Employment status: Does it really matter in sport?

Why is employment status important?

Whether someone is an employee, worker or self-employed determines the rights they have and, in turn, the obligations that an organisation owes them. Some crucial differences between the different categories include:

• Self-employed staff and workers are not protected from dismissal in the same way employees are. Employees with two years’ service can only be dismissed for certain “fair reasons” following a fair process and they are also entitled to statutory redundancy payments.
• Employees and workers are specifically protected against discrimination in the workplace, something which Jonas Gutierrez relied on in his successful disability discrimination claim against Newcastle United.
• Employees (and workers to a more limited extent) are eligible for a range of statutory rights and protections, including the right to paid holiday, sick pay, parental leave and pay, the National Minimum Wage (NMW), enrolment in a pension scheme, and limits on the hours they can be required to work.
• Self-employment is not subject to income tax or National Insurance Contributions (NICs) in the same way as employment. Whilst this can be a significant attraction of self-employment, HMRC are increasingly challenging self-employment contracts which are disguising employment relationships in practice.

Sporting organisations are unique and, more so than other businesses, engage a wide variety of staff, ranging from athletes to administrative support staff. Miscategorising the employment status of any of these staff carries potentially significant risks. For example, if a professional football club incorrectly considered certain specialist analysts or technical coaches to be self-employed, it could suddenly be faced with significant financial liabilities and reputational damage if those specialists sought to assert their employment status through the courts. Individuals and organisations may also face the prospect of being required to repay significant amounts of unpaid income tax and NICs if any staff are found to have been taxed on the wrong basis.

How do you determine employment status?

Whether someone is an employee, a worker or self-employed is fundamentally a legal question. The answer will always depend on a variety of factors and, crucially, goes beyond what is written in the contract.

At its simplest, someone is likely to be an employee if:

• They are required to perform work personally (i.e. they cannot send a substitute to perform the work).
• There is “mutuality of obligation” (i.e. their employer is obliged to offer work and they are obliged to accept that work).
• Their employer exercises control over how they perform their job (e.g. any control over their day-to-day activities or any restrictions on what other work they can do when not working for their employer).

Worker status is a slightly easier bar to meet, as the test focuses mainly on the question of whether someone is required to perform work personally and less on whether there is mutuality of obligation or control.

For someone to sit outside of either employee or worker status and be truly self-employed, they will need to effectively run their business for themselves, be responsible for its success or failure and have freedom over how they operate.

How does employment status impact sport?

Employment status is just as relevant in sport as it is in any other industry. Whilst media coverage on this issue in a sports context has tended to focus on the employment of status of athletes (given their profile), sports organisations engage with a range of staff in different ways, all of whom will have a certain status for employment law purposes. For example, whilst a professional football club almost invariably requires its players, managers and coaches to sign up to short fixed-term employment contracts, non-football staff might be engaged on permanent employment contracts, on a consultancy basis, via an agency or as casual workers. The employment status of a sports organisation’s different staff will not always be straightforward, as demonstrated by some of the examples below.

Professional athletes – The employment status of most professional athletes will be fairly obvious. A professional football club unsurprisingly treats its players as employees, given the level of control that it needs to have over its players’ training schedules and other day-to-day activities. Conversely, professional athletes in individual sports, such as tennis or golf, are typically much more able to determine their own training and competition schedules and are therefore more likely to be self-employed. This point has been made recently by LIV’s golfers, who argue that their status as independent contractors allows them to participate in golf events away from the PGA Tour.

Whilst the employment status of athletes is often clear, the judgment in Jess Varnish’s legal claim that she was an employee or worker of British Cycling has muddied the waters somewhat, particularly for athletes funded by sporting federations. Although Varnish’s claim was ultimately unsuccessful on the specific facts of her case, the Employment Appeal Tribunal (EAT) did open the door for similar claims in the future. The EAT was very clear that, in slightly different circumstances, a funded athlete in Varnish’s position could certainly be considered an employee or worker and entitled to a range of employment rights previously not reserved for these types of athletes.

