A recent Employment Appeal Tribunal decision has overturned an Employment Tribunal’s finding that a qualified nurse was both a worker and an employee of Partnership of East London Co-operatives Ltd (PELC). The case (although not an IR35 case), provides some valuable insights for those dealing with IR35 or employment status decisions.

Background

Despite the fact that qualified nurse Joanne MacLean was paid through her limited company (MacLean J Ltd), the dispute related to her entitlement to employment rights, not her tax position.

The case arose after Ms MacLean worked as a Clinical Streamer for PELC from August 2018 until March 2023.  PELC runs urgent treatment centres in East London, using a combination of employees, bank staff, and self-employed contractors.

When the contract ended, Ms MacLean brought an Employment Tribunal claim for unfair dismissal and holiday pay, asserting that she was in reality an employee and only set up her company at the request of PELC. PELC, represented by counsel, argued that she was engaged through her company on a genuine self-employed basis.

Despite Ms MacLean representing herself and not submitting a witness statement, the ET found in her favour concluding that she was both a worker and an employee, and that the contract with PELC was with her personally and not her company.

The Employment Tribunal’s findings

The ET examined PELC’s structure and the contractual documentation surrounding the engagement. The key documents were:

• A Payment Authorisation Declaration, signed by Ms MacLean personally, which authorised payments to her company but confirmed the agreement was “strictly between PELC and myself as an individual nurse member of the society”.
• The Members Agreement, which invites the contractor to bid for services as a subcontractor, but set out personal obligations and contained no mention of Ms MacLean’s company.
• Various documentation surrounding PELC’s IR35 determination carried out after the introduction of the Off-Payroll Working rules in April 2021.

Despite clauses the Members Agreement describing the role as self-employed and stating there was no right to control or obligation to offer or accept work, the ET found the reality of the relationship painted a different picture:

• Ms MacLean worked regularly for PELC over four and a half years and had no other clients during this period.
• The supposed right to substitute implied by the documentation was “impracticable”, there was no evidence it had ever been exercised, and the regulatory requirements for the role made it impractical. Personal service was a “dominant feature” of the contract.
• She was integrated into PELC’s operations, performing duties identical to employees, using the same systems and equipment, and appearing to patients as part of the team.

The ET therefore concluded:

• The contract was with Ms MacLean personally.
• She was a limb (b) worker each time she accepted work.
• She was also an employee overall, finding a “natural inference” that both sides were obliged to offer and undertake a reasonable amount of work, therefore establishing mutuality of obligation.

PELC’s appeal to the Employment Appeal Tribunal

PELC appealed the ET’s decision on four grounds:

1. Ground 1: the ET was wrong to find the contract was with Ms MacLean personally and not her limited company.
2. Ground 2: the ET was wrong to find a continuing obligation on both sides to offer and accept work.
3. Ground 3: the ET was wrong to find that the right to substitute was impracticable and therefore not genuine.
4. Ground 4: the ET failed to give adequate reasons across the above findings.

The EAT upheld that the contract was personally between PELC and Ms MacLean, but it quashed the ET’s findings that she was both a worker and an employee. Let’s look at each area in more detail.

Ground 1 – not a personal contract: dismissed

PELC argued that the ET did not consider evidence of the parties’ intentions (such as the IR35 determination documentation) and had contradicted itself by relying on the Members Agreement to find the contract was personal, while also saying that the agreement did not accurately reflect the true relationship. The EAT disagreed. It said the ET was entitled to treat some provisions as accurate and others as not, and that its analysis was consistent with the approach taken in previous cases that have set precedent.

The Payment Authorisation Declaration form was decisive. It expressly referred to “sums due to me” and said that payment to the limited company would merely discharge PELC’s liability to her personally. The Members Agreement also made clear that only members of the society (individuals) could provide services, and obligations could not be delegated.

The EAT noted that while Ms MacLean agreed the IR35 status determination from PELC, that did not alter the fundamental relationship. The ET was entitled and right to conclude that the real contract was between PELC and Ms MacLean herself.

This finding follows a similar path to other recent high profile cases involving Gary Lineker and Bryan Robson, where individuals operating through intermediaries were nevertheless found to have direct personal contracts with their client – meaning the IR35 rules did not apply.

Ground 2 – mutuality of obligation: allowed

The EAT allowed this ground.

The ET had concluded that, because Ms MacLean worked regularly for PELC several years, a “natural inference” arose that she had agreed to undertake “at least some reasonable amount of work”, and PELC to offer it.

