Contractors’ Questions: Despite helping with IR35, does having no fixed work days make it a zero-hours contract?

Contractor’s Question: My client company has issued me with a new contract “because of IR35”.

The key difference is that there is no longer an agreed number of days in the contract, just a day rate. The newly proposed contract also includes the following clause:

The Company shall not be obliged to provide the Freelancer with any work, and the Freelancer will not be obliged to accept any work offered, unless and until the Company has requested and the Freelancer has agreed to provide such work. The Company will not pay the Freelancer in respect of any time that there is no work available during the course of this agreement or for periods where no work is undertaken.

I understand that dictating working hours contractually is problematic for an outside IR35 position but not setting work hours, together with the above clause, effectively now means I am on a ‘zero hours contract’ with no guaranteed work from month-to-month from this company; right? Is this the new normal, post-pandemic, to guard against IR35?

And is there anything I can do to help protect my position as a contractor in terms of agreeing how much I work per month for the company that I do? Furthermore, there is a clause in the contract saying something akin to ‘the freelancer cannot work for any other similar company without written permission from the client.’ Is that IR35-related? I feel uncomfortable signing a contract that doesn’t guarantee me any work and also restricts me getting work elsewhere!

Expert’s Answer: On the understanding that you work through your own limited company, you can be a little reassured -- because it’s not unheard of for a client to avoid stipulating the agreed time spent working on a project due to IR35.

Very anti-mutuality...

In your scenario, and in light of the clause you shared, it’s clear that your client is keen to make absolutely clear that Mutuality of Obligation (MoO) does not exist -- in the contract at least.

MoO, as you may know, is an important – albeit not necessarily definitive – factor in an inside IR35 engagement.

By stating that no mutual obligation exists for you to provide your services and the client to offer paid work, it should in theory strengthen your position as a genuine contractor – and one who belongs outside IR35. That is, assuming that the terms of your contract are reflected in the provision of services.

Tricky

With regards to effectively working on a ‘zero hours contract’, it’s a tricky one. The lack of guaranteed work and security is, admittedly, unnerving, even for contractors, but that’s not to say it’s common across the board or the ‘new normal’ post IR35 reform.

Speaking from our experience, in the vast majority of cases, clients will include information regarding how many hours, days or projects they expect a contractor to deliver – something they can certainly do without jeopardising IR35 compliance.

The value (to you) in 'deliverables'

Depending on how your services are provided, you could potentially look at agreeing to specific ‘deliverables’ with your client, in advance of the work being carried out. Deliverables could be refreshed on a regular basis, under separate statements of work, which would give an element of security without negatively impacting your IR35 status.

Next, the fact that your client wants exclusivity – and for you not to provide your services to its competitors – could be seen as being at odds with outside IR35 status, to a degree.

We’ve seen numerous examples over the years of contractors’ IR35 status being detrimentally impacted due to the exclusivity that a client holds. However if there are genuine commercial reasons for that exclusivity, this risk may be lessened.

Exclusivity is worth broaching

In your case, the exclusivity is one aspect that I’d recommend you approach your client about – perhaps also explaining that while the lack of MoO in the contract starts to paint the picture of an outside IR35 engagement, to prevent you from working with similar companies is an indicator of an inside IR35 contract.

I should, however, make clear that all factors of a contract, along with the working practices, should be taken into account before deciding IR35 status – from MoO to exclusivity, personal service, financial risk, part and parcel and more. Good luck!

The expert was Seb Maley chief executive of IR35 contract review company Qdos.