Weightwatchers case widens substitution case law
Substitution clauses were once regarded by some as a hefty indicator of genuine self-employment in IR35 and employment status case law, yet their credibility has diminished significantly in recent years – as reported in January, they have even been described in court as “basically irrelevant window-dressing”.
However a truly genuine substitution clause is still effective and can in fact be determinative of self-employment or IR35 status. The recent case of Weightwatchers & Others v HMRC, which considered an unusual substitution clause, was therefore of interest. Weightwatchers claimed the leaders of its sessions were self-employed. HMRC disagreed, arguing that they were in fact employees, and sought the resultant PAYE and NI contributions.
The court found that most of the evidence pointed towards employment following well-settled case law, but when the case turned to consider the substitution clause, it delved into somewhat unusual territory.
Normally a substitution clause would give the contractor the right to arrange for an alternative individual to perform the work. The contract with the hirer would remain the same, and the original contractor would remain responsible for the work. The hirer would continue to pay the original contractor, who would in turn reimburse the substitute.
In this case however, the original contractor had a right to propose a replacement to the hirer. If the hirer was satisfied with the proposed replacement, the hirer would then directly hire the substitute, creating a new contractual relationship, and pay the substitute’s remuneration itself.
The court found that this clause did not prevent employment status. A meeting held by the substitute leader was governed by a new contract, therefore it could not be said that the original contract included a right to substitute.
This case yet again confirms the importance of carefully structuring contractual provisions and working arrangements. The drafting of contracts designed to demonstrate self-employment is a particularly dense minefield, and professional advice is recommended.
Author: Will Morris
Adrian, a highly experienced lawyer, founded Lawspeed in 1997. He is responsible for developing our extensive portfolio of products and services, including the widely used Lawspeed contract templates. Adrian is an expert on “recruitment law” and specialises in contracts, regulatory compliance, employment status and dispute handling. He is chair of the trade body the Association of Recruitment Consultancies, the only lawyer lead recruitment trade body in the UK. Adrian and his co-director Ravi devised Standards in Recruitment as a vehicle for helping drive up standards and compliance in the industry.
Adrian is our lead in discussions with the government over regulatory evolution. Apart from assisting with client support, Adrian’s primary role is research and development into methods of business delivery, our latest service Proterms being his most recent project. Adrian heads our IR35 lawyers team.