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| CURRENT SECTION :: IR35 / IR591 | UK's most visited IT Contractor Site - 250k unique visitors March 2008 |
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The Synaptek IR35 case continued today at the High Court in London. Judgement in this case is expected to be handed down in two or three weeks' time. Morning Session A new face on the Revenue side was that of Brian Campbell, an extremely senior status inspector who had quite evidently instructed Sheldon to make specific points on mutuality of obligation. But I’m getting ahead of myself. Conrad had four things to cover before finishing his submission. One of the criticisms being levelled at the General Commissioners in this case is that they allegedly simply saw the FS Consulting case, said “this case looks a little like that one, so the outcome must be the same” and failed properly to consider all the relevant points. Conrad cited a finding that “what may be compelling in one case may not be compelling in another” – in other words, each case must be considered in and of itself. He went through the similarities and differences between the Synaptek and FS Consulting cases in quite some detail. The judge was very interested in the concurrent client point and, inevitably, considered a legal analogue, that of a barrister being engaged to work alongside employees of a solicitors firm. He asked if that would make that barrister an employee. Conrad said “it would surprise me if it did” and Hart replied “well it would surprise me too – but it is a surprising world”. A point of some ancillary interest came out of the next discussion: a controlling shareholder of a limited company who is also a director is highly unlikely to be an employee of that company. Conrad also made the point that since it was a finding of fact that Gordon is in business on his own account, the burden is then for the Revenue to prove that he would have been an employee rather than for him to prove that he wouldn’t. The judge also questioned the relevance of the “own equipment” test as he had recently heard a case where employees routinely provided their own tools. Conrad said that if everything was provided by the putative employer, that would point to employment albeit weakly. Conrad said that we were not relying on the substitution clause in this case (it had been removed in any event for part of the work). Rather, the most significant parts of Gordon’s case were that he was in business on his own account, and there was no MOO. This was really the highlight. The Revenue are naturally terrified that any court would find that if an end-user had no obligation to provide work on a day-to-day basis, then mutuality can’t exist – but this is the point Conrad is arguing. Any win on this point would have massive implications for the future of IR35 – basically it wouldn’t have one. Regular readers will recall that in order to have employment, there must be an “irreducible minimum of mutual obligation”. Conrad’s definition of this is: there must be an obligation on the one had to provide work and on the other hand to accept work. Sheldon’s version is basically “you show, they pay”: it’s sufficient that the client has an obligation to pay for work done and the worker has an obligation to do work. This latter definition is the same as the definition of a contract: that a service is provided in return for a consideration (ie money). So it seems to me that Sheldon simply cannot be right because otherwise every single contract would have the irreducible minimum and cases like Montgomery would not exist (in fact the whole concept of MOO would then be redundant). After he had presented it, Sheldon turned to the senior status inspector and said (sotto voce) “was that alright”? So the Revenue had clearly instructed him to try and get MOO-related points into the judgement. To be frank, although Sheldon spoke well (and seemed less irritated to be here than yesterday), I thought his points on this were weak. Only time will tell if I am right or not. Sheldon did make a good point on the Commissioners, however. A leitmotiv of the case so far has been that the Generals didn’t record any reasons behind their decision. Sheldon dug up an authority to say that in fact they don’t have to. The Generals have to record their facts and their conclusion and that is all. The Specials, on the other hand, must record their reasoning in a written judgement. Which Commissioners to go before is at the taxpayer’s choice and Gordon had elected the Generals. So it is not necessarily fair to criticise the Generals for not including their reasons as they don’t actually have to. Conrad finished off his case by stating that Hart basically has four options. He could say on the basis of facts as found by the Generals, the only proper conclusion in law is that the terms of the notional contract are consistent with self employment – in other words, allow the appeal. He could say that it isn’t possible to say whether or not the Generals were right or wrong because there was no reasoning. In this case Hart should remit the case for retrial by a fresh set of Generals. The third option was to remit the case back to the same Generals for further findings of fact. The fourth would be to conclude that the Generals were correct and deny the appeal. Sheldon put it differently: the options are to reverse, amend or affirm the original decision. He would in any event suggest that Hart amend it to correct the dates and entities in the contractual chain. Sheldon started off by citing a letter Gordon had written to the Revenue in which he said that he thought this work was probably within IR35. He then debated the construction of the notional contract with Hart for a while: Sheldon’s approach was to consider “had Gordon and EDS sat down and worked out a contract, what would that contract have been”. The difference in style between the two barristers was highlighted by references to EAT hearings. Conrad, who is understated, self-effacing and softly spoken, had said “well I really haven’t got a lot of EAT experience”. Sheldon said “well he