Right to reside and self-employment: a review

Issue 220 (February 2011)

Martin Williams looks at some of the issues for claimants arguing a right of residence sufficient to claim means-tested benefits based on self-employment.

Introduction

There have been a number of recent judgments which concern the rights of residence obtained by EEA nationals who are, or have been, self employed in the UK. Although the judgment in the case of Tilianu (see below) is not helpful to A8/A21nationals who have been self employed, it is important that advisers understand the wider context of EEA law on self-employment so that they can advise on whether a claimant really is negatively affected by Tilianu.

Tilianu: the judgment

In R (Tilianu) v Secretary of State for Work and Pensions [2010] EWCA Civ 1397, the claimant was an A2 national who, it appeared, had been self-employed before becoming unemployed. A claim for a crisis loan and jobseeker’s allowance were both refused on the basis that he did not have a right to reside and resulted eventually in his case coming before the Court of Appeal. Mr Tilianu argued that he had a right of residence on the basis that he retained the status of a self-employed person because he was in duly registered involuntary unemployment. The High Court had held this was not the case because only workers could retain their status in this way when they became unemployed. This was the issue before the Court of Appeal: whether a self employed person could retain their status (and the right to reside that goes with it) on the basis that they came within sub-paragraphs (b) and (c) of article 7(3) of EC Directive 2004/38. These are as follows:

'3. […], a Union citizen who is no longer a worker or self-employed person shall retain the status of worker or self-employed person in the following circumstances:

(a) […];

(b) he/she is in duly recorded involuntary unemployment after having been employed for more than one year and has registered as a job- seeker with the relevant employment office;

(c) he/she is in duly recorded involuntary unemployment after completing a fixed-term employment contract of less than one year or after having become involuntarily unemployed during the first twelve months and has registered as a job-seeker with the relevant employment office. In this case, the status of worker shall be retained for no less than six months.'

The main arguments in the case, as reported by the Court, seem to have been on the wording of other language versions of the directive and the context in which words such as “unemployment” and “employed” are used in other parts of the directive. There seems to have been little attention given to the purpose of the Directive. In Pedro v SSWP [2009] EWCA Civ 1358, the Court had said that:

'if a particular interpretation of the Directive would mean that a national of a Member State might realistically be discouraged from leaving that state and going to another Member State to work or if, when working or having worked, in another Member State, he might be encouraged to leave, that would not be consistent with the purpose of the Directive, or give effect to it.'

It is easy to see that a person might realistically be discouraged from coming to the UK from another EU state in order to set up a business if they knew that they would not keep the right to reside that comes from being self employed (and the right to equal treatment that accompanies that right) in the event their business failed and they were forced to look for work as an employee and sign on. Nor did the Court consider a number of cases from the ECJ which indicate that the rights of workers and the self-employed are fundamentally the same (see Bulletin 218, p. 10).

Nonetheless, the Court held that a self employed person who becomes unemployed and signs on does not retain their status as a self employed person. Until the Supreme Court or the ECJ gives a different decision on this issue then the decision in Tilianu will be followed.

Tilianu: problems caused

So the outcome is that following Tilianu someone who was self employed and then ceases to be so, cannot retain the status of self employed person (and the corresponding right of residence) when they are involuntarily unemployed and registered at the jobcentre in that capacity. That affects claimants negatively in these three situations:

  • A8 and A2 nationals, who if they were to obtain work would be required to register or be authorised to do that work, and consequently who do not have rights of residence as jobseekers, will not be able to claim JSA on the basis they are retaining self employed status. Thus even where, for example, an A8 national has worked in the UK on a self employed basis for several years and that business fails they do not retain a right of residence as a self employed person, and an A8 national required to register cannot have a right of residence as a jobseeker.
  • The family members of an EEA national who was previously self employed, but whose business has failed, and who has now signed on, will find it difficult to argue they have a right of residence on the basis they are the family member of a person who retains the status of self employed person (and being the family member of a “mere jobseeker” does not in general count as a sufficient right of residence to obtain benefits).2
  • EEA nationals wanting to argue a permanent right of residence due to having resided in accordance with EEA law for the preceding 5 years will struggle to establish the permanent right in situations where their situation in some of that 5 year period falls within either of the two situations described above.

