FACTS
Mr Tilson provided services to Alstom Transport as an independent contractor. Mr Tilson was nominally employed by Silversun Solutions Ltd, a service company. Silversun paid Mr Tilson for his work but Silversun was itself paid (deducting a 3% administration fee from the payments that it handled) to provide Mr Tilson by an agency, Morson Human Resources Ltd. Morson in turn contracted with Alstom to provide Mr Tilson. There was no contractual documentation between Mr Tilson and Alstom.
A clause in the contract between Silversun and Morson sought to prevent Morson or Alstom from exercising any supervision, direction or control over Mr Tilson. In addition, the contract also purported to prevent a relationship of employer and employee from arising. The contract between Morson and Alstom did not include any specific wording in relation to supervision, direction or control of the staff provided by Morson.
While providing his services, Mr Tilson was fully integrated into Alstom’s business. He was supervised by its managers and had to apply to his line manager to take holiday. He also supervised Alstom staff. On two occasions, Alstom asked Mr Tilson to become an employee but on each occasion he declined because he preferred to be an independent contractor.
When Mr Tilson’s engagement with Alstom was terminated, he brought an unfair dismissal claim. The key question for the tribunal was whether or not Mr Tilson had been employed by Alstom for the purposes of the Employment Rights Act 1996.
LAW
To claim unfair dismissal, an individual must be an “employee”. An employee is defined in s.230(1) of the Employment Rights Act 1996 as “an individual who has entered into or works under a contract of employment”. A contract of employment is defined in s.230(2) of the Employment Rights Act 1996 as “a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing”.
There is no statutory definition of a contract of service, but case law has identified personal service, mutuality of obligation and control as the central factors in determining whether or not a contract of employment exists. A tribunal will look at all the circumstances of a case, including documents that purport to record the arrangements between the parties and how the relationship works in practice. An employment relationship will be implied only where this is necessary to give effect to the reality of the relationship.
DECISION
The employment tribunal held that Mr Tilson had been an employee of Alstom. The employment judge found that Mr Tilson had been substantially integrated within Alstom’s organisation and was subject to a significant degree of supervision and control by Alstom. The judge concluded that the clause in the contract between Silversun and Morson purporting to prevent Alstom from exercising supervision or control over Mr Tilson was “entirely bogus” and simply “an attempt to engineer a structure that deflected the possibility of an interpretation of employment”. The judge went on to say that the contract between Silversun and Morson was “bogus” in its entirety and as such it was necessary to imply a contract of employment to explain the working relationship.
Alstom appealed and the Employment Appeal Tribunal (EAT) overturned the tribunal’s decision. The EAT held that whether or not the contract between Morson and Silversun was “bogus” had not been live at trial because it had not been argued by Mr Tilson and should not have been considered by the employment judge. Secondly, the EAT found that, even if the particular clause relating to supervision and control was a sham, it did not invalidate the whole contract between Silversun and Morson. Finally, the EAT held that the evidence did not support the finding of an implied contract of service. By examining the conduct and relationship between Mr Tilson and Alstom, the EAT found that, by refusing to become an employee, Mr Tilson believed himself to be an independent contractor and that Alstom, by offering employment, thought he was not already an employee.
Mr Tilson appealed. The Court of Appeal upheld the EAT’s decision and rejected Mr Tilson’s appeal. The Court of Appeal accepted that Mr Tilson worked for Alstom in the same manner as any other employee would have done but that it was not necessary to imply a contract of employment. The contract between Morson and Alstom, under which Morson undertook to provide Mr Tilson’s services, fully explained why Mr Tilson was working for Alstom. There was no evidence that Alstom acted inconsistently with the terms of that contract. Mr Tilson and Alstom would have acted in exactly the same way whether there was a contract between them or not, as evidenced by the parties’ conduct. The fact that Mr Tilson expressly abstained from entering into a contract of employment demonstrated that he had no intention of being an employee.
IMPLICATIONS
The Court of Appeal’s decision reinforces the position that a contract of employment should not be implied where it is not necessary to do so to explain a working relationship. However, as a warning to employers, this case cannot be relied on where both parties have deliberately entered into a sham arrangement to prevent a relationship of employer and employee from arising. What sets this case apart is that both parties were of the view that no contract of employment existed and the ongoing relationship was conducted on this basis.
Chris Bains, solicitor, Thomas Eggar
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