In these joined cases, The Court of Appeal (“CoA”) handed down decisions on the application of employment status tests in the context of IR35. This is the first time the CoA has considered this issue, and HMRC succeeded in both appeals.
When assessing employment status for tax purposes under the IR35 rules, HMRC is required to look at the relationship between the individual who provides the services and the end user of those services and determine whether, if there were a direct contract between the end user and the individual, it would be a contract of employment or not. To determine whether the contract is one of employment, the factors established in the Ready Mixed Concrete case are applied, namely: (i) mutuality of obligation; (ii) control; and (iii) whether the other provisions of the contract are consistent with an employment contract rather than self-employment.
Both of the joined cases concerned radio presenters providing their services to an end user via their personal services companies (“PSCs”). The decisions are both complex, but the following aspects are notable:
• Control and mutuality of obligation are necessary, but not sufficient, indicators of employment status. Without them, there will be no employment contract, but where they are present it is still necessary to carry out a multi-factorial assessment of the terms of the hypothetical contract to determine whether it is an employment contract.
• When carrying out the multi-factorial assessment, the express and implied terms of the contract are taken into account alongside the circumstances known to each party at the date the contract was entered into, but circumstances which are not known at that time but arise later should not be taken into consideration.
• The Autoclenz principle, that when determining an individual's employment status an employment tribunal can disregard contractual terms which do not reflect the reality of what the parties had agreed, does not apply outside of cases relating to statutory employment or worker rights and therefore did not apply in these cases.
It is also notable that the CoA held that in both cases, the lower tribunals had made errors: in Atholl, the First Tier Tribunal and the Upper Tribunal had assessed the terms of the hypothetical contract between the contractor and the end user on the wrong basis, taking into account incorrect factors, whilst in Kickabout, the First Tier Tribunal had incorrectly concluded that there was insufficient mutuality of obligation to give rise to an employment contract. The decision underlines what a highly technical and complex area this is, with many pitfalls and a significant amount of scope for HMRC to challenge a conclusion that a PSC contractor is not employed for tax purposes. Medium and large end users of PSC contractors, who must since 6 April 2021 assess the employment status of those contractors and tax any fees paid to their PSCs accordingly, are advised to exercise caution when making those assessments.
2. Rodgers v Leeds Laser Cutting Ltd  EAT 69 (12 April 2022) - (LINK)
In this case, the Employment Appeal Tribunal ("EAT") upheld an Employment Tribunal (“ET”) decision that an employee was not automatically unfairly dismissed under section 100 of the Employment Rights Act 1996 (“ERA”) for leaving and refusing to return to the workplace due to fears around the COVID-19 pandemic, and passing on COVID-19 to his family members. The EAT did however find that the COVID-19 pandemic did provide appropriate grounds for a reasonable belief of a serious and imminent danger (one of the conditions for the application of section 100 of the ERA).
The Claimant worked for the Respondent as a laser operator and had less than the two years’ service required to claim “ordinary” unfair dismissal. After the first national lockdown announced on 23 March 2020, the Respondent took a number of measures, including carrying out an external risk assessment, providing masks and implementing social distancing guidelines. The Claimant continued to work until 29 March 2020, but then emailed the Respondent to state that they would not be returning to work because of the health status of the Claimant’s children, including one child with an underlying health condition. The Claimant also obtained a self-isolation certificate which was valid from 28 March to 3 April 2020. In this time, despite the need to self-isolate, the Claimant accompanied a friend to hospital.
After a month, with no further contact between the Claimant and the Respondent, the Respondent dismissed the Claimant. He then brought a claim alleging automatic unfair dismissal on the ground that he had exercised his rights under section 100 of the ERA, in particular section d), which states that an employee is unfairly dismissed if he left or proposed to leave or refused to return to the workplace in circumstances of danger which he reasonably believed to be serious and imminent and could not reasonably be expected to avert; and e). which provides for unfair dismissal where an employee took or proposed to take appropriate steps to protect himself or other persons in circumstances of danger which he reasonably believed to be serious and imminent.
The ET found that the Claimant had not established a reasonable belief in a serious and imminent workplace danger. The Claimant did not take any steps to avert any danger, nor raise any concerns with his manager, and referred simply to staying away from his workplace ‘until the lockdown eased’, with no specific reference to workplace risks, leading the ET to find that the Claimant had concerns about the COVID-19 pandemic generally, rather than direct concerns regarding the workplace. It was also relevant that the Respondent had implemented government safety guidance such as hand washing and social distancing. Whilst it was possible, in theory, that the COVID-19 pandemic could provide appropriate grounds for a reasonable belief in circumstances of serious and imminent danger, the test was not met in this case and the claim failed. On appeal, the EAT upheld the ET’s decision and agreed with the ET that the Claimant could have been reasonably expected to avert the danger (such as hand washing, mask wearing and social distancing) but had not done so.
