Comment
Mutuality of obligation (a requirement to provide personal service in return for payment) and control are essential requirements for a contract of employment, but with relatively low thresholds. The fact that the overall working relationship is made up of a series of ad hoc contracts (e.g., for each football match over which a referee officiates), with no obligation to offer a match or to accept one, does not prevent each contract having the necessary mutuality of obligation. Nor does the fact that the engager cannot intervene in every aspect of the individual’s duties preclude a sufficient framework of control.
In our opinion, the effect of this case, and others, is to place greater emphasis on a third essential requirement; namely, an overall assessment of the circumstances and terms of the relationship as to whether they are consistent or inconsistent with an employment relationship. This can include assessing the degree of mutuality of obligation and control. One of the regular criticisms levelled at HMRC’s online CEST tool is that it does not deal with the degree of mutuality of obligation in this way. Provided that there is a minimum of obligation and control, it is then open to the tribunal to take an overall view of the relationship as to whether it is one of employment. This approach leaves considerable latitude to tribunals. Both of these things make it harder for employers to determine with certainty the correct employment status for an individual’s tax treatment.
In more detail
This case concerned the employment status for tax purposes of a group of football referees, known as the National Group. The National Group were engaged by Professional Game Match Officials Limited (PGMOL) to officiate primarily at matches in the Championship League and the FA Cup. The individuals refereed in their spare time and usually had other full-time employment or occupations. They were engaged on a match-by-match basis, with no obligation on PGMOL to offer a match to a particular referee and none on a referee to accept it. The referee could back out of a match up to the point of arriving at the ground. There were overarching conduct rules and disciplinary procedures.
The National Group were treated as self-employed for tax purposes. HMRC challenged this, asserting they were employees.
The fundamental test to determine whether there is a contract of employment is set out in Ready-Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance Contributions (RMC) and has three limbs:
- Is there mutuality of obligation between the parties?
- Is there a sufficient level of control by the engager?
- Are the factors and terms of the relationship consistent or inconsistent with an employment relationship?
The cases of Atholl House and Kickabout in 2022 confirmed that the third stage of the RMC test is an overall assessment of all the relevant factors, including the extent of the mutuality and control identified at the first and second stages.
The Supreme Court has decided that both stages one and two were met on the facts of this case.
Stage 1: Mutuality of obligation
This phrase describes the essential requirement that the individual provides their personal service in return for payment by the engager.
PGMOL argued that mutuality of obligation also requires an obligation on the part of the engager to provide work or pay in lieu of work. In essence, it argued that the mutual obligations had to exist for at least some time before the referee provided the personal service for which they were paid. PGMOL argued this was lacking, due to the fact that either side could terminate the engagement up to the point the referee arrived at the match.
The Supreme Court disagreed; the right to terminate is irrelevant to stage one of the RMC test. In respect of each engagement (i.e., each individual match) the necessary baseline of mutuality existed: the referee was required to officiate and PGMOL was required to pay for that work.
Stage 2: Control
The Supreme Court provided explanation of what is meant by a sufficient level of control. Control by the engager is required, but only so far as there is scope for such control, having regard to the nature of the job. This means that the necessary level of control could be satisfied even if it only arises in relation to incidental or collateral matters. There is no requirement that the engager must have a contractual right to intervene in every aspect of the performance by the individual of their duties
The court gave the example of specialised jobs, such as surgeons, where the employer naturally would not be able to intervene in large parts of the day-to-day work.
On the facts of this case, PGMOL had a sufficient level of control. It did not matter that PGMOL could not intervene in the referee’s duties while officiating during a match. The requisite control arose from the general framework of control over the referees: for example, PGMOL’s power to impose sanctions after a match, its powers to terminate the contract prior to the match, and its pre-season assessment and coaching systems.
Outcome
The Supreme Court remitted the case to the First Tier Tribunal to determine stage three of the RMC test: were the circumstances and terms of the relationship consistent or inconsistent with an employment relationship? This would include considering the extent of the mutuality of obligations and control.
