Case Study: When will HMRC ride in tandem with the rest of us?
In the recent case of Mr Chris Townsend v Bikeworks CIC, Chris Townsend, a qualified cycle instructor, claimed he was unfairly dismissed by Bikeworks, a social enterprise company which promotes cycling in the East London Area. You can read the full case here. Townsend put in a claim for unfair dismissal, unlawful deductions from wages, holiday pay and breach of contract, namely notice pay up until 17 October 2019.
Meanwhile, the Respondent, Bikeworks, disputed all the complaints, asserting that Townsend was engaged as a self-employed contractor rather than as an employee, and denied that Townsend is owed any monies for any reason. Townsend ultimately lost the case, read on to find out why.
Background to the Townsend vs Bikeworks Case
In 2016, Townsend first started working for Bikeworks after attending an interview where a large volume of paperwork was produced. It included the cycle instructor policy, the child protection and vulnerable adult policies, and what Townsend described as ‘a self-employment document’ which he signed. Townsend worked for Bikeworks between May and December 2016 as a cycle instructor/mechanic under a single set of terms.
However, the relationship turned sour over a dispute over pay and Townsend decided to cut his losses and left Bikeworks. Following 3 years of no contact, Bikeworks contacted Townsend in June 2019 and asked if he would begin working for them again. Townsend agreed, and commenced work the following day as a cycle instructor up until September 2019, without any notable new terms being in place beside payment terms.
Townsend asserts that he was constructively dismissed ‘in direct response to an attempt to access my rights within the workplace’. Bikeworks denies that, and instead asserts that Townsend decided to stop working for of his own volition, and in effect resigned.
Key features of Townsend’s engagement
Townsend relied on the fact he was provided with CPD training, customer details and was required to contact those persons for feedback and follow up, however the tribunal concluded these were all-natural facts which are equally consistent with being self-employed. Other key features raised in the tribunal included:
– Townsend was given branded equipment and clothing that he was expected to wear whilst working.
– For training, Townsend would have access to shipping containers full of bikes and tools belonging to Bikeworks for loaning to customers.
– Townsend Linkedin referred to himself as ‘freelance’.
– Townsend acknowledged he could not complete or offer work to Bikeworks clients.
– Townsend was paid gross of tax deductions and had not declared these earnings to HMRC.
Townsend was only paid for work undertaken and not a salary. He was also not contractually entitled to holiday or sick pay, he could work when he wanted, how he wanted, he could provide a substitute for any reason – all suggesting that Townsend was self-employed.
It was accepted by the tribunal that Townsend had the power to choose when he wanted to work for Bikeworks, that he could refuse or cancel sessions offered or previously accepted at short notice without penalty; that he was undertaking similar work for other cycle training providers at the time of his engagement with Bikeworks and could choose to work for them in preference to Bikeworks once again without sanction; and that he had an established occupation or livelihood as a qualified cycle instructor, with appropriate professional skills and standards, which Bikeworks recognised, accepted and publicised in their literature.
Mutuality of Control (MOO) in the case against Bikeworks
Judge Barrowclough concluded “it is very clear that there was no mutuality of obligation in the parties’ working relationship in 2019, and no irreducible minimum of obligation, either express or implied, on each party whereby a contract of employment might then have existed”.
It was clear in the evidence of the working reality that Bikeworks did not have to provide Townsend with any work and Townsend was not bound to accept any of the sessions offered to him. It was actually evidenced that Townsend could and did refuse some, without penalty at very late notice in some circumstances as well.
Both parties understood the nature of this mutually beneficial arrangement, which is reflected in the terms of Bikeworks ‘self-employment document’ originally signed in 2016 along with Townsend’s repeated references to him being a ‘freelancer’.
The tribunal added that there was no evidence of mutual obligations between the sessions that Townsend did actually work, for example in requests for work from Townsend or demands from Bikeworks that the Townsend must undertake specific sessions. Judge Barrowclough also stated ”in my view, the Claimant has not established the existence of any overarching or umbrella contract between himself and the Respondent”.
Control over Townsend’s work
As previously stated, Townsend had the power to decide when he worked for Bikeworks. Townsend provided no evidence that he was forced to work certain hours or times. “I have already indicated that there was no evidence to which I was taken to support the Claimant’s suggestion, which I do not accept, that he was on occasions forced unwillingly to accept and undertake any training sessions.”
It was accepted that Bikeworks controlled the sessions in the sense that the identity of the customer, time and place of the session was fixed and that all training was provided within “nationally recognised standards”, but the instruction during the session was provided by and at Townsend’s discretion. Furthermore, there is evidence that Townsend could and did determine or alter appropriate training routes, or the anticipated length of a training session.
Taking all these matters together, the tribunal was not persuaded that Bikeworks had sufficient control or power over Townsend in relation to the work he undertook on their behalf.
IR35 Status and MOO
What this judgement continues to show us, that when considering employment status and IR35, mutuality of obligation should not necessarily play second fiddle to other tests such as control, Personal Service and business on own account. A decision must come from considering all the facts of which MOO forms a huge part in determining the nature of the relationship.
HMRC’s official position remains that MOO is irrelevant in IR35 cases, however previous case law has shown that MOO has actually swung IR35 appeals in the past. Despite MOO (or a lack thereof) as being a clear indicator of employment status, HMRC continue promoting its online tool for determining employment status CEST, which omits to address mutuality of obligation.
When deciding a worker’s status via CEST, the “employee” is being denied the ability to address a key limb of the test for employment status in MOO.
It’s for this reason that Kingsbridge recommends contractors check their IR35 status elsewhere. Our award-winning status tool combines a questionnaire with 29 to 34 questions, to ensure a complete picture of your assignment is built. Kingsbridge’s status tool costs just £50 plus VAT, find out more and get a status assessment now by clicking here.