ESM0546 | Guide to determining status: right to terminate a contract

A power to terminate an engagement, for a reason other than a serious breach of contract, by giving notice of a specified length, may be indicative of a contract of employment but is not conclusive. The power can be expressly stated in the contract or it can be implied.

The Supreme Court in PGMOL found that provisions in a contract which allow either party to withdraw before the performance are irrelevant at RMC stage 1 and do not negate the presence of mutuality of obligation. Such provisions can be factored into the evaluative exercise when determining employment status.

In the case of Morren v Swinton & Pendlebury Borough Council [1965] 1WLR 576 at p.582 Lord Parker C.J. said

"Apart from that, he was appointed by the respondents, they had the right to dismiss him, he was paid such matters as subsistence allowance, National Insurance contributions and holidays, and in addition there was provision for one month's notice. Pausing there, it seems to me that looked at on those facts, the only possible inference is that he was engaged under a contract of service."

Mr Justice Widgery and Mr Justice Marshall both agreed with Lord Parker's judgment.

However, in the later case of McManus v Griffiths (70TC218), Mr Justice Lightman says in relation to a three-month notice period in that case "I do not think it is indicative of either. I regard the provision as neutral." The case of Morren was not however cited in argument and was not referred to in the judgment.

Equally, the absence of such a power would not point conclusively towards self-employment. For example, where an engagement is for a specific piece of work, or a specified period, there is unlikely to be scope for dismissal by period of notice. The interviewer in the Market Investigation case (see ESM7040) was found to be an employee. The absence of a right of dismissal other than for serious breach did not mean that the worker was necessarily self-employed. Cooke J remarked:

So far as concerns dismissal irrespective of breach, it is of course clear that the interviewer in this case could not, in the absence of a breach, be dismissed in the middle of an assignment. But there is nothing in this which is inconsistent with the contract being a contract of service. It is quite common for contracts of service to be entered into for fixed periods with no provision, express or implied, for dismissal during the specified period.'