Employment status case law update

In two recent decisions, agency workers supplied by employment businesses have been prevented from claiming employment rights against the end hirer. These decisions should serve as a welcome boost to the industry as clients concerned about employment status will feel that little bit more secure about engaging workers through third party staffing companies.

Alstom Transport v Tilson

The first case, Alstom Transport v Tilson was an appeal by the hirer against an Employment Tribunal decision that was reported by Lawspeed in August 2009. In the original case, a limited company contractor was awarded employee status and was therefore entitled to succeed in a claim for unfair dismissal.

This seemed an unlikely result – Mr Tilson himself had asserted that he was not an employee and had twice refused to become one. Furthermore there was both an employment business and a personal service company in the contractual chain between the hirer and worker. The clear intention of the parties was that there was no relationship of employment and therefore no entitlement to unfair dismissal. This intention was expressed by a clause in the contractual documentation, which stated:

“None of the Operatives has … any of the…protections of an employee. In particular neither the Contractor nor the Operatives…has any protection under the legislation relating to unfair dismissal.”

Pretty conclusive, you might think.

The judge at the Employment Tribunal, however, found that the contractual documentation was “bogus” due to a clause relating to control and supervision that did not reflect the reality. This opened the way for the judge to ‘look behind the contract’ at the actual working practices. From the actual working practices, the evidence that the relationship was akin to employment was compelling, and a hypothetical contract of employment was implied. Factors that pointed towards employment status included inappropriate levels of integration into the hirer’s workforce and the hirer’s control and supervision over the worker’s activities.

Now, on a recent appeal to the Employment Appeal Tribunal it has been held that the judge was wrong to find that the contractual documentation was “bogus”, and did not need to look beyond the contract at all. There was only one clause that supported the view that the contract was “bogus”, and there were a number of provisions which clearly reflected the reality.

Accordingly, the relationship was governed by the terms of the contract. This meant that no contract of employment would be implied and the claim for unfair dismissal failed.

Muschett v HM Prison Service

The second case, perhaps surprisingly, went all the way to the Court of Appeal. In Muschett v HM Prison Service (“HMPS”), Mr Muschett was a temporary worker, supplied by an employment business to HMPS. He too claimed unfair dismissal, the success of which depended on the question of whether or not he was an employee of HMPS. He also made claims for discrimination, the success of which depended on there being a direct contract between Mr Muschett and HMPS.

Arguments that were advanced in favour of an employment relationship being implied were that Mr Muschett had been given a handbook intended for employees; that he was involved in an induction procedure and training courses; that he was involved in a set of tasks that went beyond his contracted cleaning duties; and that both he and the client had aspirations of an eventual permanent position being offered.

Lord Justice Rimer, sitting in the Court of Appeal, described this as a “meagre collection of facts” in a searing judgement. These facts, he found, did not justify a finding of employment status, nor that there was a direct contract between Mr Muschett and HMPS. Crucial to his view, was the presence of the employment business in the chain. Even if such an implied agreement would have amounted to a binding contract, Lord Justice Rimer continued, there was nothing in the evidence that necessitated that such an implication be made.

Accordingly, Mr Muschett’s relationship with the employment business and HMPS was governed by the existing contract and no employment contract was implied. The existing contract made clear that he was not an employee and his claim for unfair dismissal failed.

Conclusion

The circumstances in which employment status would be implied in the case of a worker whose contract suggests otherwise, is something that looked to be well settled after the case James v London Borough of Greenwich in 2007. The position here was that a contract would only be implied where this was necessary in order to give business reality to a transaction and to create enforceable obligations. This means that where the contractual arrangements were genuine, it would be extremely unlikely that any contract would need to be implied.

The original case of Alstom Transport v Tilson, appeared something of a departure from the status quo. If this was good law, only one clause needed to be inconsistent with the reality before the contract could be set aside in its entirety, opening the way for an employment contract to be implied in its place.

However Alstom Transport’s successful appeal and the decision in Muschett v HMPS represents a welcome return to the status quo. It therefore seems that the current position remains as it has been thought to be since 2007:

• Before a contract, whether of employment or otherwise, can be implied in the place of an existing contractual document, the existing contract must be regarded as a sham.
• In order to ascertain whether or not a contract can be regarded as a sham, the existing arrangements must no longer reflect how the work is actually being performed. A holistic review of the contract against the true nature of the relationship is required. Trifling inconsistencies should not interfere with the validity of the contractual document.

Lawspeed can assist with advice and drafting of terms of business to help ensure that your agency workers are genuinely engaged as such, and to prevent employment status arising. Should employment status be alleged, we can also provide assistance in dealing with such claims.

Call us now to speak to a consultant on 01273 236236.