2011 02 Welfare Benefits

Tuesday 1 March 2011

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Case law

Can a self-employed person retain the status of a worker under Article 7(3) of the Citizens’ Directive?

In R(Tilianu) v Secretary of State for Work and Pensions [2010] EWCA Civ 1397, (8 December 2010), the Court of Appeal dismissed the claimant’s appeal against the decision of Deputy Judge Symons QC ([2010] EWHC 213 (Admin), in which it was held that an EU citizen who is no longer a self-employed person did not retain the status of a worker in the circumstances described in article 7(3) of Directive 2004/38 by virtue of his previous employment as a self-employed person. Article 7(3) reads:

“For the purposes of paragraph 1(a), 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) he/she is temporarily unable to work as the result of an illness or accident;

(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 a 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;”

In the court below Deputy Judge Symons QC held:

“… [T]he wording of the Directive is not apt in Articles 7(3) (b)-(d) to cover self- employed persons. A distinction is drawn between workers, and having the status of worker on the one hand and self-employed persons on the other. That distinction is made in Article 7(1) and 7(3). Where "status of worker" is used in Article 7(3) it is referring to someone in employment as opposed to a self-employed person. When the same phrase is used in Article 7(3)(c) and (d) in my judgment it has that same meaning. The use of the words "involuntary unemployment" in sub-article (b) is not apt for those who have been self-employed and in any event it is followed by the words "having been employed for more than one year". A "jobseeker" is a person seeking employment rather than self-employment. Similar points can be made in relation to (c).

The claimant sought a declaration that self-employment came within the meaning of "employment" in article 7(3)(b) and (c) of the Directive. The claimant made the following submissions:-

the construction adopted by the court below is incompatible with other versions of the Directive. For instance, the use of the noun ‘travailleur’ in the French text of paragraphs 1(a) and (3) to describe both classes of beneficiary pointed towards a single class which carried through to (b) and (c);

  • paragraph (3)(a) plainly refers to both classes of claimant;
  • the meaning of article 7(3)(c) should be enlarged to include both the employed and self-employed having regard to the rest of the Directive including its preamble, the travaux préparatoires and the antecedent history;
  • adopting the lower court’s meaning would have the unedifying result that if X was working on his own account as a taxi driver and employing his brother Y in his business, and if their vehicle was wrecked, putting them both out of work, Y would have rights under the Directive which X would not have.

Dealing with each point in turn, Sedley LJ held that:

article 17 of the Directive, by speaking distinctly of "unemployment" and "periods not worked" explicitly covered both the employed and the self-employed. Article 7, by contrast, spoke only of "unemployment" in the relevant parts of paragraph 3, which corroborated the meaning which article 7 at first sight conveyed, namely that the wording in articles 7(3) (b)-(d) did not cover self- employed persons;

the distinction in article 7(3) (once the employment status has been ascertained) is a bright line rule and most such rules throw up anomalies at the margins. However, such anomalies do not undo or qualify what is otherwise the plain meaning of the rule.

  • while paragraph (3)(a) refers to both classes of claimant, it is neutral as to its meaning; it is as consistent with a deliberate contrast between (a) and the succeeding sub-paragraphs as it is with the identity of purpose.
  • the antecedents to the Citizens’ Directive distinguished between workers, who retained their status when involuntarily unemployed, and the self-employed, who did not, and for whom periods without work were described not as unemployment but as inactivity;

Sedley LJ held that this was sufficient to defeat the claimant’s endeavour to enlarge the apparent and natural meaning of article 7(3) and the appeal was therefore dismissed. Sedley LJ, however, stressed that due to the absence of any findings of fact, the Court was not making any finding on whether the claimant was in fact a worker or self-employed. The only information available regarding the claimant was that he is a Romanian national who came to the UK in June 2008 and worked for a period under the Construction Industry Scheme. In 2009 he then worked for his uncle (in what capacity is left unclear) until February 2009 when he was admitted to hospital with a drug-resistant form of TB. He claimed Employment Support Allowance, then after his discharge JSA. While the latter claim was pending he applied for a crisis loan from the Social Fund. Both allowances as well as the crisis loan were refused on the ground that he had no right to reside and was therefore ineligible for benefits.

