ESM8505 | Opinions on contracts: cases studies - example 1 - Gordon

Facts

Gordon is an IT contractor who works through his own service company.

Job description/control

Client is a large retail concern. The contract was obtained through an agency. The terms and conditions of the engagement are set out in the contracts between the client and the agency and the agency and Gordon’s company.

Gordon works as part of a support team for the client’s payroll system. The team leader (another IT contractor) tells Gordon what work he is to carry out at any particular time (e.g. help-desk work, specific maintenance tasks, etc).

The client has the right to tell Gordon ‘how’ the work should be carried out - although in practice such control is not normally necessary.

Gordon must work a regular forty-hour week on the client’s premises.

Payment basis/risk

Gordon’s company is paid an hourly rate for Gordon’s services. Any extra hours worked (by mutual agreement) are paid at 1.5 times the normal hourly rate. The client makes payment monthly following submission of an invoice by the agency. Gordon’s service company invoices the agency.

Holiday pay/sick pay

No sick pay or holiday pay paid under the terms of the inter-company contract.

Length of contract and personal factors

• The contract is for six months.

• Gordon uses a computer, telephone, fax, etc at home to seek and negotiate contracts for his company.

• Gordon has worked through his company for two other clients in the last two and a half years - one for three months and one for two years. Prior to that he was a direct employee of another engager.

Other factors

• The company is contracted to supply Gordon to do the work personally.

• All equipment and materials are supplied by the client.

• Neither side can terminate the contract early.

• There is no restriction imposed by the contract that prevents either Gordon or his company providing services to others during the engagement.

• Both parties never intended Gordon to be an employee of the client.

Comments

The fact that the engagement has been obtained through an agency has no bearing on whether Gordon would have been an employee or not.

The extensive right of control that exists here is a very strong pointer to employment. The more important features are the client’s ability to shift Gordon from task to task and to specify how the work should be done - but in addition the client can control where and when the work is carried out.

The company is paid an hourly rate for Gordon’s services and the only financial risk comes from invoicing. There is no opportunity to profit from sound management of the work covered by the contract. Overall this points to employment.

The engagement runs for six months and holiday pay/sick pay might be expected had there been a direct engagement. But both parties see the actual company/client contract as a contract for services and this is probably why no such payments are made. A minor pointer to self-employment.

Gordon’s company has a limited ‘business organisation’ consisting of an office and associated equipment at his home. This is a pointer to self-employment - but not an overly important one in the context of a six-month contract of this sort.

Both the requirement to provide services personally and the fact that the client provides equipment and materials point to employment.

The fact that neither side can terminate the contract early is a neutral factor (no right to terminate is common in engagements of this length - whether employment or self-employment).

The fact that there is no restriction on Gordon or his company providing his services to others during the engagement is a mild pointer towards self-employment.

The mutual intention for self-employment will only be relevant if the other factors are neutral.

Overall picture

The engagement is fairly long-term and there is an extensive right of control over Gordon. He must carry out the services personally. The client provides equipment and accommodation and there is no significant financial risk to the company.

The only pointers to self-employment are the minimal financial risk (from invoicing), the ability to work for others (again, a minor point) and the existence of a business organisation/work for other clients.

Standing back from the detail therefore the engagement is one which would have been an employment had it been direct between Gordon and the client. The common intention for self-employment does not alter that. Whilst it would have proved decisive in a ‘borderline’ situation a review of other factors points strongly to employment here. The new rules would apply to the engagement.