Contracts of employment: mutuality and control

The Supreme Court has considered the factors of mutuality and control in determining whether an employment contract exists in connection with the activities of part-time referees in HMRC v Professional Game Match Officials Ltd [2024] UKSC 29. The decision contains important guidance on the application of significant aspects of the legal analysis as to whether an employment contract exists for tax purposes such that income tax and NICs obligations fall on the employer.

In particular, the decision considers questions around the meaning of mutuality of obligation and control whilst stressing that, even if such factors exist, it is still necessary to take account of all relevant contractual terms and all the surrounding circumstances to decide whether the contractual arrangements are to be correctly characterised as contracts of employment.

Background

The case concerns the question whether part-time football referees were employees of the PGMOL. PGMOL provides referees for the most significant football competitions. This case concerned the employment status of referees in the National Group in the tax years 2014/2015 and 2015/2016. During the relevant period, referees were appointed to the National Group on an annual basis. They were required to pass a fitness test and attend an introductory seminar. PGMOL also operated its own disciplinary procedures and breach of match day procedures might result in PGMOL taking disciplinary action against a referee.

The system for engaging referees involved match appointments being offered to referees. A referee could refuse an appointment but PGMOL would typically want to know the reason for the refusal. Once a referee had accepted an appointment, he or she could back out of it before arriving at the ground on match day, but would generally only do so as a result of injury, illness or work commitments. When a referee accepted a match appointment offered by PGMOL, a contract was formed under which the referee agreed to officiate and submit a match report and PGMOL agreed to pay the appropriate fee.

The FTT held that referees were not employed under a contract of employment as the arrangements did not give rise to the requisite mutuality of obligations between PGMOL and the referees (because of the right of both parties to cancel the appointment at any time before the referee’s arrival at the ground) and PGMOL had insufficient control over the referees under the contracts. Although the Upper Tribunal held that the FTT had misapplied the law on control, it dismissed the HMRC’s appeal, on the basis that there was insufficient mutuality of obligation. The Court of Appeal allowed HMRC’s appeal as regards mutuality of obligation and remitted the case to the FTT to re-consider the issues of mutuality of obligations and control, on the basis of its original findings of fact.

Decision of the Supreme Court

The issues raised by the appeal focus, in particular, on two critical elements in determining whether a contract of employment exists:

• the mutual obligations involved in the provision of services personally by the putative employee and the obligation of the putative employer to pay remuneration for those services
• the requirement for a sufficient degree of control by the putative employer over the provision by the putative employee of his or her services.

Firstly, the decision of the Supreme Court stresses that there has been a tendency in some cases to focus unduly on the question of mutuality of obligation and control and “to treat all other terms of the contract and the surrounding circumstances of the parties’ relationship as of less significance, or even as being relevant only if they negative the existence of an employment relationship”. Rather it is clear that “mutuality of obligation and control [are] necessary, but not necessarily sufficient, conditions of a contract of employment”. It is also important to emphasise that the need to address the cumulative effect of the totality of the provisions of the contract and all the circumstances of the relationship created by it and to view in the round, the relationship between the parties recorded in the agreement in the setting of the surrounding circumstances.

Secondly, the Supreme Court judgment stresses that while it is a pre-condition of a finding of a contract of employment that there must be a sufficient degree of control, that is not the end of its relevance. The extent of the control remains a relevant factor in the overall determination of whether there exists an employment relationship.

The Court noted that if “mutuality of obligation and control are regarded as largely determinative, with only a minor role for other considerations, courts may be led to apply an unduly restrictive interpretation of control in order to prevent relationships which overall are not suggestive of employment from being characterised as such. Conversely, by according a real significance to the “totality of the provisions … and all the circumstances of the relationship created by” the contract, a realistic approach can be taken to the issue of
control. In other words, the bar to the existence of control need not be set at an unduly high level”. In other words, flexibility in approach in deciding whether there is sufficient control is critically important, especially given how employment practices have evolved.

Mutuality of obligation

In this case, PGMOL argued that mutuality of obligation involves more than payment in return for personal work, but requires an obligation on the part of the engager to provide work and on the person to provide personal service. Moreover, PGMOL argued that this mutuality of obligation must exist for at least some time before the employee provides the personal service. So, in this case, whilst the mutual obligation may have subsisted for the brief period whilst the work was provided, that was insufficient.

The Supreme Court has rejected this argument, noting that there were clearly authorities for the proposition that a contract of employment could subsist covering only the period while the employee carries out work for which they are paid. As such, in this case, it was clear that the individual engagement of a referee to officiate at a match satisfied the test of mutuality of obligation from the time of acceptance of the match, unless the engagement was terminated.

As regards the right to terminate the engagement, the Court held that this was irrelevant to the question whether mutuality of obligation exists. However, this may be a factor to take into account in assessing overall whether the contract was one of employment.

Control

The Supreme Court noted that the question whether there is sufficient control can be a difficult one to apply. It is one that extends only so far as there is scope for it. In this case, the FTT had erred in considering that there was insufficient control since PGMOL could not intervene in the performance of referees during matches. That was to misunderstand the degree of control which is necessary as a pre-condition for a finding of employment. It is not necessary for an employer to have a contractual right to intervene in every aspect of performance by an employee of their duties.

In this case, it was important to note that there were separate contracts for each match. What needs to be shown is a sufficient framework of control as regards each contract taken separately. The Court referred to the recent Uber decision as one that
demonstrates that sufficient control consistent with an employment relationship may take many forms and is not confined to the right to give direct instructions to the individuals concerned.

HMRC argued that referees were subject to contractual obligations as to their conduct and performance during each individual engagement which were sufficient to constitute control, particularly when coupled with PGMOL’s powers to penalise referees for breaches by denying them opportunities to officiate at future matches and share in a performance or merit pot.

“[The] combination of contractual obligations imposed on referees as to their conduct generally during an engagement from the time that a match was accepted to the submission of the match report, and as to their conduct during a match, was capable of giving PGMOL a framework of control sufficient for the purposes of meeting the control test for employment purposes… the existence of
effective sanctions which it was open to PGMOL to impose after the end of an engagement are of some significance because, on the facts of this case, the right to impose those sanctions played a significant part in enabling PGMOL to exercise control over the referees in the performance of their duties, on and off the pitch.”

Whilst concluding that there was the irreducible minimum necessary mutuality of obligation and control in this case, the Court held that it was still necessary to refer the case back to the FTT to take into account all the relevant terms, in the light of all the relevant surrounding circumstances, in determining whether the individual match contracts were to be characterised as contracts of employment.

Comment

The decision of the Court stresses that some courts and tribunals, including the FTT in this case, have been misled in applying the tests of mutuality and control. It is important to adopt a flexible approach in relation to these concepts and, in particular, not to adopt an approach to the existence of control that is primarily one focussed on the way the employee performs the role. Equally, however, simply finding that there does exist sufficient mutuality of obligation and control is not the end of the matter as it is necessary to look at all the relevant factors and surrounding circumstances to determine whether the contractual arrangements are characteristic of an employment contract.