During the course of the judgment Sedley LJ said that a worker, for EU purposes, was anyone who, irrespective of the legal label put on the relationship, "performs services for and under the direction of another person in return for which he receives remuneration" as contrasted with "independent providers of services": Allonby v Accrington and Rossendale College [2004] ICR 1328 (ECJ), at [67-68]. Due to the lack of any findings, it was not known where the claimant (Mr Tilianu) came on this spectrum but his Lordship opined that it was “rather unlikely that an unskilled building worker would turn out to have been an independent provider of services,” (click here for transcript).

When does a self-employed person lose the status of a ‘worker’?

In Secretary of State for Work and Pensions v AL (JSA) [2010] UKUT 451 (AAC)the Upper Tribunal (Deputy Judge Agnew QC) (click here for transcript) considered the preliminary question – when does a self-employed person lose the status of a worker? The Judge rejected a submission by the Secretary of State that the moment a self-employed person had no more self-employed work he ceased to be self-employed. The question of whether or not a person continues to be self-employed was a question of fact and was to be answered by examining the facts to see whether or not the status has been retained: CJSA/1489/2008 para 12 followed (click here for transcript).

The Deputy Judge accepted that if a self-employed person had not been able to find work for a period of time, and there was little prospect of finding such work in the future, a tribunal would be entitled to find at some date that he ceased to be self-employed because there was no realistic prospect of getting such employment in the future. In the present case however, the claimant had only been without self-employed work for three months. Against the finding that he continued to seek self-employed work throughout this period the Deputy Judge said it was open to the tribunal to conclude that the claimant had “never terminated his activity as a self-employed person”.

The Deputy Judge said the case was distinguishable from R (Tilianu) v Secretary of State for Work and Pensions [2010] EWCA Civ 1397, which concerned the retention of worker status once self-employment had ended but noted that Sedley LJ had been prepared to consider that if the facts had been investigated, Mr Tilianu might have come within the definition of worker, notwithstanding that he was working under the Construction Industry Scheme where he would have been paying tax as a self employed person. The Deputy Judge stressed that this was a question of fact and it is for the tribunal to investigate whether or not a claimant has the status of “worker” under the EC definition, notwithstanding the fact that he or she may be registered as self-employed and pays tax as a self- employed person in the UK.

The Welfare Reform Bill – ‘Biggest shake up for 60 years’

On 17 February 2011 the Government launched the Welfare Reform Bill. Iain Duncan Smith described it as “the biggest shake up of the system for 60 years”.

According to the DWP press release:

“The Bill will radically reshape Britain’s welfare system for the next sixty years by:

  • sweeping away the patchwork of benefits and credits and replacing them with a Universal Credit to make work pay;
  • introducing a proper system of conditionality and make sure that unscrupulous individuals are not able to abuse or defraud the system;
  • a Personal Independence Payment for disabled people targeting support at those who really need it;
  • a new system of child support which puts the interest of the child first;
  • introducing new powers to tackle the problem of fraud and error.” (click here for link).

Some of the major headlines from the Bill include:

  • the introduction of a new benefit, to be known asuniversal credit, which will replace income support, income based JSA, income-related ESA, working tax credit, child tax credit, housing benefit and council tax benefit;
  • provision for the capping of the total amount of welfare benefits a claimant or a couple receivesby reference to the average earnings of working households in Great Britain;
  • provision for a new benefit, 'personal independence payment', to be paid at two rates in place of the existing disability living allowance, with entitlement based on the ability of an individual to perform specified activities;
  • the abolition of community care grants and crisis loans (other than 'alignment loans' currently available to applicants pending payment of benefit), to be replaced by 'locally-administered assistance', the replacement of budgeting loans and alignment loans with payments on account, and the abolition of the Social Fund Commissioner and the Independent Review Service;
  • the extension, from 4 to 13 weeks, of the loss of benefit sanction for claimants who are convicted of a first benefit offence, the introduction of a 26 week sanction for those convicted of a second benefit offence, and a three year sanction for claimants convicted of a benefit offence preceded by two previous offences;
  • the introduction of a civil penalty where claimants fail to disclose information that would affect benefit entitlement or the amount of benefit payable, fail without reasonable excuse, to report changes of circumstances or negligently provide incorrect information;
  • child supportmeasures, including provision to implement proposals in the 'Strengthening families, promoting parental responsibility: the future of child maintenance' consultation document which require primary legislation, and provision for an amendment to the Insolvency Act 1986 to put beyond doubt that arrears of child support are excluded from the debts which may be included in an individual voluntary arrangement.