might not but I have and I can tell him…” – you could almost hear a collective “whoooo” from the public gallery and for a moment I thought one of the Flunkies might pop out and get him a saucer of milk. Sheldon will speak for an hour or so more, and then Conrad stands up again. The case should finish today with judgement in a few weeks. Final Session Sheldon started by correcting a misconception from earlier in the case: there is no shifting of the evidential burden just because Gordon was found In Business On His Own Account. Sheldon’s case was thin in places – for example he asserted that the requirement to have timesheets signed was an indicator of control! – however in general he argued it well. One problem he did have was that he frequently confused mutuality of obligation with the requirement for personal service. He often cited the substitution clause, saying that substitution meant there was no mutuality. This did cause a certain amount of head-shaking and whispered “what?!”s from the public gallery. During the afternoon, the judge said that an absolute power to substitute would be decisive; if there had been a finding that the worker could not insist on the 37.5 hour week, that would also be decisive. The Revenue agreed that if the client didn’t have to pay him, there would be no mutuality. There was a point at which Sheldon cited the handcuff clause in Synaptek’s contract. Sheldon said that it meant that Gordon couldn’t do anything at all similar to what he was doing at EDS anywhere else for six months. This gave rise to collective stage whisper of “bollocks!” from the public gallery. The judge said no-one sane would ever sign such a clause. Sheldon continued to press the point, saying that, well, at least then he couldn’t use anything he’d learned at EDS anywhere else, then – which also caused an amount of badly-stifled hilarity. As always, the judge had a good grasp of things and having allowed him to dig his hole good and deep suggested he move on. He did get a concession from Sheldon though that the agreement restricting Synaptek from competing with EDS was an SE indicator. Sheldon also attacked the Express & Echo – Tanton case as an “extreme case”. Sheldon said that the factors indicating employment were: the number of hours to be worked rather than specific tasks were specified in the contract; the work was largely at EDS’s site using their equipment; Gordon had a “line manager”, a job description and status-grade; Gordon worked alongside EDS employees; and Sheldon said that EDS controlled what the work was and where it was carried out. He said Synaptek bore no significant risk of loss as invoicing was weekly and there was no opportunity to profit from sound management. Even though there were some SE pointers, these were not enough to leave the Commissioners with one conclusion only. He also said that many employees “who want to get on” paid for training courses for themselves, to the raising of a number of eyebrows. Conrad then rose again and said there were two meaty points of law: what elements from the Commissioners hearing were points of fact as opposed to points of law; and the manner in which the notional contract is constructed, with particular focus on mutuality. On the first, Conrad’s assertion was that the facts of the arrangements must be findings of fact but the construction of the notional contract must be a point of law as a legal process must be gone through to arrive at the conclusion. On the second, Conrad spent quite some considerable time explaining why Sheldon didn’t understand mutuality and the difference between it and the requirement for personal service. He did quite a good job of this. He did get into a bit of a hole himself with regard to mutuality towards the end: the conclusion was that if there was no obligation to provide work then the notice clause was essentially meaningless as no work need be provided. What happens on mutuality in this case is an absolutely key outcome for freelancers in general. Conrad’s version is that the IMOMO is the obligation to provide and perform work. Sheldon’s version is that the IMOMO is the obligation to perform work and be paid for it. Whether Gordon wins or not, a key issue is what actual test Hart decides to use: one of these or something in between. For example, it could be that he decides Conrad’s test is the right one to use. Irrespective of whether Gordon is the right or wrong side of that test, it will then be case law that if the client does not have to provide work, the IMOMO for IR35 is absent. This would effectively kill IR35 for anyone who could get a clause inserted into their contract stating that the client did not have to provide work for them. Alternatively, Hart might decide to use Sheldon’s test (though this seems highly unlikely as basically it’s the same test as there-exists-a-contract). If he does, even if he then decides Gordon is the right side of that test (though it’s hard to see how he could), de facto literally every freelancer would have an arrangement which included the requisite IMOMO to be within IR35 (of course that wouldn’t mean that they were necessarily caught, but it would remove a key defence currently in the armoury). The judgement was reserved and will be handed down in two or three weeks’ time. As ever, it is tempting but would be quite wrong to try to predict an outcome: no-one but the Judge knows the scores on the doors and he’s not telling just yet. Inevitably one tends to agree with ones own barrister so feels he is making better points than the other side; however it comes out the case has certainly been cogently and comprehensively argued. It is still, of course, open to the judge to allow, dismiss or remit (recall that he did not dismiss the application to remit yesterday). At the end of the day though, whatever the result of this case, Gordon Stutchbury is no longer running a business. When he did run a business he provided four jobs which no longer exist. Who said IR35 does not affect genuine businesses? Feb 28, 2003 Email this article Printer friendly page Previous Page
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