Firms favouring inside IR35 decisions ‘at risk of employment rights challenges’

Firms that hastily place their contractors inside IR35 via CEST risk being challenged for employment rights, even though those challenges may not succeed.

Such is the alert by Qdos, in light of a contractor who was outside IR35 under CEST but then put inside via the tool losing his claim to be an employee, in an unfair dismissal case.

'Complex'

The firm points out the contractor first opposed the ‘inside’ result but then, making the case “complex”, argued there was Mutuality and no prospect of Substitution, seemingly to aid his claim.

The claim was officially lodged by the contractor, Alan Nottage, ‘a very long experienced’ telco specialist, in July 2020, seven months after he had a cardiac arrest, states the ruling.

Crucially, in March 2020, Mr Nottage’s PSC had its contract terminated after talk of him joining the client payroll (in wake of the ‘inside’ determination -- ironically in the same month as his cardiac arrest) failed to amount to anything.

'Investigation'

But by March, he had recently gone unpaid for three weeks due to being off work to recover from his heart condition. Then, unhappy with the subsequent termination, he tried to raise a grievance.

An HR representative was duly tasked with looking into Mr Nottage’s status on the basis that only employees could raise grievances, and an ensuing “investigation” found he was not an employee.

At the tribunal, the judge agreed, saying Mr Nottage’s contract, invoices, VAT registration, holding of public liability insurance and lack of sick pay entitlement all smacked of his independent status.

'Not subject to employee practices, and could substitute'

But even more determinative were the working practices, partly that he was “not subject to the policies and procedures” of the client’s employees -- and majorly, that he had a right of substitution.

The tribunal judge said: “It may be that there are very few people with his experience in telecommunications, [yet] it was not suggested there was no individual who could conceivably carry out some of the work that he was doing. In my view that is a right to substitution.”

'Stark contrast to Northern Lights IR35 case'

Qdos CEO Seb Maley, confirms that although it was not an IR35 case (it was an employment tribunal), the judge’s take on substitution represents an about-turn from the courts.

“[Mr Nottage] had the contractual right to provide a substitute, but hadn’t exercised it.

“[Yet] the judge still considered the contractual right an important factor…which is in stark contrast to the approach in the recent Northern Lights IR35 case,” he said.

'Batted away, but risks remain'

Despite operating as a limited company for most of the engagement (and latterly a sole trader), which in the tribunal’s words ‘benefitted’ him as it eased his tax liability, Mr Nottage stuck to his claim that he was an employee.

“But this was batted away,” Mr Maley observed, even though the judge conceded that the specialist ended up being “fairly well integrated” into the end-client organisation.

The status expert warned: “Firms quick to place contractors inside IR35 risk being challenged by those wanting rights. On the flipside, you wonder how many contractors who were unfairly determined as being inside IR35 would have any chance in claiming retrospective rights in an employment tribunal. If this ruling is anything to go by, probably not very many.”