For the Bill and Explanatory Notes to the Bill click here

The Abolition of Community Care Grants and Crisis Loans

The DWP has issued a document ‘Community Care Grants and Crisis Loans for living expenses – a call for evidence” (click here for link) which consults on its plans to replace community care grants and crisis loans for general living expenses with 'local delivery of assistance'. According to the section 2 of the document on ‘the case for reform’ the document explains that the discretionary social fund had been created when there was provision to interview and assess claimants face-to-face at local offices. This is no longer the case and has resulted in an overall deterioration in decision-making:

2.1 The Social Fund was introduced in 1987-88 as part of the Fowler reforms of the Social Security system. Since then welfare delivery has changed significantly. It has moved from locally-based offices that offered a face-to-face service and processed and maintained benefit claims on site, to remote processing and telephony centres.

2.2 The remote administration of the benefit system no longer supports the application of the high levels of discretion that are needed to assess eligibility to Community Care Grants and Crisis Loans for general living expenses. This has led to criticism of the quality of decision-making and the poor targeting of support in the current scheme from both the National Audit Office and the Public Accounts Committee. It is also reflected in the high volumes of decisions that are reviewed and overturned by the Independent Review Service.

The key elements of the proposals for a new locally based assistance include -

  • there will be no new statutory duty requiring local authorities to deliver the service, and funding transferred from the DWP to local authorities will not be ring-fenced; and
  • there is no expectation that local authorities will recreate community care grants and crisis loans locally, instead individuals will be given the flexibility to re-design emergency provision for vulnerable groups according to local circumstances, in order to meet severe hardship in the way they think best.

“4.2 We anticipate that local authorities will want to develop a local system that will reflect the needs of their community and build upon programmes and services that are already in place, for example, the Supporting People programme. Local authorities may also wish to utilise and further develop existing partnership arrangements or develop new ones with, for example, furniture reuse services and food banks, to provide services for those in particular need. We would be interested on your views on how local authorities may use, and build on, existing networks.”

This call for evidence is specifically aimed at (i) local authorities and (ii) organisations representing vulnerable customer groups. The deadline for responding to the call for evidence is 15 April 2011.

Legal Aid Cuts – Response to the Consultation Paper

The Ministry of Justice received over 5,000 responses to its consultation on legal aid cuts (thereby causing its email receiving system to crash on 14 February 2011).

Some extracts from some of the Reponses are reproduced below:

(i) AdviceUK and independent advice centre members

2. Summary and overall comments

2.1. AdviceUK is wholly opposed to the proposals to reduce the scope of and eligibility for legal aid. We are also opposed to the proposals to introduce a single telephone gateway and to reduce civil legal aid fees by ten per cent.

2.2. Our primary reason for opposition is that the proposals will cause stress and hardship and deny access to justice for hundreds of thousands of people, many of whom are vulnerable and in poverty.

2.3. The need for legal advice is rising. As a result of public spending cuts, increasing levels of unemployment and increased costs of living not met by salary, benefits or tax credit, demand for advice on social welfare law and employment matters in particular has been rising and has not yet peaked.

2.4. Welfare cuts that have already been imposed have also resulted in increased need for welfare benefits and housing advice. Wide reaching welfare reform proposals will put further pressures on already stretched advice services.

2.5. It is astonishing that the Government should issue a set of proposals in the Green paper that are presented as apparently rational and logical and yet which are systematically proven by the accompanying Impact and Equality Impact Assessments to be likely to cause serious and disproportionate harm to access to justice.

2.6. The proposals disproportionately affect people on the basis of race, disability and gender, calling into question how the Government would fulfil its duties under the

Equality Act.

2.7. We also believe that the proposals would breach the Human Rights Act as the

Government would, by removing the means for many people to access justice, infringe the rights that it guarantees.

2.8. We are also concerned that the proposals disproportionately affect civil society organisations (representing a 77% cut in not for profit agency funding) contrary to the Government's wish to see a stronger civil society. They would see local, community based provision undermined in favour of larger, more remote services, in contradiction of other Government efforts to decentralise and empower local people and communities.

2.9. We have evidence that the overall impact of the proposed changes coupled with reductions in local government funding and cuts to other central government funding streams such as the Financial Inclusion Fund (which has been replaced with interim funding, albeit with a ten per cent cut) will create the ‘perfect storm’ in which independent face-to-face legal aid and other advice in many localities will be wiped out.

