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Markel Tax

19 Apr 2021

The ET decision of Mercedes Benz South: Putting MOO back in focus

It has been a while since we have seen a recent Employment Tribunal in relation to employment status, but this was an interesting case to report. Especially as most of the cases we ordinarily look at are normally claims pursued by HMRC and surprisingly this case focuses on mutuality of obligations (MOO) and when it is clearly lacking!  

In this case, Mr Daniel Swain v Mercedes Benz South (‘Mercedes’), the issue for consideration was whether or not the claimant - who represented himself - Mr Daniel Swain was employed by Mercedes as he claimed, or whether he was a casual worker.

Turning to the facts of this case, Mercedes had a large pool of drivers who were engaged on a casual basis either to collect and return cars for maintenance/repairs or to deliver vehicles to customers. Mr Swain was one of the customer delivery drivers who began working for Mercedes in 2008 but he was not given a contract of any kind upon commencement. Among the information presented there was unsigned contract dated 2013. However, Mr Swain had never received this and in fact was not even aware that there was a contract until the start of the proceedings.

The contract confirmed there was no obligation on Mercedes to offer any work and no obligation on the part of the driver to accept any.

Mercedes would typically contact drivers for their dates of availability and drivers are then booked in about a week ahead. Mr Swain preferred to work on certain days mainly being on Monday and Friday as these days worked around his other commitments. Based on the information presented, it showed that nearly half of Mr Swain’s work was carried out on those days. It was not, however, ever assumed by Mercedes that Mr Swain would be free on any given day regardless as to how regular he worked on those days. Mr Swain would always confirm his availability prior to providing the work.

Mr Swain would normally start at 7am and would select his own route and would return by public transport. He was not given any guidance from Mercedes and was effectively free to provide the work in a manner in which he saw fit. From the time he left with the vehicle and until he got back, there was no supervision or monitoring of his whereabouts. The hours paid were calculated on a formula based simply on the length of the journey and there was no requirement to clock in upon returning.

It was found there were some rules, albeit they were not in relation to the manner in which the driver provided the services. There was the requirement to wear a uniform and to provide the customer with a delivery pack when handing over the vehicle. In addition, there were certain rules relating to claiming back expenses to ensure it was done in a cost-effective way.

The Tribunal concluded there was ‘little’ control exercised over Mr Swain in the way in which he carried out the work. The level of control was no more than necessary to allocate work and ensure that it was carried out.

In relation to personal service, this was not touched on in any detail although it was accepted by Mercedes that there was an obligation on Mr Swain to carry out the work personally.

Surprisingly, a lot of emphasis was placed on mutuality of obligations in this case. It was found that at certain times of the year where car sales were higher, there was in fact an increased pressure on drivers to offer themselves for work, which was seen in email evidence but there was no direct evidence of any sanctions for turning down work.

Mr Swain in his own evidence accepted that there was an “immense number of days each year when Mercedes were “not under an obligation” to provide him with work. It was therefore unclear to the Tribunal as to why Mr Swain felt that there were days when Mercedes were under such an obligation.

It was established that there was no evidence of any repercussions if work was in fact turned down or if Mr Swain had not been available for any reason. In fact, at the start of his work, Mr Swain was doing similar work for Porsche, who were aware of his engagement with Mercedes and vice versa but this was never an issue for either party.

If a driver said that they were available, work would be offered accordingly and even then, drivers were free to accept or reject it and as such these arrangements suited both parties.

The Tribunal concluded Mercedes engaged drivers as confirmed within the contract dated 2013 and even though the contract was issued, some years after Mr Swain was engaged it effectively reflected the engagement which commenced in 2008. The Tribunal were satisfied that this particular contract was issued to most of the drivers, due to the fact there was a signed contract from another driver who Mr Swain knew.

In summarising this case, the Tribunal placed a lot of emphasis and similarities on the key points established in Hellyer Brothers Ltd v McLeod and O’Kelly and v Trusthouse Forte plc, albeit unlike in this case, the facts were more akin to employment but nonetheless, the main point was a lack of mutuality of obligations being an essential ingredient.

The Tribunal concluded there was no global or umbrella contract and addition, the length of engagement “does not suggest that it was any sort of sham, or even that a fixed pattern had developed which was more akin to an employment relationship.”

It would seem that the Tribunals view in this case is if the engager is not under any contractual obligation to provide work, even where it regularly does and the worker is free to decide whether or not they can accept such work and is free to work elsewhere, even where moral obligations are considered. An example of this would be the need to make yourself available, which would be another issue but the workers are engaged under successive contracts for services. It would seem here it was accepted work was more of an expectation rather than a contractual promise. 

The unsigned contract dated 2013 confirmed that the drivers were casual workers and the Tribunal were of the opinion that this contract was actually a reflection of Mercedes view of the relationship in relation to the drivers’ employment status and how the working practices were intended to operate.

The Tribunal concluded control and mutuality of obligations was lacking, although the requirement to carry out the work personally come within the broader definition of a worker.  Unfortunately for Mr Swain, he failed to succeed in his employment claim, although he was praised for preparing and presenting his case extremely professionally.

This case is very interesting because it is rare emphasis is placed on mutuality of obligations as it is normally one of the hardest arguments to base an employment status challenge on, especially alone.

It is worth noting that if this case was put forward by HMRC, it is most likely HMRC would have used their usual argument, in that the company was obliged to pay a wage and in return the driver was obliged to provide his own work and skill. Clearly, we have always disagreed with this because cases such as Propertycare Ltd v Gower heard in the Employment Appeal Tribunal demonstrate, this is not the case.  Judge Peter Clark made it clear in his judgement that mutuality of obligations is more than work for pay. 

In essence, this case shows us that mutuality of obligations is very much still a key factor when determining employment status. If there is, in reality, no obligation on the engager to offer work, nor the worker to provide nor any obligation on the worker to accept, make available or complete any work and the worker is free to provide services elsewhere, it is always our opinion that mutuality of obligations is clearing lacking and as such is a strong indicator of self-employment!

However, it does demonstrate all the points we emphasise to our clients, the importance of ensuring a contract is in place, making it clear to the subcontractors that they are self-employed and ensuring clauses are robust as possible. In addition, this case shows how cases can be argued differently by applying different case law.

Have you considered whether your company is engaging subcontractors on a self-employment basis and are you ready should HMRC decide to carry out a compliance review?

Do you have contracts in place and if so, are they robust, do they reflect the day-to-day working arrangements?

Speak to our team today

We have been advising and defending clients against IR35 challenges since the introduction of the legislation 20 years ago. We offer a complete package of due diligence services to ensure you are well prepared and protected.

Markel Tax’s FeePayer Protect insurance is specifically designed to defend against an HMRC enquiry and even the potential tax losses where you are also the fee payer. What’s more, we are able to provide you with contract reviews including the whole supply chain from end-client through agency to the contractor, support in drafting an SDS, as well as training and on-going support from our tax experts.

Speak to our team today to find out how we can help you protect yourself against IR35 risks. Call 0333 920 1589 or request a call-back.

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Next article in series

19 Apr 2021

What can we learn from Kaye Adams’ IR35 victory?