ESM8550 | Considering the evidence: mutuality of obligation

Case law has established that there has to be an “irreducible minimum of mutual obligation” for there to be a contract of service and hence employment (see ESM0543). In the context of IR35 it is a notional contract that is being considered and consequently you must be able to point to an irreducible minimum which would have existed.

In the Judicial Review of the IR35 legislation the judge stated:

“Of course there is in fact no contract between the client and the service contractor, and thus no obligation on either party owed to each other, but it must be significant, when applying the common law test, to consider whether, looking at the actual relationship, and a notional contract, between the client and the service contractor, any obligation would be owed by the client.”

The irreducible minimum would comprise an obligation on the part of the client to pay the worker for work done and for the worker to be obliged to do the work. You therefore need to consider whether this would have been the case if the worker had contracted with the client.

See the reference to the concept of mutuality in the case of Nethermere (St Neots) Ltd v Gardiner and Taverna (ESM7110) and Carmichael and Another v National Power (ESM7200) for more information on the irreducible minimum of mutual obligation.

A clause, which permits termination of a contract by giving a period of notice irrespective of breach, will be considered to form part of the notional contract and is one factor to be considered in establishing whether mutuality of obligation subsists over the period of the engagement. See the final sentence of paragraph 27 of Mr Justice Hart’s judgment in the case of Synaptek Ltd v Young [2003] EWHC 645 (Ch).