No statutory definition of a contract of service
There is no statutory definition of a contract of service (employment contract) and therefore we must look to the courts and their case law decisions for guidance.
The leading case on this issue is Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968 which laid the foundations of the tests which are used today.
Over the years, case law has developed and confirmed that in order for a contract of service to exist, the following three conditions must be satisfied:
- The individual is obliged to provide the services personally (personal service)
- The individual is subject to control by the engager as to how he provides the services (control)
- An obligation must exist on the engager to provide work and an obligation on the individual to undertake the work. (Mutuality of Obligations)
It follows that if any one of these criteria on the below checklist is missing, the contract cannot be a contract of service and is more indicative of a contract for services (self-employment).
Is personal service missing?
- Having an unfettered right to substitute
- Engagement being between two limited companies/LLPs and not with an individual
- Not referring to a specific individual throughout the contract
- Being named personally as a party to the agreement
- Having no right to substitute
- Client being able to request the removal of an individual for any reason
- Personally be tied into the engagement
Is control missing?
- Complete autonomy over how the services are carried out
- No supervision, direction or control
- Freedom to choose location and hours
- Being managed
- Client having input into how
- Supervised, controlled or directed
- Being closely monitored
- Following client procedures/methodology
Is there a lack of mutual obligations?
- No obligation to accept further work
- No obligation to accept additional work outside the scope of agreed services
- No obligation to see the engagement through to completion
- Possibility of early termination
- Obligation for agreement to be extended
- Requirement to accept any work provided by the client
- No possibility of early termination
These lists are not exhaustive and even if one of the points is lacking, does not automatically put you ‘inside’ or ‘outside’ IR35. Every case must be considered entirely on its merits and both the contractual and working terms must be considered.