Right of Dismissal as an IR35 Factor

Right of Dismissal
Right of Dismissal as an IR35 Factor

Right of Dismissal

The right of dismissal is the right of employers to terminate the employment of one of their employees. They must give statutory notice and follow all the correct procedures. The less this applies to a contractor or freelancer the better. Contractors are normally brought in to provide a service with an end in mind, e.g. the end of a project. It is best if the contractor does not have a mutual contract termination period in the contract. It is sometimes called the right of termination.

The only reason that a contractor would have his or her contract terminated, normally, would be if he or she was in breach of the contract.

Right of Dismissal as Pointer to IR35

People look upon the Right of Dismissal as a pointer towards IR35. However, it is not a strong one. The Right of Dismissal is more common in a contract of service (between an employee and an employer). The contractors should have a contract for services (between a supplier and a customer).

An employee, who works for someone else, works for them until they decide that they don’t want to. They then give notice whether the work they are doing is complete or not. It works the same way the other way around with the employer able to give an employee notice.

Contract for Service

However, the relationship between a customer and supplier is different. The contract tends to be for something that it is to be delivered. So, the supplier does not fulfil that until the service or product is delivered.

For example, if you got a window cleaner in and he gave you two windows notice after cleaning 4 of your 10 windows you would feel that he hadn’t fulfilled the contract. So, you would not be willing to pay him.

If you hired a plumber to fix a leak, and he gave you 20 minutes notice that he was going to go whether the leak was fixed or not you, would not be best pleased or willing to pay.

If a woman was getting her hair done and it was supposed to take 3 hours and the hairdresser gave her 20 minutes notice after 40 minutes there would be hell to pay for. As a result of that, the hairdresser may have other things to worry about than getting paid.

Project Duration

So, when something is delivered, contracts for services are fulfilled . You are more likely to be outside IR35 if you are hired for the duration of a project. It is better if they can get rid of you if the project finishes early.

You are also more likely to be outside IR35 if you do at least some of the work for a fixed price. That’s so that you have to deliver something before you fulfill your part of the contract.

However, if you work on the basis that you or they have to give notice, and there is no delivery to fulfill, the contract then this would be a pointer towards IR35.

Provision for Early Finish

It would help if you had a provision in your contract where the client could stop paying you. If you had a provision that the client could get rid of you early if the project finished early that would help. As we all know, companies never finish projects early.

However, a provision that the client could also get rid of you immediately, without compensation, if the project got cancelled would be helpful. An employee would have to be found some more work or given notice. Therefore you are differentiating yourself from them.

And that is what it is all about.

For all the major and minor IR35 factors click on IR35 Factors

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