With the continuing rise of the gig economy and flexible working models, a recent decision from the Employment Appeal Tribunal (EAT) in Partnership of East London Co-operatives Ltd v Maclean [2025] EAT serves as an important reminder for both contractors and businesses understanding and accurately documenting the true nature of a working relationship is crucial.

This judgment underscores just how critical it is to ensure alignment between contractual terms and the reality of day-to-day working arrangements.

The Case

In this case, a nurse (M) provided services via her personal service company (PSC) as a “clinical streamer” for PELC Ltd. Although M had set up the personal service company solely as a payment vehicle at PELC’s request, the employment tribunal initially found that she was both an employee and a worker of PELC Ltd.

PELC appealed the decision.

The EAT agreed that the contract was with M personally (rather than with her personal service company) but concluded that the tribunal’s findings, that she was a worker and an employee were insufficiently reasoned and not adequately supported by the evidence.

Key Takeaways

Mutuality of Obligation

The EAT found that the tribunal had failed to properly analyse whether mutuality of obligation existed between M and PELC.

Mutuality of obligation: the obligation on the employer to provide work, and on the individual to accept it, is a core requirement for employee status, as established in Ready Mixed Concrete (South East) Ltd.

In this case, the evidence showed that M bid for individual shifts, and PELC had no obligation to offer her work. Likewise, M had no obligation to accept any particular assignment. This arrangement is inconsistent with continuous employment and more akin to casual or freelance engagement, where mutuality exists only during individual assignments, not between them.

The tribunal’s conclusion that there was an ongoing employment relationship was therefore inconsistent with both the contractual framework and the factual evidence.

Personal Service and Substitution Clauses

A key factor in distinguishing between employees, workers, and self-employed contractors is the requirement of personal service.

The tribunal had dismissed the contractual substitution clause, which permitted M to send a suitably qualified substitute as “impracticable”. However, the EAT held that the tribunal had not adequately explained why it was impracticable, nor why the existence of the clause should be disregarded simply because it was unused.

In line with authorities such as Autoclenz and Stuart Delivery, tribunals must examine whether the right of substitution is genuine and exercisable in practice. A truly unfettered substitution right, which allows the individual to appoint someone else without significant restriction can demonstrate absence of an obligation of personal service. However, a restricted or conditional substitution clause that leaves the individual effectively required to perform the work personally is unlikely to do so.

Here, the EAT reminded tribunals that substitution clauses cannot be discounted merely because they have not been relied upon, their legal effect must still be evaluated in context.

Personal Service Companies (PSC) and the Substance-Over-Form Principle

The fact that an individual provides services through a personal service company does not automatically determine employment status, but it is a relevant contextual factor.

In this case, M’s personal service company had been set up at PELC’s request purely as a payment mechanism. The tribunal accepted this but still found M to be an employee of PELC personally.

The EAT took a nuanced view: while the existence of a personal service company does not prevent a finding of worker or employee status Cable & Wireless plc v Muscat [2006], tribunals must carefully analyse who the contracting parties are and whether the true agreement reflects employment rather than commercial engagement.

The EAT reaffirmed that tribunals must not simply disregard contractual arrangements unless there is clear evidence that they are a sham or misrepresent the true intentions of the parties. This reflects the principle in Autoclenz, which allows courts to look behind written terms, but only where there is evidence of inequality of bargaining power or deliberate mischaracterisation.

The Tribunal’s Duty to Give Clear Reasons

Finally, the EAT was critical of the tribunal’s reasoning. Where a tribunal departs from the written terms of a contract and finds employee or worker status contrary to those terms, it must provide a clear and reasoned explanation of why the contract does not reflect the true agreement between the parties.

Failure to do so risks the finding being overturned on appeal, as occurred here.

Status determinations are fact-sensitive and must tie evidence back to:

Employee status: Ready Mixed Concrete (contract of service: personal service, control, and terms consistent with employment).

Worker status: ERA 1996 s.230(3)(b) (limb (b)) applied with cases such as Byrne Bros v Baird (client/customer analysis) and later Supreme Court authorities; Uber BV and others v Aslam and others [2021], Pimlico Plumbers Ltd and another v Smith [2018] and Court of Appeal case Nursing and Midwifery Council v Somerville [2022]

Indicators of self-employment: absence of personal service e.g., genuine substitution, operating on one’s own account, and the broader multi-factor analysis mutuality, control, and consistency of terms with independent contractor status.

Why It Matters

This case is a timely reminder that if the reality of the working relationship differs from the written terms, or if a personal service company is used without clarity over its role, both parties face risks around:

• Employment rights and protections
• Tax treatment
• Potential liability

Practical actions

• Use a services contract for contractors; avoid employment-style terms (discipline, sick pay, holiday).
• If relying on substitution, make it real: define qualifications, approval mechanics and fees.
• For casual/shift models, document the lack of obligation between assignments and how work is offered/accepted.
• Keep operational controls proportionate (branding, pricing, process rules) to avoid creeping “control/integration”.
• With PSCs/IR35, identify the hypothetical direct contract and test mutuality, control and substitution against practice.

Bottom line

Employment status is fact sensitive. Clear, well-drafted contracts that accurately reflect working practices are essential to avoid disputes, litigation, and unexpected costs.

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Full judgment: Partnership of East London Co-operatives Ltd v Maclean [2025] EAT 142

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