IR35: Mutuality of obligation (MOO)

Mutuality of Obligation is one of the three factors in what is often referred to as the ‘holy trinity’ of IR35 case law. Put another way, MOO, alongside the factors of Personal Service and Control, creates the ‘irreducible minimum’ for the existence of a contract of employment.

But as BBC Radio 4 presenter Paul Lewis recently made clear, MOO requires an explanation. In simple terms, it means that in order for an employment relationship to exist, there must be an obligation on a work-provider to provide work and an obligation on the individual to carry out the work.

These ‘mutual obligations’ have been considered as a factor to consider from around the time that IR35 was introduced to date (largely), with varying degrees of relevance being attached to it by developing case law throughout the period.

For example, Clark v Oxfordshire Health Authority [1998] related to the employment status of ‘bank nurses’ when the court found that there was no obligation to pay the nurses when there was no work and therefore in the absence of an ongoing relationship of mutuality, there was no relationship of employment.

In Carmichael v National Power plc [2000], there was the status of workers who were employed on a ‘casual-as-required’ basis to show visitors around a power plant. The House of Lords found that there was no evidence of mutuality of obligation between the guides and the owners of the power plant. There was no obligation to give the guides work and there was no obligation for the guides to accept the work if and when it was offered. The workers were not therefore entitled to employment status and their claim failed in the absence of mutuality.

More recently, James v Redcats (Brands) Ltd [2007] ICR 1006 involved a claim by a courier for employee status and protection failed because there was no mutuality of obligation, as there was no guarantee of any volume of work; and the courier was free to decline what work was offered.

The Court of Appeal has considered the issue of Mutuality of Obligation more recently in Windle v Secretary of State for Justice [2016]. The case related to interpreters who provided their services on a case-by-case basis. The tribunal held they were independent contractors and not employees in the extended sense permitted by the Equality Act. The EAT allowed the appeal because the lack of an overarching contract was not relevant.  The issue in the Windle appeal was whether the EAT had been correct to say that a lack of mutuality between engagements was irrelevant -- Underhill LJ held that the EAT was incorrect.

And also last year, Ashton v Revenue and Customs Commissioners, First-tier Tribunal (Tax Chamber) 2016, was an appeal against an HMRC decision to treat the appellant as a self-employed partner of Karate World, a martial arts instruction business, rather than as an employee. It was found that there was clear mutuality of obligations between the parties and so the appeal was upheld. On balance, considering all the factors, it was found that the appellant was an employee of Karate World.

With the continual evolution of the workforce model and developments within employment law and Equality Act case law affecting employment status, Mutuality of Obligation may become more of a factor when considering IR35 issues. However, at the time of writing, it is rather mystifyingly not a factor tested for by the IR35 digital tool, formerly known as the ESS, and now called CEST. The sheer importance of MOO in IR35 case law surely puts the inclusion of MOO at the top of the Revenue’s agenda for future iterations of the tool.

Written by Jonathan Wright, tax investigation solicitor and partner at Richard Nelson LLP

Further reading on Mutuality of Obligation:

IR35: Mutuality of Obligation: what it is and what it is not

IR35: Substitution, Control and Mutuality of Obligation

Editor's note: You may be interested in our IR35 calculator

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