On 17 September 2021, the Court of Appeal handed down its long-awaited judgment in the case of HMRC v Professional Game Match Officials Ltd [2021] EWCA Civ 1370, otherwise known as the football referees case. It is a lengthy and complex judgment which is hard to follow for even a seasoned tax professional, so it is near impossible for the layman to make day to day status determinations.
HMRC had issued determinations for income tax and national insurance totalling £583,874 on the basis that PGMOL should have made deductions for PAYE. These payments were made to the National Group Referees (NRGs) whom it supplied to officiate at football matches. This is an appeal by HMRC against the decisions of the Upper Tribunal (UT) which upheld the decision of the First-Tier Tribunal (FTT). In both those tribunals, HMRC lost.
The arguments in the case focused mainly on the complex status factor of mutuality of obligations and whether there was an overarching contract of employment or, if not, a specific individual contract of employment each time the referee officiated at a match. The court also looked at whether there was a framework of control in the individual contracts.
A highly unusual set of facts
This case has a highly unusual set of facts involving a hobby that takes second place to primary work commitments. The referees are ambitious perfectionists who make themselves available for matches and training because it may compromise their ability to perform at the highest level if they do not and because it would lose them the opportunity to be offered the best matches. Most of the referees thought there was no contract, let alone a contract of employment.
Important findings of fact were that NGRs were ‘committed, driven individuals who are passionate about football, refereeing and about their performance as referees, and who have a continual desire to improve’ and that ‘they were not doing it for the money’.
From the 2017/18 season onwards, PGMOL agreed that the NGRs were ‘workers’ for employment rights purposes and this gave the referees some basic employment rights but, there is no comparable category for tax, it is either employed or self-employed.
The Court of Appeal
The Court of Appeal noted that there may be differences between the case law that dealt with overarching contracts for employment rights purposes, and that these issues may not be applied in all cases. Another complicating factor was that some decisions involve tripartite relationships – between employment agencies, clients and contractors – that did not exist in in PGMOL’s case.
The Court of Appeal allowed HMRC’s appeal. It held that the FTT and the UT both erred in their approaches to the question of mutuality of obligation in the individual contracts, and it also held the FTT erred in law in its approach to the question of control in the individual contract. The court did not reach a view about the overarching contracts.
The court referred the appeal back to the FTT for it to consider whether there was sufficient mutuality of obligation and control in the individual contracts for those contracts to be contracts of employment.
How we got here?
The FTT had held that there was both an overarching contract and a specific contract, rejecting PGMOL’s argument that there was no contract at all. However, PGMOL won the case before the FTT as it held there was insufficient mutuality of obligation to satisfy the test in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] QB 479. The UT then upheld the FTT’s decision on mutuality in relation to both contracts but, upheld the appeal that the FTT had erred in law in reaching the conclusion regarding control in the individual contract.
The overall questions in this appeal are whether the FTT and the UT erred in law. In particular:
Legal authorities
The court considered various different legal authorities in both employment rights and tax cases. Four cases – McMeechan v Secretary of State for Employment [1997] ICR 549; Clark v Oxfordshire Health Authority [1998] IRLR 125; Carmichael v National Power Plc [1999] 1 WLR 2042; and Prater v Cornwall County Council [2006] EWCA (Civ) – were specially discussed. These all concerned the relationship between mutuality of obligation in an overarching contract and one in a single engagement. They establish at least three propositions:
Those authorities do not hold out mutuality of obligations as the sole qualifying test for the existence of a contract of employment; so, even if there is some sort of mutuality, there can be no contract of employment if it is not the right kind. On the contrary, those authorities suggest that the courts look at all the circumstances before deciding whether there is a contract of employment or not. This is consistent with the well known authority of Hall v Lorimer [1994] STC 23, which suggests that you stand back and look at the overall picture before deciding on employment status.
