Supreme Court shows self-employment the red card

The Supreme Court has ruled on the status of football referees working on what are effectively “zero hours contracts” for tax and NICs purposes. 

According to the Supreme Court, both “mutuality of obligation” and “control” - two of the three fundamental requirements for a contract of employment – were satisfied for the individual contracts created for each match.  However, the Supreme Court has sent the case back to the initial tax tribunal to decide if those individual contracts actually are contracts of employment when all the relevant circumstances are taken into account.

What was the issue?

The referees were engaged by Professional Game Match Officials Ltd (PGMOL) to officiate at football matches, primarily in Leagues 1 and 2 but also in the Championship and FA Cup. The individuals worked mostly part time, combining refereeing with full-time jobs in other fields. They were offered matches through a software programme and had the option to accept or reject them.

HM Revenue & Customs (HMRC) decided that the referees were employees, which meant PGMOL would have been required to deduct income tax and employer’s National Insurance contributions from payments it made to them.

PGMOL brought a claim in the First-tier Tribunal against this determination. The Tribunal said that the referees had both an “overarching” contract with PGMOL, which existed between matches, and individual, specific contracts which existed when the referees accepted a match. Having considered these separately, the Tribunal concluded that there was insufficient mutuality of obligation and control for either of the contracts to be contracts of employment.

After HMRC appealed this decision, the Upper Tribunal agreed on the absence of mutuality of obligation but disagreed with the Tribunal’s findings on control. Given there was insufficient mutuality of obligation for there to be an employment contract, however, the Upper Tribunal still didn’t think the referees were employees. HMRC appealed again. The Court of Appeal disagreed with both tribunals, finding that there was sufficient mutuality of obligation for each individual match contract to be an employment contract. PGMOL then appealed to the Supreme Court.

What did the Supreme Court decide?

In its judgment, the Supreme Court reiterated the need to go “back to the basics”.  It emphasised that the relevant tests are those set out in the classic 1968 case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance and more recently in HMRC v Atholl House Productions Ltd (which we wrote about here).

In the Ready Mixed Concrete case, it was decided that, for a contract of employment to exist, there must be:

• requisite “mutuality of obligation,”
• a sufficient degree of control by the engager, and
• other factors indicative of an employment relationship.

Mutuality of obligation

The Supreme Court accepted HMRC’s long-standing view that mutuality of obligation always exists where payment is provided in return for personal service, even if the obligations only exist during the time when the individual is working for the engager. The Court added that “work-wage bargain” may be a better way of describing this than the rather confusing expression “mutuality of obligation” – but mutuality of obligation is nonetheless the terminology generally used. 

The Supreme Court found that mutuality of obligation existed between a referee and PGMOL from the time the referee accepted the offer of a match (generally the Monday prior to a Saturday), even though either party could cancel the engagement without penalty at any time before the referee arrived at the ground. However, while mutuality of obligation shows that a contract exists, it does not necessarily indicate the nature of the contract.  The nature and extent of the mutuality of obligation is relevant to determining whether an employment contract exists.

Control

The Supreme Court held that an employer did not need to have a contractual right to intervene in every aspect of an individual’s performance for the individual to be considered an employee.  In this case PGMOL had no ability to intervene while the referee was officiating during matches, but that did not mean that control did not exist.  Sufficient control, consistent with an employment relationship, may take many forms and is not confined to the right to give direct instructions to the individual. PGMOL had a sufficient degree of control because:

• a framework of control existed - the referees were subject to a combination of contractual obligations relating to their conduct (including a code of conduct and a post-match assessment process); and
• PGMOL could impose sanctions on a referee if they breached their contractual obligations - by denying them opportunities to officiate at future matches and by reducing their right to share in the performance or merit payment pot.These sanctions played a significant part in enabling PGMOL to exercise control over the referees in the performance of their role both on and off the pitch.

So is it game over?

The referees are not yet definitively employees for tax purposes.

The Supreme Court said it was wrong to focus solely on the issues of mutuality of obligation and control and to treat other terms of the contract and the surrounding circumstances as less significant.  While mutuality of obligation and control were necessary for a contract of employment to exist, they were not necessarily sufficient. The cumulative effect of the contractual provisions and all the circumstances of the relationship known to the parties, or which reasonably should have been known to the parties, should be considered in the round along with mutuality of obligation and control.

So, back to the First Tier Tribunal to do this, applying the Supreme Court’s guidance.

What does this mean for employers?

The case is another example of how difficult it is to determine whether a contractor or freelancer is genuinely self-employed.  Unless there is a genuine unfettered right for the individual to send a substitute in their place (meaning that there’s no requirement for personal service) no single factor is determinative of tax status; all the facts and circumstances must be considered. That said, the Supreme Court’s opinion on what constitutes a sufficient level of control appears to lower the level of control required and will be concerning for the many businesses which engage individuals on a self-employed basis to do irregular pieces of work, where the individuals are expected to do that work personally during the time they are doing it. This includes businesses in the platform economy but applies to other industries too.  For individuals engaged on this basis, it may mean that employed status is one step closer.  As explained above, this particular case now goes back to the initial tribunal for re-consideration, and we’ll be waiting for their decision with interest.

Commissioners for Her Majesty's Revenue and Customs v Professional Game Match Officials Ltd – Supreme Court judgment available here.

HMRC’s “Guide to determining status: mutuality of obligation” can be accessed here.