Tilbury IR35 hearing: day two at the Special Commissioners

This appeal before the Special Commissioners in London started on Tuesday 14 October. For details of the first day see here:

Day 1

The key players in the case are:

Roger Tilbury (RT) director of Tilbury Consulting Limited (TCL)

Dave Smith (DS) Accountax, representing TCL

Peter Death (PD) – for the Revenue

His Honour Stephen Oliver QC (HOSO) – the Special Commissioner

Ford Motor Company (FMC) – the claimed end client

Compuware (CoWare) – the IT service provider managing Ford's Application Management Centre (AMC) where TCL were providing services for the period in question (August 2000 to January 2002).

Introduction

When one of the key players is named Death (pronounced Deeth) the scope for puns is endless! Phrases like 'Death in court', 'Death defying freelancer', 'the dance of Death', 'Death in the afternoon' all spring to mind.

I will try and resist the temptation to coin a catchy pun at this stage!

Tilbury's case

Tuesday finished with DS beginning to outline the legal arguments to support RT's view that under IR35 TCL's contract to supply his services to FMC via CoWare would not be a contract of service if you were to ignore the intermediary TCL.

DS was fortunate that the break gave him a good excuse to re-visit many of the arguments he made on Tuesday afternoon.

Control

He reminded HOSO that TCL was not under the control of FMC or CoWare in any real sense. He cited several cases including:

· McManus and Griffiths (was a club caterer an employee - no),

· Morrins (was a council engineer an employee if supervised by a third party – yes because he had all the other trappings of employment),

· Montgomery & Johnson Underwood (a temporary secretary employed via an agency – not an employee of either) and

· the Ready Mixed Concrete case (concrete delivery drivers not RMC employees)

He made the main point that the necessary level of control between FMC and RT just did not exist. DS explored the issue of whether FMC could be said to have delegated control to CoWare as it was CoWare who managed the AMC but even CoWare only had a limited right of inspection.

Substitution

DS recapped the arguments regarding substitution. He reminded HOSO that the senior Ford manager involved in the AMC Jim O'Neil had stated quite categorically that Ford did not care who did the work as long as it was done. It was CoWare's responsibility to ensure the contract was met.

He cited the usual cases – such as Express and Echo v Tanton – and the LimeIT case, with its carefully negotiated substitution clause (just like TCL) and overlap period.

He also distinguished the Tilbury case from the Macfarlane & Skivington v Glasgow City case, where a substitution clause that required the substitutes to be picked from a client approved list and paid direct by the client was held not to be a real right of substitution.

He noted that the Revenue's written arguments stated that for a right of substitution to be effective it had to be 'absolute' – pointing out that this was clearly wrong. It was quite acceptable for the right to be contingent on the substitute being suitably qualified - as was the case here.

Mutuality of obligation (MOO)

DS then moved onto MOO. I won't dwell too long on this as it was probably the weakest element in TCL's case. DS cited the PCG's judicial review judgement where Mr Justice Burton had commented on the problems of construing MOO between the end client and the worker in a hypothetical contract and the case of Carmichael v National Power - were tour guides employees? No, because National Power were not obliged to offer work and they were not obliged to accept it.

However, as PD pointed out when he presented his legal arguments, the guides were trying to show that they remained employed under an umbrella contract between each occasion when they did work and the courts rejected this without having to opine on whether there was the necessary MOO to create an employment relationship when they were being used as a guide.

In business on your own account (IBOYOA)

Next DS looked at the issue of IBOYOA. He looked at issues like using your own equipment, making the point that TCL was engaged to provide software expertise not to provide equipment and RT was obliged to use the client's mainframe.

DS cited the case of Hall v Lorimer extensively (the vision mixer case) where the Courts had concluded that despite not providing equipment or offices or staff that was not what the business was about. DS argued that TCL was like Lorimer and stood to profit like a business from building a good reputation to secure new work and command higher rates (which had been demonstrated in the earlier evidence).

Like Lorimer TCL also ran greater risks than those of an employee having to make good defective work in its own time, facing a potential liability of £0.5 million under the contract and facing payment delays. DS also cited the LimeIT case here where the Special Commissioners had noted that the mere fact that LimeIT had to invoice for payment made its position riskier than that of an employee.

Integration and intention

DS covered the issues of whether RT was integrated into the end client FMC and what the stated intentions of the parties were.

DS pointed out that the integration test was now largely discredited in case law although he thought that the Revenue would try and place some reliance on it. The fact was that RT had a pass that distinguished him as being a contractor by being a different colour, he did not work alongside FMC employees but alongside CoWare employees and other contractors, and there was a long list of other features that distinguished him from an FMC employee.

It was also clear from the whole AMC structure and role of CoWare that FMC had no desire for RT to be an employee.

Hourly pay and length of contract

Finally DS covered two issues he thought the Revenue would focus on. As far as being paid by the hour was concerned DS rightly noted that many self-employed professionals were paid by the hour. While being at the same client for 8 or 9 years might seem to be an employment indicator the key issue was the terms and conditions that existed during that period. These were clearly not employment and the fact that RT had exploited his skills to create continuing opportunities at one client should not count against him.

Death's responses

After nearly two hours it was now the turn of PD to set out his arguments. Of course the Special Commissioners get to see each side's written skeleton as well as hear the arguments in the tribunal. These written submissions are not available to third parties so we are left to guess what is covered. In PD's case it seems that he spent most of his time trying to knock down DS's points rather than making any new ones of his own.

While DS had taken around three hours in total to set out his legal arguments PD spent around an hour before lunch and another half hour after lunch.

The starting point!

PD's first statement was to allude to the old Irish joke about directions – I wouldn't start from here - when he admitted that, with hindsight, had they known then what they knew now about the role of CoWare, the Revenue would probably have argued that CoWare and not FMC was the disguised client!

Nevertheless he tried to argue that the legislation was about providing personal services to another business and clearly RT was providing personal services to FMC.

However, this issue constantly haunted PD as he tried to argue that in constructing the hypothetical contract that IR35 envisaged it was necessary to, in effect make assumptions, to the effect that the whole thrust of the relationship was that FMC wanted to engage RT and that the presence of CoWare could be ignored.

PD agreed with DS's assessment as to the key issues of control and personal service and went through his counter arguments.

On control he argued that as an expert RT could not be expected to be controlled as to how the work was done and the fact that he was not so controlled was, therefore, of no significance. However he still maintained that RT was controlled as to the what, when, and where of the project. He performed most of the work at FMC and the flexibility he enjoyed as to hours and place were essentially no different to what an FMC employee could arrange by agreement with FMC.