Mutuality of obligation
Firstly, the Court of Appeal found that the FTT was entitled to conclude that the overarching contract was not a contract of employment. It did not require PGMOL to offer work or the NGRs to do it. The extraordinary personal motivation of the NGRs was a crucial factor in the FTT’s finding and it is not a conclusion that the Court of Appeal could interfere with on a point of law.
As the FTT recognised, the question of whether the individual contracts were contracts of employment was legally distinct from the question of whether the overarching contract was a contract of employment.
Where the FTT erred in law was in deciding that the ability of either side to pull out before a game, without any breach or sanction, negated the necessary mutuality of obligation. The correct analysis, according to the Court of Appeal, is that if there is a contract, the fact that either side may terminate the contract before it is performed is immaterial. The contract subsists with its mutual obligations, unless and until it is terminated by one side or the other.
The Court of Appeal considered that the UT’s reasoning confused ‘a contract in the employment field’, which could be either a contract for services or a contract of employment, with a contract of employment. It also wrongly joined the mutuality of obligation, that was necessary to show that an overarching contract was a contract of employment, with the mutuality needed to show that a single engagement was a contract of employment.
The UT also erred in law in concluding that the individual contracts could not be contracts of employment if they merely provided for a worker to be paid for the work he did and, in concluding that the statements about the mutuality of obligation which is necessary to found an overarching contract, also apply to individual engagements.
The UT’s observations about the fact that both sides could pull out before the performance were also wrong in law.
Control
The FTT’s second reason for holding that the individual engagements were not contracts of employment was that there was not a sufficient framework of control. The FTT seems to have treated this as a decisive consideration, and not to have asked whether the relationship between PGMOL and the NGRs, including the terms of the overarching contract, amounted to a sufficient framework of control.
The FTT further erred in law by concluding that the coaching and assessment systems could not be relevant to the question of control.
According to the UT, the FTT was entitled to decide that the assessment and coaching systems were irrelevant to control. The Court of Appeal again disagreed.
Interestingly, the Court of Appeal decided that control can be exerted by both positive and negative sanctions. Further, the fact that there was not an effective sanction for the breach is irrelevant. The UT had therefore wrongly assumed that a contractual obligation is only enforceable if the employer has an effective sanction in relation to it. A contractual obligation is, by its very nature, enforceable whether or not the contract enables the employer to apply a sanction for its breach.
There were many features of the relationship between PGMOL and the NGRs which could show that there was a sufficient framework of control, particularly when the terms of the overarching contract are taken into account.
It is for all these reasons that the Court of Appeal allowed HMRC’s appeal and dismissed PGMOL’s respondent’s notice. The FTT and the UT both erred in law in their approaches to the question of mutuality of obligation in the individual contracts, and the FTT erred in its approach to the question of control in the individual contracts.
Where does this leave us?
In my view, the Court of Appeal should have reached its own judgment on all of this. Its analysis on mutuality points out where the FTT and the UT erred in law, but gives little clear indication of the correct legal position. The Court of Appeal appears to be suggesting that where there is a contract (as in the individual contract where the person works and gets paid and the business is obliged to pay them), then there are inevitably mutual obligations. A single engagement can give rise to a contract of employment if work that has been offered is in fact done for payment.
However, this is dangerous precedent because every contract has obligations, just by virtue of contract law. If you are looking at a tax case, then you will always be looking at the time when there is a contract, ergo there will be mutual obligations. I have long held the view that mutuality of obligations shouldn’t be the predominant factor used in tax cases for this very reason and because HMRC has spotted that also and made it its argument.
The court has, though, made it clear that there shouldn’t be so much reliance on mutuality of obligations, and one should look at all the circumstances before deciding on whether it is a contract of employment.
There is no doubt that this is a win for HMRC. HMRC challenged the fact that both the FTT and the UT had erred in law, and the court agreed. It won the appeal, but that does not mean that it has won the case. I hope this goes to the Supreme Court and it then takes the opportunity to set out a new test to replace Ready Mixed Concrete and clarify employment status.
