On appeal

our regular series on the implications of recent significant cases. Gareth
Brahams, senior solicitor at Lewis Silkin, looks at the issues

tribunals are usually anxious to prevent employers relying on technicalities to
avoid liability for mistreating their staff. However, three recent decisions on
appeal suggest the ‘technical ruse’ is alive and well.

discrimination in appointing personal acquaintance
Coker and Osamor v Lord Chancellor and another – Court of Appeal [2002]

Court of Appeal has upheld the EAT’s decision that the Lord Chancellor was not
in breach of the Sex Discrimination or Race Relations Acts when he appointed a
person personally known to him, Garry Hart, as his special adviser, without advertising
the post.

case turned on whether it could be said that the application of a requirement
that an applicant should be personally known to the Lord Chancellor could be
said to have a disproportionate effect on persons of one sex or racial group.

Court said the test for indirect discrimination focused on the effect of the
requirement in question on the ‘pool’ of potential candidates. There could only
be a discriminatory effect if a significant proportion of the pool was able to
satisfy the condition. Only in that situation would it be possible for the
requirement to have a disproportionate effect on the men and the women, or the
racial groups, that formed the pool.

followed, said the Court, that where the requirement excluded almost the whole
pool, it could not constitute indirect discrimination.

Court concluded that making an appointment from within a circle of family,
friends and personal acquaintances is unlikely to constitute indirect
discrimination, because the people known to the employer are likely to
represent a tiny proportion of those who would otherwise be qualified to fill
the post. The requirement of personal knowledge "will exclude the vast
proportion of the pool, be they men, women, white or another racial group".

the Court did expressly accept that recruitment exercises conducted by word of
mouth, personal recommendation or other informal recruitment methods may well
constitute indirect sex or race discrimination.

rate can incorporate holiday pay
Blackburn and others v Gridquest Ltd t/a Select Employment and others –
EAT IDS Brief 702 p12

and others were employed by agencies and supplied to work for Ford Motor
Company. They claimed they had not received their entitlement to holiday pay
under the Working Time Regulations 1998.

employers contended that the employees’ hourly pay was at a ‘rolled-up’ rate
that included payment for holidays and sickness, and the holiday pay element
should go towards discharging their liability under the Regulations.

the employment tribunal upheld the employees’ claim, stressing that none of
them had been told their hourly rate included holiday pay. Accordingly, they
were entitled to additional holiday pay under the Regulations.

EAT allowed the employers’ appeal. It said that if the employees’ remuneration
included an element of holiday pay, that element should be ‘stripped out’ and
the employer given credit for it.

EAT sent the case back to the tribunal to determine whether each employee’s pay
was calculated on the basis that it did include an element representing holiday

so, the holiday-pay element of the rolled-up rate had to be set against the
number of weeks’ paid annual leave to which a worker was entitled under the

with personal services company not an ’employee’
Hewlett Packard Ltd v O’Murphy – EAT [2002] IRLR 4

was a computer specialist who set up his own private limited company, Circle
Technology, as a vehicle for providing his services. In 1994, Circle entered
into a contract with an employment agency, Eaglecliff, which then supplied
O’Murphy’s services to Hewlett Packard (HP).

arrangement lasted for six years until HP decided O’Murphy was no longer
capable of efficiently carrying out his work. It terminated his assignment with
immediate effect. O’Murphy claimed unfair dismissal, and an employment tribunal
decided HP was the correct respondent to the complaint as he had been its
employee from 1994 to 2000.

O’Murphy had been paid through Eaglecliff and Circle Technology, the tribunal
was influenced by the fact that he was under HP’s control in respect of
performance and discipline, and was largely integrated into its workforce.

EAT allowed HP’s appeal, holding that the tribunal ought to have focused on
whether there was a contract between O’Murphy and HP. According to the EAT, an
individual who hires his services through an agency to a third party cannot be
the third party’s employee unless there is a contractual relationship between

EAT concluded there was "no contractual nexus" between O’Murphy and
HP because he had been assigned to work at HP’s premises by Eaglecliff which
had, in turn, engaged O’Murphy’s services through a contract with Circle
Technology rather than directly with him.

ruling has implications for professionals falling within the scope of the IR35
rules on taxation of personal service companies. Under IR35, an individual
working through a personal services company for a client firm is deemed to be
an employee for income tax purposes if they would otherwise be regarded as
employed under a contract of employment with the client.

EAT’s ruling confirms that such individuals have the worst of both worlds, in
that they will be taxed as employees but unlikely to qualify for statutory
employment rights such as unfair dismissal, redundancy pay and maternity leave.

the position is different under discrimination law, which specifically protects
"contract workers". In Abbey Life Assurance Co Ltd v Tansell [2000]
IRLR 387, Tansell hired out his computer consultancy services through his own
company, which supplied him to an employment agency. In turn, the employment
agency supplied his services to Abbey Life.

Court of Appeal held that Tansell could bring a claim under the Disability
Discrimination Act 1995 directly against Abbey Life when it terminated the

individual working through a personal services company could bring a
discrimination complaint against the "end-user" of his or her
services, despite the absence of a direct contractual relationship.

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