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Employment tribunal case puts spotlight on IFA status

Lawyers and advisers say the recent employment tribunal ruling that a self-employed adviser has employed status could have big implications for the market.

Last month, a Southampton employment tribunal heard the case of Johnson-Caswell v MJB (Partnership), with Johnson-Caswell, an IFA, bringing complaints for unfair dismissal, unpaid wages and breach of contract after being made redundant by MJB in March.

A pre-hearing review was held to establish whether Johnson-Caswell was employed by MJB. Johnson-Caswell’s contract stated that he was self-employed but Employment Judge Kolanko ruled that MJB exerted sufficient control over Johnson-Caswell for him to be considered employed.

The judgment says Johnson-Caswell was obliged to comply with MJB’s training and supervision requirements, as a result of FSA rules, and was thus employed by the firm.

As this is a tribunal pre-hearing decision, other tribunals do not have to follow it. However, Foot Anstey professional support lawyer Susie Halliday says if other tribunals do take the same approach, it could have significant consequences for IFA firms operating a self-employed model.

She points to the fact that self-employed consultants could be protected from being unfairly dismissed after one year’s service, rising to two years from April 2012.

She also warns there could be scope for HM Revenue and Customs to use this decision in similar cases to argue that an employer/employee relationship exists for tax purposes, with the associated PAYE and National Insurance consequences for an employer.

“Contractual arrangements between IFAs and firms should be reviewed with appropriate indemnities put in place to manage this risk,” she says.

St James’s Place, which operates a self-employed model, says it is confident that the result of the tribunal is specific to the details involved in the case and that any implications should not affect St James’s Place.

Marketing director Tony Dunk says: “SJP is confident there will be no implications with regard to any self-employed advisers associated with the firm.”

Halliday says there are some “atypical factors” in this case, such as the substantial amount of leads provided by MJB – between 50 per cent and 70 per cent – and the strength of the restrictive covenants in place.

However, many of the factors used to establish “control”, and thus an employed relationship, were based on FSA requirements and standard clauses in adviser contracts.

Pinsent Mason partner Bruno Geiringer says: “While this case does not amount to a leading authority in this area, it does show that labels in contract documentation and titles are not enough to determine employment status. This case is a good reminder for IFA firms to check closely both their contracts and what happens in practice to avoid getting a large NI and tax bill.”

PMI Independent Financial Advisers director John Stewart says: “It certainly would seem that firms will probably shy away from having self-employed arrangements because the liability is not worth the risk.”

Syndaxi Chartered Financial Planners managing director Robert Reid (pictured) suggests the implications could extend outside financial services to law firms or accountancy firms where a self-employed model is in regular use.

He says: “This has been under the spotlight in the past and is something that people are looking at and examining the possible repercussions.”

Positive Solutions, which operates a self-employed model, declined to comment on any possible implications.

Legal & General, which also operates a self-employed model for mortgage and protection advisers, says it is consideringthe impact of the judgment.

Key facts of the tribunal ruling

  • Employment tribunal ruled that IFA Johnson-Caswell was employed by MJB (Partnership) even though his contract stated he was self-employed
  • Tribunal ruled that MJB exerted sufficient control over Johnson-Caswell for him to be considered employed as he had to comply with MJB’s training and supervision requirements
  • Decision does not set a precedent but could have implications for self-employed IFAs and firms operating self-employed business models if other employment tribunals take the same approach
  • Decision does not change the law but flags the issue of the employer/employee relationship as a grey area
  • Opens up argument for self-employed advisers to have same legal protection as employees such as protection from unfair dismissal after one year’s service
  • Self-employed advisers could be entitled to up to £12,000 for unfair dismissal and up to £68,400 for loss of earnings
    lFirms could face a liability for unpaid National Insurance contributions and PAYE tax. If a tribunal judges self-employed advisers to be employed, big networks, in particular, could have to pay significant sums for underpaying tax.


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