On 17 September 2021, the Court of Appeal handed down its long-awaited judgment in the case of HMRC v Professional Game Match Officials Ltd [2021] EWCA Civ 1370, otherwise known as the football referees case. It is a lengthy and complex judgment which is hard to follow for even a seasoned tax professional, so it is near impossible for the layman to make day to day status determinations.
HMRC had issued determinations for income tax and national insurance totalling £583,874 on the basis that PGMOL should have made deductions for PAYE. These payments were made to the National Group Referees (NRGs) whom it supplied to officiate at football matches. This is an appeal by HMRC against the decisions of the Upper Tribunal (UT) which upheld the decision of the First-Tier Tribunal (FTT). In both those tribunals, HMRC lost.
The arguments in the case focused mainly on the complex status factor of mutuality of obligations and whether there was an overarching contract of employment or, if not, a specific individual contract of employment each time the referee officiated at a match. The court also looked at whether there was a framework of control in the individual contracts.
A highly unusual set of facts
This case has a highly unusual set of facts involving a hobby that takes second place to primary work commitments. The referees are ambitious perfectionists who make themselves available for matches and training because it may compromise their ability to perform at the highest level if they do not and because it would lose them the opportunity to be offered the best matches. Most of the referees thought there was no contract, let alone a contract of employment.
Important findings of fact were that NGRs were ‘committed, driven individuals who are passionate about football, refereeing and about their performance as referees, and who have a continual desire to improve’ and that ‘they were not doing it for the money’.
From the 2017/18 season onwards, PGMOL agreed that the NGRs were ‘workers’ for employment rights purposes and this gave the referees some basic employment rights but, there is no comparable category for tax, it is either employed or self-employed.
The Court of Appeal
The Court of Appeal noted that there may be differences between the case law that dealt with overarching contracts for employment rights purposes, and that these issues may not be applied in all cases. Another complicating factor was that some decisions involve tripartite relationships – between employment agencies, clients and contractors – that did not exist in in PGMOL’s case.
The Court of Appeal allowed HMRC’s appeal. It held that the FTT and the UT both erred in their approaches to the question of mutuality of obligation in the individual contracts, and it also held the FTT erred in law in its approach to the question of control in the individual contract. The court did not reach a view about the overarching contracts.
The court referred the appeal back to the FTT for it to consider whether there was sufficient mutuality of obligation and control in the individual contracts for those contracts to be contracts of employment.
How we got here?
The FTT had held that there was both an overarching contract and a specific contract, rejecting PGMOL’s argument that there was no contract at all. However, PGMOL won the case before the FTT as it held there was insufficient mutuality of obligation to satisfy the test in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] QB 479. The UT then upheld the FTT’s decision on mutuality in relation to both contracts but, upheld the appeal that the FTT had erred in law in reaching the conclusion regarding control in the individual contract.
The overall questions in this appeal are whether the FTT and the UT erred in law. In particular:
Legal authorities
The court considered various different legal authorities in both employment rights and tax cases. Four cases – McMeechan v Secretary of State for Employment [1997] ICR 549; Clark v Oxfordshire Health Authority [1998] IRLR 125; Carmichael v National Power Plc [1999] 1 WLR 2042; and Prater v Cornwall County Council [2006] EWCA (Civ) – were specially discussed. These all concerned the relationship between mutuality of obligation in an overarching contract and one in a single engagement. They establish at least three propositions:
Those authorities do not hold out mutuality of obligations as the sole qualifying test for the existence of a contract of employment; so, even if there is some sort of mutuality, there can be no contract of employment if it is not the right kind. On the contrary, those authorities suggest that the courts look at all the circumstances before deciding whether there is a contract of employment or not. This is consistent with the well known authority of Hall v Lorimer [1994] STC 23, which suggests that you stand back and look at the overall picture before deciding on employment status.