The EAT said this reasoning was insufficient. The written contract expressly stated no obligation on either party to offer or accept shifts, and work was booked monthly via a rota system, with Ms MacLean only agreeing to shifts she wished to work and evidence showing there was no regular shift pattern. There was no evidence of any assurance that PELC would always offer work or that Ms MacLean was obliged to take it.

The EAT also addressed an anomaly in the ET’s findings: it had found that Ms MacLean was a limb (b) worker “each time she accepted work”, which suggests she only had worker status during individual shifts. Yet it also said she was an employee throughout the entire period. The two findings were not consistent.

Overall, the EAT agreed with PELC – the ET had failed to explain why continuity of work equated to overarching mutuality of obligation, or how this reconciled with its own finding of individual shift-based engagements.

Ground 3 – personal service & substitution: allowed

PELC’s third ground also succeeded.

The ET had concluded that substitution was “impracticable” due to the nature of the clinical role and the requirement for professional registration and CQC checks. It found that references to substitution in IR35 documentation were “not operative” in practice and had never been exercised.

However, the EAT said this reasoning was not adequate. While the ET could reasonably conclude that substitution had never occurred, it did not properly explain why it was impractical.

PELC had argued that a pool of qualified staff existed (employees, bank workers and contractors) who could, in principle, act as substitutes if a shift could not be fulfilled. The EAT said this scenario had not been addressed.

Nor was there detailed consideration of whether the contractual right (limited only by the requirement for suitable qualifications) was, in law, inconsistent with personal service. Referring to the case of Pimlico Plumbers, the EAT asserted that a conditional right of substitution limited only by qualifications, is inconsistent with personal service.

Overall, it was found the ET dismissed substitution without sufficient reasoning, so this ground was allowed.

Ground 4 succeeded as a consequence of grounds 2 and 3 being allowed.

Where are we now?

As the EAT dismissed the ET’s findings on mutuality of obligation and personal service, the conclusions that Ms MacLean was a worker and an employee of PELC were quashed.

The EAT has directed both parties to make submissions on what should happen next. In practice, the case will likely go back to the Employment Tribunal for reconsideration of worker and employee status, with focus on whether genuine mutual obligations and personal service existed.

Lessons for IR35 / Off-Payroll Working & Employment Status decision makers

1. Employment status for employment rights purposes is distinct from status for tax purposes.
   The EAT observed that the “IR35 binary classification of workers into employed and self-employed is not the same as the categorisation(s) in employment law”. Although Ms MacLean operated through a limited company, she was found to be personally engaged and so not within scope of IR35. Issuing an outside IR35 SDS won’t guarantee that an individual isn’t a worker or employee under employment law and organisations should seek to understand the implications of both frameworks.
2. Written contracts must reflect the reality.
   The reality of the relationship was key in this case and the contractual paperwork raised many questions. But the EAT reaffirmed that written terms play a vital role. Where a written contract reflects reality, it will carry significant weight. Engagers should ensure contracts are drafted properly to reflect genuine business-to-business relationships, and not contradicted by other documents or payment mechanisms that point to a personal contract with an individual.
3. Substitution must be practical.
   Whilst we will have to wait on this case’s outcome to establish the true position on personal service, it shows that clauses allowing substitution must be more than theoretical. They need to be practical and realistic if they are to stand up as evidence of self-employment. The EAT’s criticism of the ET’s finding on substitution shows that tribunals will scrutinise how workable such clauses really are.
4. The extent of mutuality of obligation remains important.
   Even post-PGMOL, where the courts clarified that MOO exists in every engagement through the wage/work bargain, the extent of obligation between contracts remains important and regular work does not automatically create overarching MOO.
5. Integration won’t help.
   The ET’s original reasoning noted the length of the relationship and that patients would have viewed Ms MacLean as part of PELC’s clinical team. The EAT emphasised that integration alone doesn’t decide status, but it will always be looked at by courts. Working exclusively for single clients for long periods of time or undertaking roles identical to those of employees will not help when trying to argue genuine self-employment.

This case demonstrates why reforming Employment Status is necessary

The Government’s promised employment status consultation, due before the end of this year, can’t come soon enough. This case perfectly shows the confusion caused by the current tier system of employee, worker, and self-employed, and by the disconnect between tax status and employment law. Simplification of this highly complicated framework is long overdue.

While Ms MacLean’s employment status is yet to be decided, the case shows the importance of keeping documentation, processes, and working practices aligned and consistent, and parties must be able to show, with evidence, how issues such as substitution and MOO operate in practice.

B&C will report on the final outcome when publicised.