IR35: The Right of Control

Employment tribunal case reinforces the importance of the right of control

Contractors are fully aware that the control test is one of the key tests in employment status. However, it can sometimes be overlooked that it is the right of control that is important and not that actual control has to be exercised by an end client over a freelancer. This was the point in issue in an Employment Appeal Tribunal case earlier this year; White & Todd v Troutbeck SA. 

 Mr White and Ms Todd were engaged by the owners of a small estate in Surrey. The estate was owned by Troutbeck and another Panamanian company that was, in turn, owned by Mr Michael Ibru.

Mr White’s father had been the estate’s farm manager but when he died Mr White offered to take over on a “more permanent basis”. There then followed negotiations with Miss Ibru, the daughter of Mr Ibru.

In an e-mail dated September 2006 Mr White said that he and Ms Todd would provide caretaking and management services of the house and small estate.

After what appears to be a lengthy negotiation period, White and Todd and Miss Ibru, signed an agreement in August 2009. Under the agreement, Troutbeck was described as ‘the owner’, White the ‘caretaker/manager’ and Todd the ‘caretaker’. This agreement plainly envisaged that White and Todd would be employed with the words, “The owner shall employ the caretaker/managers as caretakers/managers of Starcross Farm.”

On site accommodation was provided “in order properly to perform his or her duties” and would be vacated after the caretaker “ceased to be employed”. The period of “continuous employment” would continue until termination, which was to be on 3 months’ notice in writing on either side. There was provision for 30 days holiday “at such times as the owner considers convenient”.

The Ibru family were ‘absentee owners’ who rarely visited the property, a few days once or twice a year, but when they did they would have expected the house to be well prepared.

Notice to terminate the agreement was given in March 2010 and after this the parties fell into dispute.

Employment Tribunal (ET) ruling

The ET found that there was a contract in which mutuality of obligation existed and the possibility of an employment contract.

The whole essence of the relationship was that Miss Ibru wished to delegate principally to Mr White the running of the farm so as to ensure that the buildings were maintained and that there was sufficient income gained so as to meet most relevant outgoings. The method by which those ends were to be met was not specified. There were no hours of work specified.

Miss Ibru deliberately divested the Ibru family of day-to-day control during discussions with Mr White and the 2009 agreement delegated that responsibility to White and Todd. There was never any suggestion of actual control being exercised by the Ibru family, save for the point that if expenditure was to be incurred then that fact had to be reported to them but not approved by them. Being absentee owners they wanted someone to be responsible for the maintenance and management and make the decisions himself. That, according to the ET, was not employment but made White and Todd ‘workers’ for the purposes of the Employment Rights Act 1996.

Employment Appeal Tribunal (EAT) decision

White and Todd appealed to the EAT citing that it was only necessary that there should be a contractual right to exercise control to a sufficient degree. Furthermore, it was claimed that the ET restricted itself to considering whether the control concerned the manner in which the work was done and to the question of day-to-day control whereas the test is concerned with all aspects of control. Although the Ibru family may not have exercised day-to-day control, they retained sufficient right of control. 

The EAT judge said the question was not by whom day-to-day control was exercised but with whom and to what extent the ultimate right to control resided. In this respect the written agreement was a strong indicator that the Ibru’s retained a sufficient right of control. 

All maintenance expenditure had to be reported to the owner before any work commenced. The judge found that there would be little point in such a provision unless the owner had the right to give instructions concerning maintenance involving expenditure. Furthermore the owners also retained the right to make the final decision on any improvements. There was no intention to place White and Todd in a position where they could resist the owners right to control any improvement works. 

The judge saw nothing in the agreement to suggest that the owners lacked the right to give reasonable instructions about the house and grounds during visits by the Ibru’s. 

Two other aspects pointed towards the Ibru family retaining a right of control: 

  1. the employment of the caretaker in any other work, to which the owner might object “if inthe opinion of the owner” it diminished or restricted the performance of the caretaker’s duty; and
  2.  the taking of holidays at the owner’s discretion.

Whilst substantial day-to-day responsibility was delegated to White and Todd the Ibru’s nevertheless retained a sufficient right of control and the EAT said it would have been surprised if they had divested themselves of that right.

The EAT therefore concluded that White and Todd were employees.

 

 

 

4 Comments

  • Graham says:

    So by deduction, the ‘right’ to provide a substitute should have equal or greater weight in determining employment to actually providing a substitute. But of course it doesn’t.

    The hoops are becoming smaller.

  • Chris says:

    Graham is correct re Right of Substitution (RoS). I have long said that HMRC should not get away with the argument that the right does not exist because it’s not been used, particularly in view of the fact that it’s not in the contractor’s interests to pay someone else for work that they could do themselves.

    However, nobody ever seems to have tried to make that argument in court – I have no idea why.

    But this ruling may make it easier to do so now, especially if it’s appealed. And there do seem to be grounds for appeal on the basis that the wording of the contract, in saying that expenditure need only be reported, does not allow the owners control in the sense of blocking expenditure. The EAT can be as “surprised” as they like, but if that is what the contract says then that’s what it means in law and it’s not for them to take a different meaning of the words based on assumptions as to what they consider to be normal intentions of the parties.

  • Chris says:

    Will someone please FIX the character count on this site?
    It tells you that your post is ok but when you press Send it then decides it’s too long. now you have to try to pare down the message a bit at a time, guessing when it’s going to be accepted.

    Very, very annoying bug.

  • Contractor Weekly says:

    That is an annoying bug – think I’ve fixed it. Apologies for the inconvenience.

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