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IR35 End Clients should think twice

By Andy Vessey


Contractors should not be left holding the IR35 baby

Last year, a ruling by an Employment Tribunal paved the way for self-employed locum pharmacist to make a claim for unpaid holiday pay over a three year period (G Wooller v Paydens Ltd). Another employment law case that year also gave further encouragement to those contractors who may be staring IR35 full in the face because of the aloofness of end clients.

In Plastering Contractors Stanmore Ltd (PCS) v Mr P Holden (UKEAT), Mr Holden, a self-employed sub-contractor, claimed holiday pay and won.

PCS was a plastering service for whom Mr Holden worked as a general labourer, as an employee, during the period April 1997 – February 2001. However, he gave up his status as an employee to become a labour-only subcontractor on 7th February 2001 in exchange for a payment of £200. From that time up until May 2013 he was paid under the rules of the Construction Industry Scheme and suffered a 20% tax deduction from his gross pay.

Mr Holden's tasks were to load and unload pallets of plasterboard and other general labouring work such as breaking up screed, clearing up sites and transporting equipment and materials between sites. A Contracts Manager or a supervisor would contact him to provide him with work at various sites.

Payment was either by price or by reference to time. If he was paid by price, Mr Holden would start at 8 am and leave once he had completed the work. Where he was paid on a time basis, he would work between 8 am – 4 pm for a daily rate. The supervisor recorded the hours worked and PCS arranged payment without the requirement of a sales invoice. Rates of pay were non-negotiable and were set by PCS.

There was no obligation for PCS to offer Mr Holden nor for Mr Holden to accept it and indeed there were occasions when PCS could not provide work and therefore did not pay him. There was a two week period when Mr Holden worked for another company and occasional days when he declined work so that he could take his wife to the hospital or the doctor. Although he worked “almost exclusively” for PCS for 16 years, towards the latter end of his service, Mr Holden did some landscape gardening to supplement his income.

All protective clothing, with the exception of safety boots, was provided by PCS as was transport when Mr Holden had to move equipment between sites.

Mr Holden did not market his services or operate as a business and therefore PCS could not be said to be his client but rather he was integrated into the business of PCS.

There existed an oral agreement between the two parties for Mr Holden to personally provide his labour in return for payment. In practice he did not provide a substitute, even on the days when he had to take his wife to the hospital or in connection with her medical appointments.

Increasingly frustrated by the lack of work being put his way Mr Holden parted company with PCS, without giving notice, to take up a similar role with another company in May 2013.

For his claim to holiday pay to succeed it was necessary for Mr Holden to establish that he was a worker by virtue of the Working Time Regulations 1998 (WTR) and the Employment Rights Act 1996 (ERA).

Regulation 3(1) of the WTR defines a “worker” as 'an individual who has entered into or works under (or, where employment has ceased, worked under) -

  1. a contract of employment; or
  2. any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work in services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;

and any reference to a worker's contract shall be construed accordingly.'

Part II of the WTR confers certain rights upon a worker which include entitlement to maximum weekly working time, daily and weekly rest, annual leave and holiday pay. Being deemed a worker under the ERA provides other rights such as the ability to make a claim for unfair dismissal or redundancy pay.

For those freelancers who fall foul of IR35 because of indifference of their end client to their plight, then they may wish to consider limiting their losses by following in the footsteps of Mr Holden. In these circumstances contractors should not be left to feel impotent and be able to keep their powder dry.

Published June 2015