2.10. We understand the current pressure on public funding, but we strongly believe that cutting 2.5% (£55m) of a legal aid budget that accounts for just 0.3% of public expenditure by imposing the proposed reforms is a false and unnecessary economy that will disproportionately harm access to justice for vulnerable and disadvantaged people.

2.11. It is a false economy because:

  • Research has consistently shown that every £1 invested in such advice yields a return of up to £101. Early intervention by Advisers produces the best results.
  • Tackling the typical range housing, welfare benefit, debt and other related problems holistically and early makes sense – awaiting the crisis of impending eviction or repossession is more costly.
  • Funding legal advice services to prevent systemic failings must make economic sense.Alternative sources of legal advice to legal aid funded provision lack the capacity to deal with the demand caused by reducing scope. Widespread cuts in other local and national advice funding are seeing the supply of independent advice dwindle.
  • Failure to ensure that timely legal advice is available could see additional demands placed on other Government services such as the NHS.
  • Legal Help often prevents litigation, helping to resolve matters before they reach court. Cutting scope could increase civil justice costs in the longer term.
  • Contrary to suggests in the consultation paper, people cannot easily prepare for and represent themselves at Court and Tribunal. The impact of this ‘do-it-yourself’ approach could be increased costs within the justice system.

(ii) Child Poverty Action Group (click here)

Paragraphs 3.27-3.28

Legal aid will no longer be available for welfare benefits cases in the Court of Appeal, the Supreme Court and the European Court of Justice12. Highly complex issues can arise in these cases, including points of European law. Claimants will again be placed at a serious disadvantage in adversarial proceedings against the state. Only a tiny number of cases are affected, with a cost so low as to be estimated as negligible13 begging the question why this cut should be made. In the future, social security claimants who find themselves faced with an incorrect Upper Tribunal decision, or on the receiving end of an appeal by the DWP, HMRC or a local authority, could be facing the courts and the costs risks on their own or not at all.

This also means that the big social security test cases which reached the higher courts by way of the appeals process, such as Zalewska on the lawfulness of the Workers’ Registration Scheme, Hinchy on the interpretation of the overpayment recovery test, Pedro, on the meaning of “family member in EU law”, and Mallinson, the leading authority on the interpretation of the law on disability living allowance, will not be funded in future.

Paragraphs 3.31-32

Legal aid will no longer be available for welfare benefits cases in the Court of Appeal, the Supreme Court and the European Court of Justice12. Highly complex issues can arise in these cases, including points of European law. Claimants will again be placed at a serious disadvantage in adversarial proceedings against the state. Only a tiny number of cases are affected, with a cost so low as to be estimated as negligible13 begging the question why this cut should be made. In the future, social security claimants who find themselves faced with an incorrect Upper Tribunal decision, or on the receiving end of an appeal by the DWP, HMRC or a local authority, could be facing the courts and the costs risks on their own or not at all.

This also means that the big social security test cases which reached the higher courts by way of the appeals process, such as Zalewska on the lawfulness of the Workers’ Registration Scheme, Hinchy on the interpretation of the overpayment recovery test, Pedro, on the meaning of “family member in EU law”, and Mallinson, the leading authority on the interpretation of the law on disability living allowance, will not be funded in future.

(iii) Law Centres Federation (click here)

A scheme beyond its original intentions

20. Much is made in the Green Paper about the legal aid scheme having grown beyond its original intentions. Perhaps those proposing these changes should be reminded that each of the extensions of the legal aid scheme has been implemented by Parliament and based on their interpretation of changing social need and indeed on budgetary constraints.

21. In 1949, Lord Rushcliffe envisaged that legal aid would give access to justice to all those people of ‘small or moderate means’ and indeed 80% of the population were covered by it. In 1979, 30 years later, 79% of the population qualified for advice on ANY aspect of English Law. In 2010 only 34% of the population was eligible for legal aid. The original intention was to ensure that all UK citizens, regardless of means, would be treated equally and fairly before the law.

“I believe that there is much in our British system of justice of which we can all be proud. Its defect has been that it has not been equally available to everyone and has depended upon the resources and advice for which one can pay. It has been said by one famous judge that justice is available to the public in the same way as the Ritz Hotel is available and on the same terms.”

