benefits from his termination at Lockheed Martin. “In an ideal world if you paid employment taxes, in which category IR35 taxes fall, then you would expect to receive the benefit of employment rights. Unfortunately, this is not the case.” “There have been two important cases in recent years as to what qualifies as employment rights when working through an agency. In the very recent Brook St v Dacas 2004, a PAYE agency cleaner was indicated by the court of appeal to have been employed and entitled to the associated benefits by the end client Wandsworth Borough Council. “In contrast to this, a contractor working through his own limited company at Hewlett Packard, Hewlett Packard v O’Murphy 2001, was found that he could not be an employee for employment law even though he was controlled by the client. The presence of his own limited company and the contracts for services appear to have been critical factors in the decision. The work was completed prior to the introduction of IR35 so this was never brought into the equation. “In the case of Tim Tremaine at Lockheed Martin, if he is claiming to be an employee of the end client is this going to be evidenced on his part by the paying of employment-like IR35 taxes? If he has not paid IR35 taxes and enjoyed the benefits from dividends and higher contractor earnings, his claiming of an employment relationship will invite the Inland Revenue to inspect and apply the costly IR35 deductions, which amount to about 20 per cent of turnover for each year. If he was not paying IR35 taxes, it would also be more difficult to reconcile why he was claiming employment protections. “On the other hand, if Tim Tremaine has paid IR35 taxes, is it not fair that he receives some sort of employment protections? Who should pay these protections, a client who has already paid the higher costs associated with a contractor, the Government which has received these higher contributions, or his own company which is his legal employer? “Unfortunately the way the tax law stands at the moment, his company could be liable for taxes for IR35 due to the characteristics of an employee relationship with his client, however under employment rights law he is not entitled to protections under the contract for services relationship his company has with Lockheed Martin.” More information about TreasureGuard can be found here. To contact Brookson click here Aug 23, 2004 Email this article Printer friendly page Previous Page
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