It is important to note that from 1 May 2011, A8 nationals must be treated in the same way as nationals of any of the older EU states. So from then onwards A8 nationals will have a right of residence as jobseekers (regardless of whether they have ever worked in registered work or not).

Self Employment – generally

Claimants often think (and say to the DWP) that they are or have been self-employed when, properly considered, they have in fact always been workers. This is particularly the case in the construction industry where “self employed contractors” turn out in fact to be workers. Whether or not a claimant was actually self-employed as opposed to being a worker seldom seems to be an issue that is actively examined by decision makers or indeed First-tier Tribunals. It is important that advisers understand the difference between the concepts in light of the Tilianu judgment that the situations in which each group retains status are different.

The European Court of Justice has made it clear that the meaning of “self employment” (“providers of services”), just like the meaning of “worker” for the purposes of EU residence rights is a concept which has an EU meaning: in other words it is defined and understood by reference to ECJ case law. The ECJ has defined the concept of self employment as any economic activity that is not clearly employment. So to understand who is self-employed it helps to start off with an understanding of who is a worker:

A “worker” is someone in an employment relationship. That is, a person is a worker if they:

  • provide services;
  • in return for remuneration;
  • under the direction of another person.3

The only further requirement to count as a worker is that the work entails “effective and genuine activities”, as opposed to activities that are “marginal and ancillary”.4

The ECJ defines a self employed person as anyone who provides services in return for remuneration not under the direction of another person.5Again there is a requirement that the work as a self employed person be genuine and effective.

Just as with workers, the fact that the income from self employment means the claimant remains dependent on means tested benefits is irrelevant to whether the activities are genuine and effective as opposed to marginal and ancillary.6

Advisers may come across people who describe themselves as “self employed” and even pay self employed NI contributions but when considered under the above test (i.e. effectively- do they have a boss?) clearly should be considered to be workers.

A8/A2 Nationals and self employment

Nationals of A8 or A2 states have exactly the same rights of residence in their capacity as self-employed persons as do nationals of any of the other EU states: CIS/1042/2008. They are not required to register their self employment with the Home Office etc.

Starting Self Employment

It is clear from UK case law. that someone who is “taking steps” towards establishing themselves as self employed will have the status of a self-employed person:

  • R(IS)6/00 held that the crucial factor was ‘whether the person is taking steps towards offering services to the public, or otherwise setting up as a self-employed person’ (para. 31).
  • TG v SSWP [2009] UKUT 58 (AAC)7 where the claimant had not registered with HMRC, had been setting up the as a self employed interpreter for only 2 months and had at the date of decision failed to make any profit at all- the claimant was still held to be self employed.

Note that the DWP guidance to Local Authorities on HB/CTB implies that to be accepted as a self-employed person they will need to see proof of an actual business that is up and running.8That is incorrect given that the case law indicates that someone who is doing things to set themselves up as self employed has that status.

It is important to note the finding in TG v SSWP [2009] UKUT 58 (AAC) that a failure to register with HMRC for tax purposes did not mean a person could not be self employed (although it might count as evidence that they may not be).

Self Employment ending

With workers it is relatively easy to define when someone ceases to be a worker- when the employment relationship ended. Things are more difficult with the self-employed. For example, a self-employed carpenter may have a period between contracts (e.g. where no work is coming in) but one would still describe them as self-employed.

In SSWP v JS (IS) [2010] UKUT 240 (AAC), the Upper Tribunal held that it is not the case that a person who is doing no work at a particular time cannot be a self employed person at that time. The judge states:

'I do not accept that a claimant who is for the moment doing no work is necessarily no longer self-employed. There will commonly be periods in a person’s self-employment when no work is done. Weekends and holiday periods are obvious examples. There may also be periods when there is no work to do. The concept of self-employment encompasses periods of both feast and famine.'

The question of whether or not a person remains self employed during a period of “famine” will depend on the specific facts of the case:

'The amount of work is one factor. Whether the claimant is taking any other steps in the course of self-employment is also relevant. The claimant’s motives and intentions must also be taken into account, although they will not necessarily be decisive.'

