The Inland Revenue is required to investigate employers under the National Minimum Wage legislation. Our latest victory concerns one such enquiry.
The situation
The “employer” was a business that owned a group of pubs, and engaged managers, on a self-employed basis to run them. As far as the pub company was concerned, it was not an employer, as all of its operatives worked on a mutually agreed basis of self-employment.
The perception of the Inland Revenue was different however. Not only was it possible that the pub managers were disguised employees, they might also be classified as “workers” for the purposes of the National Minimum Wage legislation.
Qdos arrives on scene
When Qdos arrived we were presented with two immediate problems.
Firstly, Revenue officers had already conducted face-to-face interviews with both the supposed employer and the workers. The interviewees had made some unguarded remarks, which indicated that the pub company exercised a considerable degree of control over the running of the pubs.
Secondly, an ex-pub manager had recently tried to sue for wrongful dismissal. The case was rejected, but the tribunal had ruled that the pub manager was a “worker” under the definition of the Employment Rights Act.
The Revenue knew about this decision, and also knew that the definition of a “worker” under the Employment Rights legislation was the same under the National Minimum Wage Act.
The Qdos Defense
The tribunal decision on one case was based upon only one set of facts; the facts in the other cases might be different.
Some of the workers reported feelings of intimidation by the Revenue officers’ questions and demeanor. The interviews were not comprehensive, and some conclusions drawn were factually incorrect.
We persuaded the Revenue to undertake more interviews with the workers to ascertain the truth.
The facts that emerged indicated that the pub company clearly did exercise a considerable degree of control.
The staff were not paid by the pub manager but from the takings delivered up to the pub owner. There was no real financial risk to the pub managers, because they received a basic commission, which they insisted upon calling their “wage”.
Whilst the pub manager was responsible for ordering stock, there was a written agreement that he had to buy exclusively from the pub company. The company did not sell snacks, but arranged for a snack salesman to call. The managers could sell and profit from their own bar meals, but most premises lacked catering facilities.
Chink in the Revenue Armor
The bar managers had to recruit and pay their own replacement workers when they wanted a holiday which happened in practice. The managers also regularly used family members to cover for them during their absences.
We were able to argue therefore that the contract between the pub company and the pub managers was not one of personal service, and that the worker had both a right and an obligation to engage a substitute.
The Revenue eventually accepted that notwithstanding the tribunal decision in one particular instance, in general the pub managers were not “workers” for the purposes of the National Minimum Wage legislation, and they were genuinely self-employed for tax purposes. This case raises many questions about the interaction between different pieces of legislation.
However, the status tests applied by the Revenue are basically the same in all cases, and there is one master key that fits all: substitution.
Keith Preece Senior Tax Consultant