Key learnings from PGMOL v HMRC

Those of us who have played or followed any sporting activity know that the rules of the game do not always give a clear answer in every situation. Refereeing or umpiring decisions can often prove to be controversial and, where local or national pride is at stake, the decisions can often move from the sporting pages to the front pages of any newspaper.

In a sense, the law is just another rulebook that regulates human activity and just as some refereeing or umpiring decisions can be complicated, some legal questions can be difficult to resolve too.

The legal rules to be applied in determining an individual’s status as being employed or self-employed are challenging and they have significant real-world consequences that relate both to tax and the rights which an individual may or may not enjoy.

The complexity in this area might lead us to conclude that if you ask two judges a question you get three different opinions!

One might be forgiven in being a little disappointed that in PGMOL v HMRC [2024] UKSC 29, the Supreme Court did not give a definitive answer to an employment status question and referred certain matters back to the First Tier Tribunal. However, what is significant about PGMOL v HMRC, when read alongside the Court of Appeal’s judgment in Atholl House [2022] EWCA Civ 501, is that the courts have now provided definitive guidance as to the tests to be applied in determining employment status.

In the 19th century, there were many different rules applied in the game of football. It was not until Ebenezer Cobb Morley codified the rules in 1863 that there was a single uniform code. The history of football provides a good tool to understand where we are post PGMOL: at least now we know which set of rules the courts must apply even though there will still be some uncertainty as to how the courts will apply those rules.

So, what were the facts in issue at PGMOL v HMRC?

PGMOL relates to the employment status of referees in the Football League’s National Group. National Group referees referee matches in the Championship and the National League. The company PGMOL has a pool of referees for the National Group. These individuals have to abide by a code of conduct and meet certain professional standards as to their behaviour and conduct. They also agree to referee matches in accordance with league guidelines.

Matches are typically played on a Saturday. Individuals are invited by random selection to referee a game and to write a match report in return for a fee on the previous Monday. The individual can back out of the contract before arriving at the match on the Saturday. Individuals generally tend to do this as a result of family circumstances, ill health, or work commitments. There is no sanction for backing out, apart from not being paid.

The random nature of the selection and the very large size of the pool means that an individual may only get a few refereeing jobs in the season. Typically, National Group referees have other jobs, and they carry out refereeing assignments in their spare time. The position of National Group referees can be contrasted with that of premiership referees who are full-time employees of the company PGMOL.

HMRC’s position is that the fees payable to the National Group referees for refereeing the game and for writing the match report should be subject to PAYE and NIC.

HMRC v PGMOL: background point 1

The Supreme Court confirmed that the test to be applied in determining employment status is that set out by McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. It is a tripartite test.

McKenna J in Ready Mixed Concrete held: “I must now consider what is meant by a contract of employment. A contract of employment exists if these three conditions are fulfilled —

• The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master;
• He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master, and;
• The other provisions of the contract are consistent with its being a contract of employment”.

These three criteria are generally referred to as mutuality of obligation, control and the ‘third stage’. In PGMOL, the Supreme Court and the lower courts have been considering mutuality of obligation and control.

Separately in Atholl House [2022] EWCA Civ 501, the Court of Appeal gave guidance on constructing the third limb. In very broad summary, this is a multi-factorial test where you do not just have regard to the terms of the contract but where you are permitted to consider matters which sit outside the contract in question too.

How do the three stages of Ready Mixed Concrete interact?

Each of the stage one and stage two conditions must be met for there to be a contract of employment. You then turn to the third stage.

However, in PGMOL, the Supreme Court said that was not the end of the story. Specifically approving the Court of Appeal’s judgment in Atholl House, the Supreme Court held: “It is not the case that once the pre-conditions of mutuality of obligation and control are satisfied, they drop out of the picture as relevant factors”.

In other words, mutuality of obligation and control are to be taken into account in whether the ‘third stage’ has been met. The Supreme Court noted that if the mutuality of obligation and control tests have only just been met, the low levels of mutuality and control would be relevant factors to consider at stage three of Ready Mixed Concrete in determining if there is an employment contract.

How was the matter considered by the lower courts?

Let’s start with mutuality of obligation. Mutuality of obligation is the duty to provide work in return for a fee. HMRC’s position on mutuality of obligation is as set out in their manual at ESM 0543: “Where a worker undertakes duties for an engager and the engager pays the worker for undertaking the work then there will be sufficient mutuality of obligation for a contract to exist”. In other words, where an individual is engaged in payable work then there is automatically mutuality of obligation, in HMRC’s view.

HMRC’s approach has been regarded as being highly controversial. Some practitioners have taken the view that there must be something more than the performance of work for there to be mutuality of obligation.

Before the First Tier Tribunal (FTT), HMRC took the approach set out in the manuals and adopted the position that once an individual started refereeing a match there was mutuality of obligation. Say that an individual referees four matches in a season then there would be four contracts of employment.

The FTT disagreed with HMRC’s approach. It took the view that for there to be mutuality of obligation you could not just look at the performance of the work and there had to be some type of contractual framework outside the performance of the work. The FTT noted that as an individual could withdraw from the contract with the company PGMOL before the match day without sanction there could not be mutuality of obligation.

