The decision is surprising because the supply contract was with the worker’s personal service company (PSC), and has given rise to the claim in some quarters that it is the harbinger of employment rights for contractors working inside IR35.
The case in question, Appiah v Tripod Partners and the Home Office, was heard in November 2024, and Tripod Partners was ordered to pay the claimant the sum of £36817.65 in respect of unlawful deduction of employer NICs from wages.
“The case is heavily flawed”, says Adrian Marlowe, CEO of the recruitment and employment law specialist Lawspeed.
Worker must be worker in relation to an employer
“To reach a conclusion that there had been an unlawful deduction from wages in any case, there are two requirements. First Appiah had an entitlement to employment rights as a worker or employee of Tripod. Second that Tripod had made an unlawful deduction from her wages.”
Marlowe continued “There is no doubt that Appiah was a worker, yet there was no finding that she was a worker of Tripod. Further Tripod did not pay wages to her, they paid her PSC in accordance with a written contract. The claim should therefore fail on both points.”
“Whilst it was open to the Tribunal to find that the true contract was between the claimant and Tripod, the judgment is confusing. It was accepted that there was a written contract between Tripod and Appiah’s PSC, Kia & KHY Ltd (K&K). K&K was set up by Appiah in September 2020, well before the arrangement in July 2021. The Tribunal decided that the contract with K&K was not void, in other words it was a valid contract.
“Payments were made to the PSC, not as wages for Appiah, but as payments for services provided by the company subject to deductions in line with IR35 (Chapter 10 ITEPA). The terms of that contract therefore should have applied. Further it found that Appiah was an employee of K&K.
“The Tribunal’s eventual conclusion that Appiah was a worker of Tripod conflicts with the evidence. K&K was paid, VAT for K&K was paid, the contract with K&K was valid, no wages were paid to Appiah.
Confusion ‘deemed employer’ and actual employer
The decision therefore appears at odds with the law. Specifically the judgment states that in the case of deductions made for deemed employment for tax purposes, this means that the deemed employer ‘should be treated as employer for all statutory pay purposes including under the ERA’. So according to this judgment a deemed employer is an actual employer. This cannot be right as it ignores the definition of employment, employer, employee, and worker in s.230 ERA which requires in all cases for someone to be a worker or employee there has to be a contract between worker/employee and an actual employer.
“To succeed in this claim Appiah needed to have a contract with Tripod, but there was no finding in this judgment that there was such a contract, nor does it appear there was one anyway. The judgment is therefore at odd with the facts and the law.”
Correct position
“Tripod’s error in deducting employer NICs was a simple breach of contract enforceable by K&K in the County Court, not the Employment Tribunal. Tripod could appeal the decision but whether it considers it is worth doing so, given it appears it should not have deducted employer NICs in any event, is a matter for it.”
Conclusion
Marlowe concluded “Given the cost to Tripod of its error, from the processes it had in place at the time, and the legal costs and hassle arising from this issue, I strongly urge recruitment agencies that are dealing with inside IR35 situations to get the right advice and correct contracts in place sooner rather than later. Better representation may well have avoided this result and the confusion that has arisen since.
“One thing is certain; this case is not reliable as any kind of authority for the principle that contractors operating through their own companies have employment rights where the work is caught by IR35.”
For expert advice on any recruitment law matter, please contact Lawspeed on 01273 236 236 or email info@lawspeed.com.
Author
The author of this article, Adrian Marlowe, is CEO of Lawspeed, which specialises in advice, contracts and representation for recruitment businesses. Adrian is also chair of the Association of Recruitment Consultancies, which has a focus on the things that really matter for recruitment businesses.
