In some industry sectors, it is common for workers to contract for work through a limited liability company. A recent case in the Employment Appeal Tribunal (EAT) explores whether such workers are protected against discrimination under the Equality Act 2010 and suggests that in some cases they may not be. Jo Broadbent and Matthew Towers of Hogan Lovells explain.
Halawi v WDFG UK Ltd
Under s.83 of the Equality Act 2010, an individual is protected against discrimination if they can show that they are in “employment” under a contract of employment, a contract of apprenticeship or a contract to personally do work. In Halawi v WDFG UK Ltd, the EAT was asked to decide whether or not an individual who provided her services through a limited liability company was “in employment”. In a decision that could have implications for other workers who contract via a limited liability company, the EAT decided that she could not.
The claimant worked airside at an airport. She set up a limited liability company that contracted with management agency CSA, which in turn provided her services to a cosmetics company in premises that were managed by World Duty Free. World Duty Free was responsible for arranging the claimant’s airside pass. When it withdrew the claimant’s pass, she brought discrimination claims against World Duty Free and CSA.
“A contract personally to do work”
It was accepted that the claimant was not employed under a contract of employment or an apprenticeship. She therefore needed to show that she was employed under “a contract personally to do work”. The tribunal decided that the claimant could not show that she had a contractual relationship with CSA, because her contract with it was through her company and not with her as an individual. There was no contractual relationship at all between the claimant or her limited liability company and World Duty Free. On that basis, the claimant could not point to the existence of a contract as required by the Equality Act.
In addition, the claimant could change or withdraw from her shifts, or send a substitute to work in her place, and had exercised that right. She had no entitlement to sick pay or holiday pay. This meant that even if she could point to a contractual relationship, it was not one under which she was obliged to perform services personally and her claim could not proceed.
Relationships of dependency and subordination
Before the EAT, the claimant argued that developments in European law meant that s.83 of the Equality Act should be viewed more broadly. Here, the contractual arrangements disguised what was essentially an employment relationship – the claimant was in a position of subordination and economic dependency. The EAT was urged to look beyond the requirements of s.83 for both a contract and personal service and accept that someone like the claimant should be protected against discrimination as a matter of EU law.
Having reviewed the EU decisions relied upon by the claimant and the subsequent Supreme Court decision in Hashwani v Jivraj, the EAT rejected the claimant’s argument. EU law did not extinguish the requirement either for a contract or for personal service. Even if the claimant was correct that someone in a relationship of dependency and subordination should be protected, on the facts of the case she still could not succeed, given the limited control exercised by the respondents over her work.
In reaching this conclusion, the EAT was clearly concerned that the structure of the arrangements removed protection against discrimination from someone an “ordinary person” would probably have regarded as an employee. Despite that, it found that the underlying legal test needed to be met in order for the Equality Act to apply.
Use of personal service companies
This decision reminds us that in order for workers to be “in employment” under the Act there needs to be a contract between the “employer” and the individual, and the individual must be under an obligation to perform work personally.
So can employers now assume that they can avoid challenges under the Equality Act by requiring workers to contract through a personal services company? Two factors of particular relevance in the Halawi decision suggest not.
First, it was not clear what the motivations of the different parties were for entering into the arrangements that they did. Second, once the claimant had exercised the right to send a substitute to work in her place, she was always going to struggle with the personal service requirement.
It would not be surprising if a different conclusion were reached in a future case, should an “employer” have forced a worker to contract through a limited liability company and the personal service requirements were met.
This article was originally published on 4 February 2014. It was updated on 20 October 2015 by Fiona Cuming, employment law editor.