IT giant Hewlett-Packard has won an important victory for employers
concerned about contractors’ employment status following IR35.
The Employment Appeal Tribunal overruled a decision that an IT contractor
seeking to claim employment rights from HP was an employee.
Its decision suggests that in deciding the employment status of contractors,
the courts are likely to concentrate on whether there is an implied contract
between the individual and client company. This is a departure from the normal
status test which looks at the general relationship.
Employers have been concerned that the changes in the law under IR35 that
force IT contractors in personal service companies to be treated as employees
for tax purposes, may lead many of them to claim general employment rights and
benefits.
This ruling will give some reassurance, as it says that if there is no
contract between contractor and client, then there can be no contract of
employment.
"It seems unlikely contractors will succeed in claiming employment
rights unless they can mount a convincing legal argument that a ‘technical’
contract exists between them and the client," said Kevin Barrow, partner
at IR35 specialist Tarlo Lyons.
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"The decision indicates that the higher courts are likely to attach
more importance to the written contracts between the client and the agency and
the agency and the personal service company in deciding whether an additional
implied contract between the client and the contractor exists."
Barrow believes the approach may be challenged on grounds that it allows
employers to evade their obligations.