This case is the first EAT decision on section 100 of the ERA relating to dismissal during the COVID-19 pandemic. It is a reminder that these cases often turn on the facts, but it clarifies that section 100 can apply to a danger that is not specific to the workplace, such as a pandemic. However, to benefit from protection, the employee’s concerns must be specific to the risk at the workplace, rather than a general concern, and their behaviour outside the workplace can play a role in how tribunals assess the reasonable belief that coming to work presents a serious and imminent danger. Clearly, those employers that have sought to comply with public health guidance and/or health and safety advice will be better placed to defend such claims than those who have not properly addressed the health and safety risks arising from COVID-19.
3. Knightley v Chelsea & Westminster Hospital NHS Trust (EAT) - (LINK)
In this case, the Employment Appeal Tribunal ("EAT") found that Respondent had failed to make reasonable adjustments to its procedure when dismissing a disabled employee on grounds of capability, but this did not render her dismissal unfair.
The Claimant midwife suffered with stress, anxiety and depression, for which she was prescribed anti-depressants. The Respondent conceded that this amounted to a disability for the purposes of the Equality Act 2010 (the "EA"). The Respondent dismissed the Claimant following a capability procedure, and denied her an extension of time to lodge an appeal against her dismissal.
The Claimant brought Employment Tribunal ("ET") claims, including unfair dismissal, discrimination arising from disability and a failure to make reasonable adjustments. The ET upheld the claim of failure to make reasonable adjustments, but held the dismissal overall was fair on the basis that the Claimant’s ability to appeal would not have affected the fairness of the decision to dismiss her.
The EAT agreed with the ET; it held that the legal tests in respect of unfair dismissal and failure to make reasonable adjustments were different and a failure to make reasonable adjustments in connection with a dismissal process does not necessarily make that dismissal unfair. The “ingredients” for each statutory claim are different and the tests for each must be applied to the facts of the case independently.
4. Swiss Re Corporate Solutions Ltd v Sommer - (LINK)
In this case, the Employment Appeal Tribunal ("EAT") held that the Employment Judge had mistakenly held that a without prejudice ("WP") letter could be admitted into evidence on the basis that it fell under the "unambiguous impropriety" exception to the without prejudice rule.
The WP rule prevents oral or written statements made in a genuine attempt to settle an existing dispute from being used as evidence in a court or tribunal. However, the rule should not be applied where it will operate as a cloak for "perjury, blackmail or other unambiguous impropriety". The unambiguous impropriety exception should only be applied in the clearest cases. The Respondent was the UK services company of a global insurance group. The Claimant employee was a political risk underwriter. Whilst still employed, she brought a claim of race, sex and pregnancy/maternity discrimination against the Respondent. On the same day, the Respondent sent her a WP letter, making a number of allegations against her and suggesting that these could result in summary dismissal, criminal convictions, fines and/or findings of a breach of the Conduct Rules of the Financial Conduct Authority. It also offered a settlement payment of £37,000, on the condition that her employment would be terminated.
The Claimant rejected the offer and argued at the ET that the WP letter was admissible in the full merits hearing on the basis of "unambiguous impropriety". The Employment Judge held that this was a clear case of privilege being abused by the employer because there was a disparity between the facts of the case, and the way that these facts were presented in the WP letter.
The employer appealed this decision on the grounds that the Employment Judge misunderstood or misapplied the law in relation to the unambiguous impropriety exception to the without prejudice rule; and that the Employment Judge's findings that there was no basis for the assertions made in the WP letter were unsupported by the evidence.
On appeal, the EAT considered the unambiguous impropriety exception, noting that a very high bar that must be met for the exception to apply. It held that although the Employment Judge had correctly applied the law in this area, they had made a finding that was not open to them on the evidence. The threats of criminal or regulatory consequences that were made in the WP letter were of a kind that could be properly made in civil proceedings, and did not (unlike in other cases on the exception) go beyond a warning that they may occur. The potential consequences mentioned in the WP letter were closely bound with the employment dispute taking place at the time, which meant they were not used purely as a threat to apply undue pressure on the Claimant. The EAT agreed with the Respondent that it was not correct for the Employment Judge to find that there was no basis for the assertions; the facts arguably did disclose a basis for them. The EAT also held that whilst it might have been permissible for the Employment Judge to find that the allegations had been exaggerated, exaggeration would not usually meet the very high bar of unambiguous impropriety without findings as to the state of mind of the party accused of impropriety, and there were no findings on this front by the Employment Judge.
When entering into settlement negotiations, it is important to ensure that any threats or allegations made against the other party in those negotiations are based in fact, and are not used purely in order to apply improper pressure on that party to settle proceedings. The EAT in this case held that whilst the WP letter was ultimately privileged and therefore inadmissible, it "sailed close to the wind", highlighting the importance of not applying improper pressure on the other party to a settlement discussion by making unduly aggressive threats of criminal or regulatory action or exaggerating alleged misconduct.