An Employment Appeal Tribunal case involving a qualified nurse, Joanne Maclean, is indeed "interesting," as one ContractorUK Forum user has astutely pointed out.
But it goes even further than merely being "interesting."
Maclean is a timely EAT case, as the UK's employment status consultation is imminent
At a time when Labour's soon-to-be published employment status consultation promises to look at status and hopefully IR35 in the round, the Maclean case underlines just how tricky employment status can be, and how the lines between status for tax purposes and rights purposes have become increasingly blurred.
Therefore, writes Charlie Hemsworth, director of Bauer & Cottrell, IR35 and status specialists, the Joanne Maclean case offers some vital lessons for contractors working through a limited company under IR35 (2000) and the Off-Payroll Working rules (2017, 2021).
To be clear, though, the Maclean case wasn't an IR35 case, but the same principles around how status is tested apply.
Three key principles at the heart of nurse Joanne Maclean v PELC
In particular, the case (Partnership of East London Co-Operatives Ltd v Joanne Maclean), centred on:
- Personal service;
- Mutuality of obligation, and;
- The reality of the working relationship.
These three are all key factors in deciding whether a contractor is "inside IR35" or "outside IR35."
Maclean V PELC's key, non-disputed background facts
Joanne Maclean, a registered nurse, provided services to the Partnership of East London Co-operatives Ltd (PELC) through her personal service company (PSC), Maclean J Limited.
PELC runs urgent treatment centres in East London and uses a mix of employed staff, bank workers, and self-employed clinicians. It operated a shift allocation system whereby shifts were allocated first to its employees, then its employed bank staff and finally to its self-employed contractors.
Maclean worked for PELC from 2018 to 2023 as a Clinical Streamer, assessing patients and channelling them through to the appropriate care routes.
She was paid through Maclean J Limited and considered by PELC to be self-employed.
Where does IR35 feature in the Joanne Maclean case?
There was even an IR35 determination carried out by PELC when the Off-Payroll Working rules were extended to the private sector (on April 6th 2021), with the result being PELC found the nurse to be "outside IR35."
However, when the engagement ended, Maclean brought a claim to the Employment Tribunal, arguing that the true nature of the relationship was one of employment.
She said her company (Maclean J Ltd) was used only as a payment mechanism and that she incorporated at PELC's request. She argued that she was therefore entitled to employment rights, including unfair dismissal protection and holiday pay.
What the Employment Tribunal decided: four findings in Maclean's favour
Going to court for the first time in September 2023, the Employment Tribunal (ET) found in Maclean's favour, making four clear determinations:
- The real contract was between PELC and Maclean personally, not her company. This determination hinged on various documents setting out obligations on her as an individual rather than on her company.
- Maclean was required to personally perform the work — the substitution right in the documentation was described as "impracticable" due to the nature of the role, and it had never been exercised.
- Despite a lack of Mutuality of Obligation (MOO) clauses in the contract, the 4.5-year pattern of engagement showed there was a continuing obligation on both parties to offer and undertake a reasonable amount of work.
- The nurse was integrated into PELC's operations, working regular shifts over several years alongside employees in the same role and using the same systems and procedures.
On that basis, the ET decided that Maclean was both a "worker" each time she accepted work, and an "employee" throughout the entire period, despite being paid through her limited company, and was therefore entitled to the rights she was claiming.
PELC's appeal: four grounds
PELC appealed this decision with the Employment Appeal Tribunal (EAT) on four main grounds:
- The ET was wrong to decide that the contract was with Ms Maclean personally rather than with her company.
- The ET was wrong to find mutuality of obligations between the parties.
- The ET was wrong to find that the right to substitute was not genuine.
- The ET failed to give adequate reasoning for the above conclusions.
The EAT agreed with some points from the first tribunal but rejected others, and ultimately overturned the ET's overall decision that Maclean was an employee or worker.
What the EAT ruled in Joanne Maclean vs PELC
- The contract was personal
The EAT agreed that the contract appeared to be between PELC and Maclean personally, and having an IR35 determination in place under the Off-Payroll Working (OPW) rules was set aside.
The Employment Appeals Tribunal noted that one of the key documents, a Payment Authorisation Declaration, referred to "sums due to me." It also noted that payments made to the company were simply a way of discharging PELC's obligation to her. Aspects of the contract also set out personal obligations.
