Employers could face a barrage of unfair dismissal claims from trainers or IT consultants after the IR35 tax regulations take effect later this week, employment lawyers are warning.
According to IT law firm Tarlo Lyons because the change in the law means that contractors are now treated as employees in terms of tax, disgruntled IT staff might claim unfair dismissal when their contracts are terminated.
Kevin Barrow, partner at Tarlo Lyons, said, "Tribunal cases cost nothing for the applicant to make, but a lot for the employer to defend. This could be very costly as the compensatory award limit for unfair dismissal has gone up from £12,000 to £50,000."
There is uncertainty about who would be deemed the contractor's employer as many work through recruitment agencies, but Barrow believes that a court is more likely to classify the "end-user" as the employer.
It is thought there has already been one case of an IT contractor who had been working for a bank claiming unfair dismissal.
The Government brought in IR35 to close a loophole that allowed self-employed contractors to avoid paying full National Insurance contributions.
To date attention has been largely focused on the impact on IT staff as there is a high number of technicians engaged as contractors rather than employees.
But experts say there is no reason why the problem could not also extend to one-man training companies employed by firms.
Jeffrey Brooks, head of the recently formed Institute for Training and Occupational Learning, said, "It will affect quite a number, particularly those that have been outsourced and have one or two contracts."
ITOL will be producing a note on IR35 for its members shortly.
There had been hopes that the Chancellor would ease IR35 requirements, but no mention was made in last month's Budget.