Supreme Court emphasises need to consider ‘framework of control’ for employment status

Chris Thomas, an employment tax expert at Pinsent Masons, said: “The judgement emphasises, again, how difficult it is for employers to reach a clear determination on employment status and the importance of understanding the nuances around the relevant factors. It also emphasises the desperate need for more clarity through statutory reform.”

The case (26 pages / 762 KB) considered whether a relationship between Professional Game Match Officials Limited (PGMOL), a company responsible for providing football referees for certain league and cup matches, and part-time referees constituted an employment contract for tax purposes so as to trigger an obligation on the company to deduct tax and national insurance contributions.

PGMOL had appealed to the Supreme Court contending that the referees had significant autonomy in their work, specifically during the course of matches, plus the ability to accept or decline assignments and the lack of a continuous obligation to provide services. They argued that this indicated a lack of ‘mutual obligation’, an essential element in establishing an employment relationship.

On the other hand, HM Revenue and Customs (HMRC) argued that the referees were employees. HMRC emphasised the control PGMOL exercised over the referees including fitness test requirements, training assessment, and the obligation to adhere to specific guidelines and standards. HMRC argued that this level of control, combined with the mutual obligations between the referees and PGMOL in relation to any given engagement, constituted an employment relationship.

The Supreme Court unanimously dismissed the PGMOL’s appeal.

Mutuality of obligation means that an employee is required to provide personal service in return for payment from the employer. In this case, referees were assigned matches via an online system. The referees were appointed a match, and a contract was then formed under which the referee would officiate and submit a match report in return for an agreed fee issued by PGMOL. While a referee could refuse an appointment, PGMOL would typically want to know the reason for the refusal. Referees were also able to back out of the appointment before arriving at the ground on a matchday, but this was often due to illness or injury and the fee would no longer be payable in these circumstances.

“The conclusion regarding mutuality was no real surprise given the Court of Appeal’s decision and is in line with the position that HMRC has been taking for some time. However, it does mean that, in most cases, arguments around mutuality are likely to be fruitless, even if there are gaps between engagements and further work is not guaranteed, as mutuality will generally arise as soon as work is offered and accepted,” said Thomas.

The question of whether an employer has sufficient control to constitute a contract of employment will require an assessment of the facts on a case-by-case basis, the Supreme Court held. The court found that ‘adequate control’ does not require an employer to have a contractual right to intervene in every aspect of an employee’s duties and performance. Additionally, an employer is not required to have the practical ability or legal right to intervene during the performance of the employer’s duty to demonstrate ‘control’. Instead, the court said that what must be shown is a “sufficient framework” of control.

Referees were required by PGMOL to pass a fitness test and attend an introductory seminar before being assigned. PGMOL also operated its own disciplinary procedures, with breaches of any match day procedure resulting in disciplinary action and referees contractually obliged to submit match reports. The Supreme Court upheld the Court of Appeal’s decision that these procedures and obligations demonstrated an adequate ‘framework of control’.

Thomas said: “The court’s comments on the issue of control are probably of more interest, emphasising as they do the importance of considering the wider framework of control, rather than just whether a client can and does actually interfere or direct on a day-to-day basis, which tends to be what businesses focus on. Although the type of sanctions available to PGMOL may not be typical in other sectors, there will often be some form of framework of control, and it will be key for businesses to understand the nuances around this rather complex area when making determinations”.

“We have already been seeing HMRC focus on framework of control arguments and the PGMOL decision is likely to embolden it further going forward. Therefore, whilst there will certainly be cases where sufficient framework does not exist, properly factoring this into decision-making will be important in arriving at a robust and defensible outcome,” he said.

The Supreme Court agreed with the Court of Appeal’s previous decision that where referees are engaged by an individual contract for each match, pursuant to an overarching contract, whether there is sufficient ‘mutuality of obligation’ for the referees to be employees for tax purposes should be considered in relation to the contract for the particular engagement, not by reference to the overarching contract. The Court of Appeal said that the fact that the overarching contract is not considered a contract of employment does not mean that the single engagement cannot be a contract of employment. Instead, a single engagement can give rise to a contract of employment if work has in fact been offered and is done for payment.