The FTT also considered the question of control. The FTT noted that once a match was underway, the company PGMOL could not tell the referee what to do and concluded that it did not have control of the referee. This might be a little unorthodox, as we will consider below the threshold for determining if an individual is under control of a person is quite low, where the relevant individual is a specialist.

The matter then went before the Upper Tribunal (UT). The UT upheld the FTT on the mutuality question but disagreed with it on control. The UT’s judgment still meant that the referees could not be treated as employees of the company PGMOL because the mutuality condition has not been met.

The matter was then heard by the Court of Appeal. It took an HMRC-friendly view of mutuality of obligation holding that a short-term engagement could be treated as an employment in its own right and then referred the matter to the FTT to confirm whether there was sufficient mutuality in the engagements in question. The matter was then appealed to the Supreme Court.

What did the Supreme Court say about mutuality of obligation?

The Supreme Court agreed with HMRC’s view on mutuality of obligation. One of the reasons why it reached this view was via its interpretation of the judgment in Nethermere v Gardiner [1984] ICR 612. Here seamstresses did part-time projects for a company. To qualify for employment rights, they had to work for the company for a continuous period of, say, two years. It was held that this two-year period was not met. The Supreme Court held that the correct construction of this case was that as there was no obligation to offer repeat projects the projects could not be aggregated in determining if the two-year threshold was met; the authority did not support the proposition that individual engagements could not be treated as contracts of employment.

The Supreme Court concluded that mutuality of obligation existed from when the referee turned up for work on Saturday. In other words, when you are working there is mutuality of obligation. The fact that the referee could withdraw without sanction before the match was not relevant.

The Supreme Court reached this view, in part, because the quality of the mutuality could be thrown into the mix in determining if the third stage of the Ready Mixed Concrete test has been met.

What did the Supreme Court decide on control?

The Supreme Court held that the PGMOL company had control of the referees.

The Supreme Court approved Zuijs v Wirth Brothers Proprietary (1955) 93 CLR: “What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters”.

Zuijs concerned the activities of an acrobat in a travelling circus: “The duties to be performed may depend so much on special skill or knowledge or they may be so clearly identified or the necessity of the employee acting on his own responsibility may be so evident, that little room for direction or command in detail may exist. But that is not the point. What matters is lawful authority to command so far as there is scope for it. Even if Mr Philip Wirth could not interfere in the actual technique of the acrobatics and in the quality of the act, no reason appears why the appellant should not be subject to his directions in all other respects”.

The key point here is that so long as the hirer can command in certain areas then it has control for the purposes of the second Ready Mixed Concrete test.

Self-evidently the PGMOL company could not exercise control over what referees actually do in matches. However, the referees were signed up to a code of conduct. Further, the PGMOL company had the opportunity to remove them from the pool if they underperformed. Therefore, the PGMOL company had control over the referees for the purposes of this test.

In reaching this conclusion the Supreme Court had regard to the point that control would be thrown back into the mix for the purposes of limb three of the Ready Mixed Concrete test.

So, what did the Supreme Court not decide?

Unfortunately, the Supreme Court noted that there had been no discussion of the third Ready Mixed Concrete test in the lower courts and referred the matter back to the FTT.

Why is the Supreme Court judgment in PGMOL important?

The Supreme Court has confirmed HMRC’s view, as set out in the manuals, that when work for payment is underway there must be mutuality of obligation.

The Check Employment Status for Tax (CEST) tool is an online checklist provided by HMRC to determine employment status. HMRC has indicated that it will stand behind the results, so long as the test has been taken fairly. The CEST tool is predicated on the assumption that as soon as there is work there is mutuality of obligation. Many practitioners have argued that this is not correct and have held that there has to be some type of contractual obligation apart from the performance of the work. This has enabled them to take a filing position that the result given by CEST can be distinguished once mutuality has been put into the mix. The CEST tool is correct on this point and this argument can no longer be run.

The mutuality point is very important for casuals. Let’s say that you have a retired county cricketer. The cricketer has a casual association with a local league club and the individual turns out for them two or three times a season. Unfortunately, the club will no longer be able to argue that the cricketer has failed the first limb of the Ready Mixed Concrete test and will have to consider whether the individual has failed the second or third limb of this test.

The control point is very relevant for the hire of specialists. Certain specialists have argued that their skillset means that they are not under the control of their hirer. However, by emphasising that control exists in the Ready Mixed Concrete sense, if control can be exercised in some but not all areas, the Supreme Court has weakened the likelihood of this argument being used successfully.

So where are we now? After the twists and turns before the courts, we know that the following are the rules:

1. The tripartite test in Ready Mixed Concrete is good law.
2. The bar for the mutuality of obligation and control tests applying has been set at a low level.
3. The third multifactorial limb of Ready Mixed Concrete takes on great significance in answering questions of employment status and, in applying the third limb, you can have regard to the strength or otherwise of the mutuality of obligation or control in weighing up the different factors.