However, PELC's agreement being with Maclean personally did not automatically mean that she was an employee. It still had to be considered how personal service, control, and mutuality of obligation operated in practice.
- Mutuality of obligation: reasoning not sufficient
The EAT disagreed with the ET's reasoning on Mutuality of Obligation (MOO).
The ET had inferred that, because Maclean worked for PELC regularly for several years, there must have been an ongoing expectation that she would continue to do so.
The EAT said that was not enough.
The written contract clearly stated that there was no obligation on PELC to offer shifts or on Maclean to accept them. Work was booked monthly via a rota, and the nurse could choose which shifts she wanted. There was no evidence of any promise of ongoing work or any obligation to take it.
The EAT also pointed out that the ET's own reasoning was inconsistent. If Ms Maclean was a worker only when she accepted shifts, she could not at the same time be an employee continuously throughout the whole period.
- Personal Service / Substitution: reasoning not sufficient
The EAT also found fault with how the ET handled personal service and substitution.
The ET had decided that substitution was, in reality, "impracticable," due to the clinical nature of the work and the need for professional qualifications, and CQC checks (i.e. checks by health and social services regulator the Care Quality Commission).
However, the EAT said the ET hadn't fully explained why this made substitution impossible in practice.
Citing the Pimlico Plumbers case, the EAT reminded that a substitution clause can still be genuine even if limited to those with suitable qualifications, and that such a clause may be inconsistent with personal service.
Because of these gaps in reasoning, the EAT allowed PELC's appeal on the grounds of mutuality and personal service, and set aside the ET's conclusions on worker and employee status.
What's next in Maclean versus PELC?
The EAT has sent the case back to the Employment Tribunal for reconsideration, where the two remaining issues will be looked at again:
- Was there genuine mutuality of obligation between the Partnership of East London Co-operatives (PELC) and Maclean?
- Was there a genuine right of substitution, and how practical was it?
Five IR35 takeaways of Joanne Maclean's (ongoing) case against PELC
1. Employment status and tax status aren't the same
Even if you have no interest in being classed as an employee, the Joanne Maclean case is a good example of showing how employment status for rights purposes is not the same as status for tax purposes (IR35).
Even if a contract is determined as outside IR35, that doesn't mean the individual couldn't still be a "worker" or "employee" for employment rights purposes.
The frameworks are legally distinct, cause confusion and are in need of reform. It will be interesting to see if the government's incoming employment status consultation comes close to making these conclusions.
2. Contracts must reflect reality
The EAT reaffirmed that written contracts do matter, especially if they accurately reflect how the engagement operates in practice.
But if the day-to-day working arrangements differ from what's in the contract, courts will decide based on the reality.
Ensuring that contracts and working practices are aligned and support your position across the main IR35 status tests remains critical, particularly when dealing with long-term or regular engagements.
3. Substitution needs to be genuine and practical
A right of substitution that can't be realistically used is unlikely to help your case.
To carry weight, a substitution clause must be fettered only by skills and qualifications, practical; exercised when needed, and backed by evidence that the client would genuinely accept it.
4. The extent of mutuality of obligation is still an important factor
Even after the 'PGMOL' case, which confirmed that MOO exists in any wage-for-work arrangement, tribunals still look at whether obligation exists between engagements.
Regular or long-term work doesn't automatically create an overarching contract, and lack of MOO clauses in contracts should be adequately drafted.
5. Integration not helpful but not determinative
Working exclusively for one client for years, using their systems, and being seen as part of their team will not help to achieve an "outside IR35" position — but it's not determinative on its own of "inside IR35."
Demonstrating genuine independence in areas such as substitution, control, and financial risk will really help your case where "outside IR35" is the goal.
Maclean v PELC: here's the bottom line for PSC contractors
The Maclean case isn't over yet. But it already highlights the fine lines between self-employment and employment and reminds us that how a contractor works day-to-day matters just as much as what the contract says.
The government's upcoming employment status consultation may finally bring some much-needed clarity and help prevent future tribunal cases where tax and employment status overlap. Until then, cases like Joanne Maclean's highlight the extreme importance of getting both the contractual and practical details right from the start.
