The lap dancer quashed by the MOO impediment

A lap dancer engaged by Stringfellows nightclub was axed in December 2008 and she claimed unfair dismissal based on her employment status. Significantly, the status of Nadine Quashie, 29, was considered to hinge on the nature of the contractual obgliations - whether there was a mutuality of obligation - 'MOO'.

This employment law judgement may not be of considerable importance in the IR35 arena, writes Chris Leslie, a former head of investigations for Revenue & Customs and the founder of status advisory Tax Networks Ltd. However I think it carries a very clear statement as to the classification of a worker’s employment status for tax purposes, so self-employed freelancers should take heed.

It took three hearings, culminating in the latest one - the Court of Appeal verdict handed down by three Lord Justices.

Background

For illustration, if ‘I’ was obliged to turn up for work and do that work for a consideration, and, my engager was obliged to provide me with that work and pay me as part of a work-wage bargain, in its most basic form I believe that kind of situation points to MOO.

Also, whether exercised or not, if my engager had in some fashion a right of control over of what I did, where I did it, when and how I did the work, this would be an indication of a master-servant relationship.

Thirdly, if I was personally required to do the work - could not arrange and personally pay for a replacement - that would be another indication of an employment contract of service.

Ready Mixed Employment status indicia

There are, of course, a whole host of case law principles/indicators to consider for this case, but most importantly everything needs to be looked at in context. However, the emerging test being frequently adopted, which was the focus of the Employment Tribunal's analysis in this case, is the framework proposed by McKenna J in the Ready Mixed Concrete case. His succinct summary of the essential elements for an employment contract to exist is as follows:

" A contract of service exists if these three conditions are fulfilled.

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.

(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master.

(iii) The other provisions of the contract are consistent with its being a contract of service."

He later added:

" An obligation to do work subject to the other party's control is a necessary, though not always a sufficient, condition of a contract of service. If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other kind of contract, and the person doing the work will not be a servant. The judge's task is to classify the contract (a task like that of distinguishing a contract of sale from one of work and labour). He may, in performing it, take into account other matters besides control."

The Employment Tribunal’s decision on Quashie’s status

The ET looked at the contractual documents, and identified the terms of the contract and whether the dancer could work elsewhere while still having a contract with Stringfellows. Significantly, it was established that Stringfellows was under no obligation to pay the dancer anything at all. The principal evidence for that was that the dancer negotiated her own fees with the clients, took the risk that on any particular night she would be out of pocket and received back from the employer only monies received from clients (whether by way of cash or the club’s “Heavenly Money” vouchers) after deductions.

The judge found that as there was no payment obligation, there was no mutuality of obligations and it was unnecessary to picture paint from the pallet of colourful status indicia. However, the judge did comment on the fact that there was also financial risk as the dancer sometimes incurred a loss, which was inconsistent with being employed under a contract of service.

The Employment Appeal Tribunal’s decision on Quashie’s status

However, the EAT found that on each night she attended the dancer was obliged to work as directed by the Stringfellows management.If she did not provide free dances or other duties, she could be fined.The judge inferred from the findings that if the dancer was directed to a customer, she could not refuse.Furthermore, the mere attendance on the night was pursuant to a requirement that she worked – she had to turn up and stay throughout the night shift or otherwise suffer a financial penalty sanction or deduction.While she took the risk that there will be no remunerative work, she was willing to accept that on the basis that she was available for it, and indeed she accepted the obligation to do free dances. The judge considered that all of this pointed to an inescapable conclusion that on the night the dancer was an employee.

In the Court of Appeal…

The grounds of appeal were that Stringfellows was not obliged to pay any remuneration to the dancer for the work she did and this was entirely consistent with the evidence initially put before the Tribunal. Furthermore, the lack of any such obligation was inconsistent with the notion of the wage-work bargain, which lies at the heart of the contract of employment. It was also argued that the Tribunal was entitled to find that there was no duty on Stringfellows to provide the opportunity to dance even when she was present at the club, and that there were no continuing obligations of the kind necessary to establish an umbrella contract in existence between the dancer(s') rotas. 

It was found that Stringfellows did not employ the dancer to dance, rather the dancer paid Stringfellows so she could be provided with an opportunity to earn money by dancing for the clients. As the dancer took an economic risk this was considered to be a very powerful pointer against the contract being a contract of employment - it was the basis of the economic reality test.

It was considered that it would be unusual where a contract of service is found to exist when the worker took an economic risk and is paid exclusively by third party customers. As there was also a lack of any obligation to pay the dancer that precluded the establishment of an employment contract of service.

According to its judgement, handed down last month, the Court of Appeal unanimously determined that the claimant was not employed under a contract of employment. It follows that the Tribunal has no jurisdiction to hear her claim of unfair dismissal.

Epilogue to Mutuality

MOO aside, mutual intentions seldom carry any weight when applying a reality check, but as both parties in this case intended the lap dancer should have self-employed status, this somewhat reinforced the conclusion of the employment judge. The dancer entered into the arrangements with her eyes wide open.

 

16th January 2013

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