Tech contractor wrongly given employment rights

An employment tribunal wrongly determined that a technical contractor was tantamount to an employee and could claim unfair dismissal because it failed to look at the bigger picture of his relationship with the end-user.

Going before the tribunal in July last year, Andrew Tilson heard he was due employment rights from Alstom Transport where he worked via an agency from August 2004 as a limited company, until he was asked to leave in November 2006.

The basis for the decision stemmed from a clause in the contract, between the recruiter and Tilson's personal service company, which stated 'the individual was not subject to Alstom's direction, supervision or control.'

It was successfully argued that this did not reflect what happened in practice, day-to-day, prompting the tribunal to conclude that the entire contract was a sham, thus enabling Tilson to claim the same rights as an employee.

Alstom opposed the decision and took the case to the Employment Appeal Tribunal, where a different approach to the case was adopted, reveals the EAT's judgement, handed down in November.

According to the judgement, the appeal ruled that one clause cannot render the entire contract null and void, and that the relationship between all the parties must be considered as a whole.

Tilson himself also staunchly defended his independent contractor status during the contracted period, and it was significant that all parties clearly intended for him to be an independent contractor from the outset.

For example, the contract in place clearly identified Tilson, the individual, as an independent contractor.

"The final ruling [by the EAT] provided the correct result," said Martin Hesketh, managing director of Brookson, an accountancy firm.

"The original verdict given by the employment tribunal neglected to examine the relationship between the contractor and employer and failed to look at the bigger picture".

If the original ruling had not been overturned, it could have been used to permit contractors to benefit from preferential tax treatments and flexibility during an
role with a client, while letting them claim employment rights if the assignment was terminated early.

In changing employment status during the contracted period, the ruling could also have allowed HM Revenue & Customs to demand any unpaid tax and national insurance contributions from the contractor.

Pinsent Masons, an employment law firm, reflected on the EAT's judgement: "This is a very helpful decision for employment businesses and contractors. All too often, parties operate on the basis that an individual is engaged as an independent contractor, only to be caught out by omissions or inconsistencies in the contractual documentation.

"While it will always remain best practice to ensure that contracts accurately reflect the intention between the parties and the reality 'on the ground', this case is a timely reminder that an employment relationship should not be implied in circumstances where it is not necessary to do so in order to make business sense of what occurred."

Mr Hesketh, of Brookson added: "The lesson to be learnt from this case is that all genuinely self-employed workers should not only declare their employment status
but ensure they maintain it in practise - and ensure that they have a contract in place which accurately reflects their working practices.

"It is also paramount that all parties are in agreement and understand the contract, and…I'd urge all contractors to take specialist advice with regards to their IR35 compliance."