So in any case where a person is “between jobs” on self-employment it is worth considering whether or not it can be argued that they are in fact still self-employed (are they still taking steps to find more self-employment etc, is this normal for them and so on).

Similarly, in CIS/1042/2008 it was held that a woman who was taking time out from self-employment due to maternity still counted as self employed.

Tilianu: reconsidered

The case of SSWP v JS (IS) [2010] UKUT 240 (AAC) provides a useful way of considering cases in the wake of Tilianu. In the Court of Appeal case there was no argument put that Mr Tilianu was still self employed when his benefits were refused. Following that decision it is, at least for the moment, clear that a person cannot retain their status as a self employed person through signing on for JSA. However, it is clear following SSWP v JS (IS) that in many cases the issue is not whether or not the claimant retains the status of self employment but whether they are still actually self employed.

If that is arguable on the particular facts of a case (i.e. where the claimant is looking for more self employed work etc) then the negative consequences of Tilianu may be avoided. This was the situation in SSWP v AL (JSA) [2010] UKUT 451 (AAC)

Formerly self employed: children in education

It is now firmly established that someone who is the primary carer of the child of a person who is or has been a worker, where that child is receiving education, has a right of residence (see Bulletin 218, p. 10). The question of whether or not this right of residence for a primary carer also extended to situations where the child receiving education was the child of someone who had been self employed is being referred to the ECJ by the Upper Tribunal in a case where CPAG are the representatives (file reference CIS/2357/2008). Claimants whose only right to reside depends on a positive outcome from that reference should in the meantime argue that they have a right to receive some form of interim payment pending the judgment of the ECJ and their advisers should contact CPAG if such payments are refused by the DWP.

Self employed: a structured approach

Bearing in mind all of the foregoing, advisers may find it helpful to think through cases where a claimant has or appears to have been self employed and a right to reside depends upon this in the way set out below. Of course a particular claimant may have other rights of residence (e.g. through family members who are workers or a permanent right of residence etc). This checklist only helps to determine whether or not a claimant has a right of residence on the basis of self employment.

Work through the following questions:

  • Was the person really self-employed? If not, then consider what rights they may have as a worker. Note that for A8s and A2s who were not truly self employed then issues will arise as to whether or not the work was or should have been registered/authorised.

 If the person’s activity was truly on a self employed basis, then consider the following:

  • Is the person only setting up in self-employment? Have they taken sufficient steps to show they are self-employed.
  • Is the activity genuine and effective as opposed to marginal and ancillary? If so then the person was at that point self employed.
  • If no work is being done at present, following a period where the person was doing work on a self employed basis, then can it be argued that the person is still self employed? This argument will be viable if:

The claimant is on a period of “maternity leave” and intends to return to self-employment;

The claimant is temporarily without work but is taking steps to obtain more work.

  • If it cannot be argued that the person is still self employed, can it be argued that despite this they retain their status as self-employed on the basis of temporarily being unable to work due to illness?
  • Failing all of the above, can it be argued that despite no longer having a right of residence as a self employed person, there is a right of residence as the primary carer of a child who has lived in the UK whilst their parent was self employed and is currently receiving education?

It is only if no right of residence can be found on the basis of any of the above routes that the claimant is forced into the position of having to dispute the correctness of the decision in Tilianu.

 


Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.

  • 1. A8 = Estonia, Latvia, Lithuania, Poland, Czech Republic, Slovakia, Hungary and Slovenia. A2 = Bulgaria and Romania.
  • 2. Reg 21AA(3)(b)(ii) Income Support (General) Regs 1987 (SI 1987 No. 1967) – similar provisions for ESA, PC, HB and CTB exist.
  • 3. C-66/85 Lawrie-Blum [1986] ECR 212
  • 4. C-53/81 Levin [1982] ECR 1035
  • 5. Para 34 Jany Case C-268/99
  • 6. Kempf C139/85
  • 7. This citation has been edited (19 June 2013) to correct it- the original citation gave CIS/3217/2007. It should have been CIS/3213/2007 which is the file number for TG v SSWP
  • 8. Housing Benefit Guidance Manual Part C4 Annex B at paragraph 33. Almost identical text is found in HB/CTB circular A9/2006 at paragraph 47.