Referees and officials – Most sports require some form of officiating, whether from referees, umpires or judges. The way in which these officials are engaged varies across sports, but their employment status will not always be obvious. A 2021 Court of Appeal (CoA) case involving football referees engaged by Professional Game Match Officials Ltd (PGMOL) demonstrates how easy it is for organisations to miscategorise these types of officials. These referees were engaged on a casual basis to officiate English Football League matches as and when agreed with PGMOL, with most of them only refereeing part-time to supplement other full-time roles. Despite the casual nature of their arrangements and the fact that the contracts did not require PGMOL to actually select referees to officiate any matches, the CoA found that PGMOL exercised significant control over the referees whenever they were selected. Amongst other things, PGMOL’s requirements for referees to comply with a code of conduct, match-day procedures and fitness standards meant that they could be considered employees for tax purposes. The CoA has referred the case back to the original tax tribunal to reconsider its verdict, which could now result in landmark decision on employment status.

TV and media presenters – There have been numerous high-profile examples in recent years of sports broadcasters and media organisations engaging with presenters on a self-employed basis, only for HMRC to later conclude that the presenter was employed and therefore subject to income tax and NICs. Where this is the case, the financial liabilities for the presenter (and potentially the organisation if appropriate tax indemnities have not been agreed with the presenter) can be eye-watering. Sky Sports commentator Alan Parry was recently required to repay over £356,000 in unpaid income tax and NICs relating to a five-year period during which HMRC found that he had been Sky’s employee, rather than a self-employed contractor. Even though Parry engaged with Sky as an independent contractor via his personal service company, HMRC looked beyond the contract and found that he was effectively in “disguised employment” with Sky, something which has become more common since the introduction of the IR35 tax rules governing off-payroll workers. The fact that Parry had spent the previous 26 years working almost exclusively for Sky was particularly relevant in determining that he was Sky’s employee. This type of exclusivity is not uncommon in arrangements between broadcasters and presenters and HMRC is likely to continue to focus on this area.

Event staff and volunteers – Organisations who arrange major sporting events regularly rely on temporary staff to fill various event-specific positions, including stewards, ticket officers and hospitality staff. These staff are often hired as casual workers who will be assigned shifts as and when required. Whilst these staff will typically be engaged as “workers”, the reality of what organisations need from them can result in them having employee status. For example, tournament organisers generally need certainty around the scheduling of their staff and they may therefore require temporary staff to work any shifts they are allocated (or risk being penalised for failing to attend). Whilst this provides an event organiser with helpful certainty, it is also more indicative of an employment relationship and could entitle temporary staff to a range of additional rights and protections, regardless of what the contract says. Where event organisers use unpaid volunteers but exercise control over how they work (e.g. insist on particular shift times, hours or uniform), the risks are potentially even greater. If volunteers are found to be employees or workers, the liability for failure for failure to pay them the NMW alone could be significant, even before considering the other rights and protections they would be entitled to.

What should sports organisations do?

At its core, employment status is determined by a legal test which goes beyond what is simply written in the contract. Organisations that think carefully about what they need from their athletes and staff will put themselves in the best position to structure their contractual and practical arrangements appropriately and reduce the risk of challenge later down the line. Some immediate practical steps organisations can take include:

• Putting in place formal processes and reminders to consider the most appropriate form of engagement for any new recruits (e.g. employment would be most appropriate where an organisation needs to control and direct someone’s day-to-day activities).
• Reviewing and monitoring the working arrangements of existing staff to ensure they are treated in line with the correct employment status.
• Taking legal advice on any borderline cases where employment status is less clear or where self-employed contractors seek to contract via personal service companies.
• Drafting appropriate indemnities in contracts to mitigate against the risk of tax liabilities or employment claims arising from an incorrect assessment of employment status.
• Being aware of the latest developments on employment status and seeking advice where necessary on any changes that may impact their staff.