Although the minimum requirements for an employment contract – mutuality of obligation and control – were present, it was important to stand back and look at the whole picture when determining employment status.
If you engage contractors in your business whether directly or through a recruiter, or as a recruiter, this case demonstrates the type of analysis required when checking if they are employed or self-employed for tax purposes whether for specific IR35 requirements or generally for risk mitigation. A finding of employment for tax purposes is also a good indication that the contractors could well argue for certain employment rights as well.
Employment status
The key tests for the existence of an employment contract are mutuality of obligation and control and if those conditions are met, the other provisions of the contract must be also consistent with it being a contract of employment (the multifactorial test). Case law makes it clear that once the pre-conditions of mutuality of obligation and control are satisfied, that does not mean they drop out of the picture. The nature of mutual obligations and control remain relevant when looking at the overall picture, alongside all other relevant factors.
Professional Game Match Officials Ltd v HMRC
The case of Professional Game Match Officials Ltd v HMRC concerned whether football referees were employees for tax purposes. The referees entered into contracts for each game they agreed to referee. In November 2024, the Supreme Court ruled that there was sufficient mutual obligations and control to give rise to an employment contract in respect of each game and remitted the case to the First Tier Tax Tribunal to determine whether, looked at as a whole, the contracts were employment contracts.
The First Tier Tax Tribunal has now ruled that the referees are not employees for tax purposes. Applying a multifactorial assessment of all factors, including the nature, quality, significance and source of the mutuality of obligation and control present in this case, it considered that overall these did not point to an employment relationship.
Mutual obligations: although the wage/work bargain was present, pointing moderately towards employment, this was outweighed by other factors, For example, the referees could decline appointments without sanction, something which they routinely did, which suggested that their acceptance of work was driven by personal preference rather than any sense of obligation. The fact that fees were low and the role undertaken for personal enjoyment rather than financial reasons (and alongside other employment) were also relevant, as was the fact that there were no mutual obligations between matches.
Control: while PGMOL imposed obligations about conduct and operated a significant regulatory control framework control, the nature of its control was regulatory and developmental rather than managerial and supervisory in the employment sense. The absence of control over where, when and what tasks was performed, the limits of its disciplinary powers between engagements and the referees’ complete autonomy on the field all pointed way from employment.
Other factors: other factors pointed more away from employment than towards it, including the referees’ lack on economic dependency on PGMOL, their lack of subordination and lack of integration into PGMOL’s organisation in the same way as its employees.
What does this mean for employers?
The issue of whether someone is an employee requires an assessment of all relevant factors. While mutuality of obligation and control are needed for an employment contract to exist, their presence does not automatically result in employment. Instead, it is necessary to consider the nature quality, significance and source of mutual obligations and control alongside all other relevant factors when assessing the overall picture, including the basis of payment, the presence or absence of employment-related benefits, the length, pattern and basis of the engagement, the extent to which they are integrated into the organisation and whether the contract can be terminated without notice and penalty.
Getting employment status right is important, not least because of the tax risks and all of the enhanced employment rights under
Declan Bradley is our Head of Recruitment Sector Services and can assist with your IR35 and employment status queries.