Does the length of a contract determine whether contractors are inside IR35? We’re shining the spotlight on three cases that exemplify how the length of a contract affects IR35 status.
Case law dealing with mutuality of obligations (MOO) is hard to navigate but is helpful in understanding IR35 rules. MOO tests whether a client is obliged to offer work to a contractor and whether a contractor is obliged to accept work. In an employment scenario, an employee is contractually obliged to provide their service, usually for a specific number of hours a week. In turn, the employer is obliged to provide continuous work to the employee and pay them. So, it follows that the opposite is true for an independent contractor.
The three cases below show that, while the length of an engagement itself is not a test of IR35, it does affect a key area – MOO.
1. Why long engagement is an issue – Airfix Footwear Ltd v Cope (1978)
Where work has been consistently offered by the client and accepted by the worker – as in the case of a long engagement – it makes it harder to argue that MOO does not exist.
In this case, Mrs Cope assembled heels for Airfix for seven years. She was not entitled to holiday or sick pay, and carried out the work at her own home, yet the judge concluded that she was an employee on the basis that the continuous relationship had built up sufficient MOO over time.
Importantly, this was compounded by the absence of any indication that Mrs Cope was an independent contractor.
Hypothetically, if Mrs Cope had had the right to use a substitute to do her Airfix work, or been able to show she controlled how she did the work, the judge might have ruled differently.
2. How MOO can exist in short-term engagements – Cornwall County Council v Prater (2006)
This case dealt with a teacher who was engaged by the council under a succession of separate contracts over 10 years.
The council would offer Mrs Prater a pupil to tutor at her home and she was free to reject work without penalty. However, once she accepted a pupil, she was obliged to fulfil her commitment to that pupil, and the council would offer work until that engagement was fulfilled.
It was found that each individual contract, regardless of how short it was, had MOO and therefore had to be a contract of employment. However, due to the fact that once an engagement ended, there was no obligation for either party to accept/offer further work, the judge warned that an overarching contract of employment would be impossible to prove.
3. How long engagements can lack MOO – Parade Park Hotel v The Commissioners for Her Majesty’s Revenue and Customs (2006).
This case is a good example of when the longevity of an engagement did not automatically define the contractor’s status.
In this case, Mr May carried out various maintenance jobs for Parade Park Hotel from 1999 to 2004, but he was able to choose what jobs he did and would often not show up to work at all. Parade Park was not obliged to offer him the jobs, and it was evident Mr May did not feel obliged to offer his services.
While there was no overarching contract of employment, HMRC argued there was sufficient MOO for each job, with the expectation that work would be available, the fact Mr May did do the work on many occasions and was paid for it.
The judge disagreed. Taking into account that Mr May proved he had control over the way in which the work was done and was required to fix any defective work at his own expense, the judge deemed Mr May to be self-employed.
It’s important to note this judgment was not based solely on MOO and that this is likely to be true of all cases. However, it’s clear the length of an engagement itself does not automatically place it inside of IR35 if there are other factors which suggest otherwise.