Mutuality of obligation
Firstly, the Court of Appeal found that the FTT was entitled to conclude that the overarching contract was not a contract of employment. It did not require PGMOL to offer work or the NGRs to do it. The extraordinary personal motivation of the NGRs was a crucial factor in the FTT’s finding and it is not a conclusion that the Court of Appeal could interfere with on a point of law.
As the FTT recognised, the question of whether the individual contracts were contracts of employment was legally distinct from the question of whether the overarching contract was a contract of employment.
Where the FTT erred in law was in deciding that the ability of either side to pull out before a game, without any breach or sanction, negated the necessary mutuality of obligation. The correct analysis, according to the Court of Appeal, is that if there is a contract, the fact that either side may terminate the contract before it is performed is immaterial. The contract subsists with its mutual obligations, unless and until it is terminated by one side or the other.
The Court of Appeal considered that the UT’s reasoning confused ‘a contract in the employment field’, which could be either a contract for services or a contract of employment, with a contract of employment. It also wrongly joined the mutuality of obligation, that was necessary to show that an overarching contract was a contract of employment, with the mutuality needed to show that a single engagement was a contract of employment.
The UT also erred in law in concluding that the individual contracts could not be contracts of employment if they merely provided for a worker to be paid for the work he did and, in concluding that the statements about the mutuality of obligation which is necessary to found an overarching contract, also apply to individual engagements.
The UT’s observations about the fact that both sides could pull out before the performance were also wrong in law.
Control
The FTT’s second reason for holding that the individual engagements were not contracts of employment was that there was not a sufficient framework of control. The FTT seems to have treated this as a decisive consideration, and not to have asked whether the relationship between PGMOL and the NGRs, including the terms of the overarching contract, amounted to a sufficient framework of control.
The FTT further erred in law by concluding that the coaching and assessment systems could not be relevant to the question of control.
According to the UT, the FTT was entitled to decide that the assessment and coaching systems were irrelevant to control. The Court of Appeal again disagreed.
Interestingly, the Court of Appeal decided that control can be exerted by both positive and negative sanctions. Further, the fact that there was not an effective sanction for the breach is irrelevant. The UT had therefore wrongly assumed that a contractual obligation is only enforceable if the employer has an effective sanction in relation to it. A contractual obligation is, by its very nature, enforceable whether or not the contract enables the employer to apply a sanction for its breach.
There were many features of the relationship between PGMOL and the NGRs which could show that there was a sufficient framework of control, particularly when the terms of the overarching contract are taken into account.
It is for all these reasons that the Court of Appeal allowed HMRC’s appeal and dismissed PGMOL’s respondent’s notice. The FTT and the UT both erred in law in their approaches to the question of mutuality of obligation in the individual contracts, and the FTT erred in its approach to the question of control in the individual contracts.
Where does this leave us?
In my view, the Court of Appeal should have reached its own judgment on all of this. Its analysis on mutuality points out where the FTT and the UT erred in law, but gives little clear indication of the correct legal position. The Court of Appeal appears to be suggesting that where there is a contract (as in the individual contract where the person works and gets paid and the business is obliged to pay them), then there are inevitably mutual obligations. A single engagement can give rise to a contract of employment if work that has been offered is in fact done for payment.
However, this is dangerous precedent because every contract has obligations, just by virtue of contract law. If you are looking at a tax case, then you will always be looking at the time when there is a contract, ergo there will be mutual obligations. I have long held the view that mutuality of obligations shouldn’t be the predominant factor used in tax cases for this very reason and because HMRC has spotted that also and made it its argument.
The court has, though, made it clear that there shouldn’t be so much reliance on mutuality of obligations, and one should look at all the circumstances before deciding on whether it is a contract of employment.
There is no doubt that this is a win for HMRC. HMRC challenged the fact that both the FTT and the UT had erred in law, and the court agreed. It won the appeal, but that does not mean that it has won the case. I hope this goes to the Supreme Court and it then takes the opportunity to set out a new test to replace Ready Mixed Concrete and clarify employment status.
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