Answer: When he is a self-employed contractor.
This is far from being a top class joke – a Christmas cracker gag is likely to raise a bigger smile. However, what sets this poor joke apart from others is that the punch-line was delivered by the Court of Appeal. It was no laughing matter for Mr Tilson because not only did he lose his job but his unfair dismissal claim failed as well.
Alstom Transport ("Alstom") provides railway services and Mr Tilson started working for them in August 2004 as a Technical Engineer and he was subsequently promoted to manager level. While working for Alstom, Mr Tilson was fully integrated into its business because he was supervised by its managers. He had to apply to his line manager to take holiday and he had managerial responsibility for Alstom staff.
Unfortunately, Mr Tilson's relationship with Alstom was terminated with immediate effect on 7 November 2006 and not surprisingly he claimed unfair dismissal. The difficulty for Mr Tilson was that only employees can claim unfair dismissal and throughout his relationship with Alstom he had held himself out as an "independent contractor" and Alstom had treated him as such. The key issue was therefore whether Mr Tilson could persuade an Employment Tribunal (and later the Employment Appeal Tribunal ("EAT") and the Court of Appeal) that despite being labelled as an independent contractor and being treated as such by Alstom that the reality of the relationship meant that he was in fact an employee of Alstom entitled to unfair dismissal protection.
A variety of factors will be considered in determining whether an employment relationship exists. These factors include the degree of control over the member of staff (e.g. who directs them day to day, does the individual determine their own working time, how are they disciplined?), how they are paid (e.g. does the individual issue invoices or do they receive holiday and/or sick pay?) and whether they provide their own equipment or are provided with it by the company.
Interestingly, Mr Tilson did not have a contract with Alstom. Alstom had engaged an HR agency (Morson) to provide staff. That HR agency contracted with another company (Silversun) who provided staff and it was Silversun who claimed to employ Mr Tilson. Silversun received Mr Tilson's salary, deducted their 3% fee and paid the balance to Mr Tilson.
The contract between Silversun (Mr Tilson's employer) and Morson (the HR agency) prevented anyone other than Silversun exercising any supervision, direction or control over Mr Tilson, which was odd because Mr Tilson was working with Alstom on a day to day basis. That contract also specifically stated that Mr Tilson was not an employee of either Morson or Alstom. Despite this, on two occasions Alstom asked Mr Tilson to become an employee but on each occasion he declined because he preferred to be an independent contractor.
Decision
Mr Tilson's unfair dismissal claim was first heard by the Employment Tribunal who found that Mr Tilson had in fact been an employee of Alstom because he had been substantially integrated into Alstom's business and as such they supervised and controlled him. The Employment Judge felt that the complicated engagement arrangements were a sham designed to try and avoid an employment relationship.
Alstom appealed to the EAT and won because the EAT overturned the Employment Tribunal's decision. It was then Mr Tilson's turn to appeal and so the matter went to the Court of Appeal.
The Court of Appeal agreed with the EAT that Mr Tilson had not been an employee of Alstom and so Mr Tilson lost his claim for unfair dismissal. Whilst the court accepted that Mr Tilson worked for Alstom in the same manner as any other employee would have done this did not make him an employee. Despite the complicated nature of the engagement arrangements all parties were clear that Mr Tilson was an independent contractor and Mr Tilson expressly refused to enter into a contract of employment offered by Alstom, which demonstrated that Mr Tilson believed himself to be an independent contractor and that Alstom, by offering employment, did not believe that he was already an employee.
Comment
For a variety of reasons some individuals prefer to work as independent contractors and some companies also prefer to engage contractors (perhaps to keep employee headcount below a set level) and all is well until the company decides (as Alstom did) to terminate the working arrangement. The aggrieved individual then naturally wants to complain and the easiest way to do so is to claim employment status before the Employment Tribunal.
The decision in the Tilson case is good news for companies because it confirms that where both parties genuinely agree to work on a contractor basis (i.e. both parties agree that no contract of employment exists and the ongoing relationship is conducted on that basis) the courts are likely to support this arrangement and so will not impose employment status.
However, companies still need to be careful and learn from this case because the courts will always look at the relationship as a whole and clearly prevention is so much better than an expensive cure:
- Ensure that there is a central policy in place covering the recruitment, integration and termination of independent contractors. Too often individual managers or departments hire or terminate contractors (or even agree to pay holiday and/or sick pay) without central approval. If necessary threaten disciplinary action if this policy is breached because a mistake could be expensive.
- Before terminating contractor relationships consider whether there could be a risk of employment status and if so take steps to manage that risk.
- If both parties deliberately enter into a sham contractor arrangement to try to avoid an employment relationship there is a greater risk of a court finding that an employment relationship actually exists and employment claims and tax issues may follow.
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