22. We now live in a society that is significantly more complex than that of 1949. Ours is a rich multicultural society with an extensive and complex civil legal framework. Since 1949 we have rightly developed hundreds of complicated and detailed protective laws in the areas of housing, employment, education, immigration, family, social security and benefits. We are now subject to what Lord Bingham of Cornhill in 2006 referred to as a legislative hyperactivity with many thousands of pages of complex new primary and secondary legislation finding its way onto the statute books every year.

23. The current government is proposing further significant legislation to meet what it feels are the needs of the day – we have to wonder if any of that legislation is based on an assumption that we can or should turn the clock back to 1949. Indeed we note that Government is being rather selective in its wish to return to 1949. In that year some 80% of the population was eligible to receive legal aid. This year less than 34% are eligible. This Green Paper suggests further restricting eligibility rather than returning it to its 1949 levels.

78. Advice is not available on basic benefits entitlement or even, except in the case of complex benefits like Disability Living Allowance, to help clients apply for such benefits. Instead legal aid is only currently available where an individual has been wrongly refused benefits and where the lawyer dealing with the case considers that there is sufficient benefits to take the matter on (balancing prospects of success and costs benefit). Legal aid is only available to help individuals to challenge incorrect decisions of public authorities.

79. Some of these cases proceed to Tribunal hearings and some ultimately to judicial review hearings but the vast majority is resolved with around 4-7 hours work corresponding and discussing the legal issues with the authority in question. £22 million of the expenditure to be saved in respect of welfare benefits issues if to be saved from the Legal Help scheme – from the scheme designed to provide early intervention to stop the escalation of problems.

82. If individuals do not receive the benefits to which they are entitled then the consequences may be significant. They may fall behind in their rent or other debt repayments; they may be unable to properly provide for themselves of their families; they may be more likely to be inclined towards criminal or other socially unacceptable behaviour; their health and particularly their mental health and well-being may suffer and ultimately they may be forced into a situation where they are subjected to expensive legal proceedings (for possession of their property or for removal of their children). It is difficult to see any justification for suggestion, as the Green Paper does, that welfare benefits matters have no objective importance.

(iv) Response of a Sub-Committee of the Judges’ Council (click here)

Paragraphs 51-53

Welfare benefits (paras 4.216-4.224)

51. We refer again to the comments above about the effect of withdrawal of Legal Help. It should also be stressed that, although the tribunals seek to be accessible and user-friendly, cases in the field of social entitlement are not as easy for unrepresented parties as the consultation paper suggests. The law is of considerable complexity and the various bodies referred to at para 4.218 rarely assist the tribunal with any kind of submission (they simply do not have the resources). There is often no attendance on behalf of the relevant Government department, which adds to the work required of the tribunal itself. Where decisions are overturned “simply because the tribunal is able to elicit additional information” (para 4.217), the burden on the tribunal in performing that function is not to be underestimated. In short, lack of legal representation adds to the time and cost of the tribunal proceedings.

52. Over and above those general points, we have a particular concern about the proposed exclusion of asylum support cases from the scope of legal aid (paras 4.221-4.223). Applicants in such cases tend to be particularly vulnerable individuals, very frequently with language difficulties. They cannot be expected to be able to cope by themselves with applications and appeals. Voluntary sector organisations perform a valuable role in the provision of help and advice but are subject to very considerable financial pressures of their own and do not represent a complete alternative. All this gives additional strength to the argument for retention of Legal Help for this category of case.

Upper Tribunal appeals (paras 4.231-4.235)

53. It is proposed in this part of the consultation paper that appeals to the First-tier Tribunal and Upper Tribunal in relation to a variety of issues should be taken out of the scope of legal aid. We question whether it is appropriate to adopt that course in relation to appeals to the Upper Tribunal in particular. We do not accept the proposition that appeals before the Upper Tribunal are fact-based: appeals lie only a point of law and many cases involve complex legal issues. Whilst the lack of legal representation may force the tribunal in practice into more of an inquisitorial role, its function remains that of determining an appeal inter partes and it operates most effectively where it has the benefit of adversarial argument. It is also very odd if the availability of legal aid before the Upper Tribunal should depend on whether the case comes by way of judicial review (where the consultation paper proposes the retention of legal aid) or by way of statutory appeal from the First-tier Tribunal. We consider that legal aid should continue to be available for representation in the Upper Tribunal in those appeals where it is currently available.

For a comprehensive list of responses see the i-legal discussion forum (click here for link).

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