‘Tip of the iceberg’ alerts over inside IR35 worker’s £37k payout ‘confined to Tripod Partners contractors’
Alerts that an agency paying an inside IR35 worker £37k ‘may be the tip of the iceberg’ are hyperbole -- if they are said to apply beyond the agency.
In M Appiah v Tripod Partners, a judge said Tripod (the agency) wrongly deducted employer NI from Appiah’s (the worker’s) wages.
The £37k ruling by employment tribunal judge Housego in favour of Appiah, who worked at the Home Office, was issued in November.
It sparked claims it “could be just the tip of the iceberg,” implying other inside IR35 contractors could now claim against their agencies.
‘Very surprised if Tripod Partners don’t appeal’
But Egos Ltd, a legal consultancy for contractors, told ContractorUK it would be “very surprised” if the ruling is “not the subject of appeal.”
Employment law firm Chartergates also told ContractorUK yesterday that its lawyers “anticipate that the case will be appealed.”
Adding to the prospect of the precedent being undone, so thwarting copycat challenges, ReLegal Consulting says an appeal is “likely.”
‘Legislation doesn’t permit Tripod to directly deduct ER NI’
Crucially in the eyes of another OPW advisory -- Markel Tax, Appiah won her £37k payout because she was determined to be a ‘worker.’
Under the protection of S13 of the Employment Rights Act 1996, such ‘workers’ cannot have employer NI deducted from their pay.
“By way of being a ‘worker’,” Markel’s Nikola Nowak yesterday told ContractorUK, “legislation didn’t [permit] Tripod to deduct ER NI.”
‘Judge’s mind was not focussed on fundamental point’
Curiously, the ruling contains “nothing” to indicate this “fundamental point” was put to the judge, says Egos’s Roger Sinclair, who added:
“The decision that Appiah was a ‘worker’ seems contrary to the facts found. Notably, p5, ‘The contract is between two limited companies.’
“[But Tripod] does not seem to have focussed the judge’s mind on this fundamental point. The very likely-to-happen appeal surely will.”
‘The IR35-savvy knew this case was only a matter of time’
An online thread reacting to the Appiah-Tripod ruling states, “Anyone in the IR35-know, knew this was bound to happen.”
The comment speaks to anecdotal evidence that many other agencies also directly deduct employer NI from worker wages.
An adviser who declined to be named signalled that “many” is to overdo it.
‘Most agencies have learnt from the umbrella industry’
“Most [agencies that] I come across have learnt from the umbrella industry, and so do things correctly,” the adviser said.
In fact, Tripod Partners is to date the only agency that has been found to have made such an unlawful deduction.
But significantly for the agency, the court indicated Appiah isn’t the only victim of the London-run recruiters.
‘Company-wide practice of deducting employer National Insurance’
Judge Housego said: “[This] a company-wide practice of [Tripod], so this [ruling] has an importance for them, wider than just this claim.”
Tripod Partners has not responded to two requests for comment.
In them, ContractorUK asked Tripod to estimate the total liability it may face from other workers it has historically deducted ER NI from.
Put another way, Tripod has been invited to comment on how large the non-sensationalist ‘iceberg’ potentially is.
‘Appiah-Tripod dispute could have been entirely avoided’
Bauer & Cottrell hinted a ‘dead ahead’ alert could have been shouted long ago to Tripod, meaning the agency could have avoided it.
“Had Tripod properly structured the contract from the outset…this dispute could have been avoided,” says B&C’s Charlie Hemsworth.
“And ‘proper structure’ means agreeing the worker pay from the assignment rate, factoring in the ER NI and other costs transparently.
“That’s common practice for compliant fee-payers, and all parties in this dispute would have been in exactly the same financial position.”
‘Not enough to work off assumptions’
Equally not in doubt is the case highlighting the importance of each party in the chain understanding their legislative obligations.
“It’s not enough to work off assumptions. Due diligence should be carried out to ensure each party is meeting its obligations,” says Markel Tax’s Ms Nowak.
“But this has always been the case. This ruling doesn’t necessarily introduce any new rights to contractors.
“In fact, it’s always been open to employees and workers to question employer’s National Insurance being deducted from their income.”
‘Appiah was right to challenge National Insurance deductions’
B&C’s Hemsworth echoed: “This is a great result for Michelle Appiah, who was absolutely right to challenge these unlawful NI deductions.
“This case is a wake-up call for agencies and umbrella companies that employer’s NIC is their liability -- by law.
“It’s not the liability of their ‘workers.’ And just because a contractor is IR35-caught, doesn’t mean costs can be offloaded onto them”.
Chartergates acknowledged that contractors may try to launch copycat actions, seemingly siding with the ‘tip of the iceberg’ hyperbole.
‘A first-of-its-kind ruling -- and one that is highly fact-sensitive’
The law firm believes the most likely copycat cases will stem from contractors hit by similar deductions under the off-payroll working rules.
Chartergate’s Naseerah Mussa told ContractorUK: “This is a first of its kind ruling…[insofar as] the judge held that employer’s NIC -- and Apprenticeship Levy -- cannot be deducted from an inside IR35 contractor’s pay.
“So the Appiah-Tripod case could…inspire other contractors to take their agencies to court.
“However” she cautioned, “it is important to note that this case is highly fact-sensitive.”
‘Opens the door’
The firm’s legal consultant, Mussa further advised that contractors would first need to carefully review their contractual terms, plus any supporting documentation (such as their Key Information Document), before determining -- ideally with tailored, professional legal advice -- if they do have a similar case.
The legal consultant bottom-lined it to ContractorUK: “The judgment [in Appiah’s favour] highlights that Tripod Partners operated a company-wide policy of making such deductions.
“That [therefore] opens the door for further claims by others [placed by the agency and] impacted by this practice.”