Pass a two-tier test to be your client's employee

The recent decision of the Court of Appeal (Tilson v Alstom Transport [2010] EWCA Civ 1308) is an important one as far as agency workers are concerned, as it makes it less likely that they can be deemed to be employed by the end client.

Mr Tilson worked for Alstom for a number of years, initially as a technical engineer and later in a management position. In terms of the way he worked, he was indistinguishable from an employee. He was fully integrated into Alstom’s business: he reported to a line manager and staff reported to him; he had fixed hours of work; recruited, disciplined and dismissed permanent employees for Alstom and signed their time sheets; ordered materials on behalf of Alstom and negotiated contracts on their behalf.

He used Alstom’s equipment and had to apply to his line manager before he could take leave. As the Judge said, “To all intents and purposes, the appellant [Mr Tilson] was performing work in just the same way as any other employee would do.”

The difference, however, between Mr Tilson and other employees was a chain of contracts. Mr Tilson contracted with Silversun Solutions Ltd which, in turn, contracted Mr Tilson’s services to Morson Human Resources Ltd, which provided agency services to Alstom.

The question the Court had to decide was whether Mr Tilson could be said to be employed by Alstom notwithstanding the chain of contracts.

The Court held that Mr Tilson’s integration into Alstom’s organisation, and the fact that Alstom controlled what work he did, was of little if any concern where it had to decide whether there was a direct contract at all between Mr Tilson and Alstom. Here, because of the chain of contracts, there was none.

The Court said that, if there had been a direct contractual relationship between Mr Tilson and Alstom, then it would go on to decide whether that contract was a contract of services (employment) or a contract for services. If this had been the case here, Mr Tilson would be clearly have been deemed to be employed by Alstom.

So what effect does this case have on contractors and agency workers?

The Court of Appeal is effectively saying that, in agency situations where a question arises as to whether a worker can be said to be employed by the end client, it is a two-stage test.

The first stage is to determine whether there is any direct contract between the worker and end client. If there is no direct contract, then there is no employment.

At this stage, factors such as the degree of integration and control will have little importance, as a degree of integration and control are inevitable in many workplaces. In my opinion however, how important integration and control will be to this stage will depend on the workplace concerned and the type of job involved – an engineer working on a production line, for example, will inevitably be under more control than a creative person.

The second stage applies where there is a direct contract between the worker and end client. The court or tribunal must then decide, if asked, whether that contract is a contract of services (employment) or a contract for services (contractor). At this stage, the court or tribunal would look at all the usual factors and the degree of integration and control would be important.

Therefore, if an individual works for a client through a chain of contracts, as in this case, then a court or tribunal is more likely to decide that he or she is not employed by the end client.

By Gary Cousins, solicitor and co-founder of Cousins Business Law.