Mutuality of Obligation
Mutuality of Obligation is now a common phrase when dealing with Status disputes.
The term is from the House of Lords case Carmichael and Another v. National Power Plc. In this case, Mrs Leese and Mrs Carmichael accepted work as guides at Blythe Power stations starting in 1989 until 1995. The contracts explained that ‘Employment will be on a casual as required basis. Both women applied for the positions and received written letters confirming their appointments. Both signed and returned their letter, which stated: "Station Guide - Casual Employment. I am pleased to accept your offer of employment as a station guide on a casual as required basis."
When paid, both women were shown on the Company payroll. However, the women brought a case against the Company claiming they were employees as the Company had stated they were really self-employed. The Industrial tribunal held that their case "founders on the rock of absence of mutuality". Their decision was based on the fact that when the women were not working for the Power Company, there was no contractual relationship with the company. The Company was offering work when it was necessary but there was no obligation to provide the work and there was no obligation for the work to be accepted by either woman.
As an employee of a Company, an employee will expect to receive payment, holiday entitlement and other benefits regardless of whether the business is making a profit or a loss. Only when the business is making large losses or there is a change of operations, can the business dispense with the services of an employee by making them redundant. For an employee, there is an expectation of regular employment until they are made redundant, sacked or if they decide to leave. As a self-employed Contractor, there is no obligation to receive additional work and payment after the original Contract ends. There is no obligation of the Client to provide future work for the Contractor. Alternatively, where the Contractor is working regularly at the same Client either on new contracts or on a ‘rolling contract’, this can be a pointer used by the Revenue towards employment.
Looking at the Hall v. Lorimer case again, Lorimer did not have any full-time contracts with one company. He was able to accept or refuse work as he wished. Likewise, the production companies could offer him work or not. Lorimer operated on ‘a first come first served’ basis so there were times he would refuse work for different companies if he had already been booked. This also points towards Financial Risk, which is discussed later.
Article supplied by Ray McMahon of Tax and Nic.