Establishing a contract of service and thence unfair dismissal remains a tall order for an agency worker

Tilson v Alstom Transport [2010] EWCA Civ 1308

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• Being tightly integrated into the company does not alone satisfy the test for the implication of a contract.
• The judge must first decide whether it is 'necessary' to the relationship between the employer and the worker.
• A breach of a contractual clause between the agency and another company acting for the end user did not necessarily mean the relationship was a sham.
• The existence of a contractual 'sham' shouldn't have been concluded by the ET as the matter had not been canvassed with the parties and the parties themselves had not advocated following this line of argument.
• Having to apply to the line manager before taking a holiday was not sufficient to justify the implication of a contract, it not being clear whether the line manager could veto it.

When deciding whether to find the existence of a contract, the judge needs to decide whether it is 'necessary' to the relationship between the employer and the worker. In this situation, the normal agency relationship was turned on its head as the worker himself had wanted to keep the agency relationship owing to higher pay and tax advantages and rejected requests from his company to make him a permanent employee.

Were it not for the fact that until he was dismissed Mr Tilson very much wanted to keep his independent status, the Court of Appeal might have found the 'necessity' of declaring a contract between himself and the end user company. As it was The Aramis [1989] 1 Lloyd's Rep 213, 224 was applied in that if parties would have acted in the same way in the absence of a contract there can be no implication of a contract.

Mr Tilson was fully integrated into the business of Alstom as a manager. He worked regular hours and could not fail to turn up to work or have substitute replace him. His wages were paid through a cut-out company Silversun(that in the process relieved him of 3% of his wages), and his services were provided through another company Morson Human Resources Limited. Morson had a clause in the contract denying any control over Mr Tilson, and claimed this also for Alstom. A fiction.

The Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 test determining whether a contract of service existed would have been satisfied, if there was no agency involvement and even the employer's barrister accepted that absent the agency a direct contractual relationship would exist between Alstom and the appellant Mr Tilson. A contract of service would have existed whereby the worker would have been an employee and thus able to claim unfair dismissal.

The appellant argued that although there was no express contract between himself and Alstom it was necessary to imply one, but after Modahl v British Athletic Federation [2001] a claimant must first establish that a contract should be implied, and this can happen only if it is 'necessary' to do so (as affirmed by the Court of Appeal in James v Greenwich London Borough Council [2008] ICR 545)

Mummery LJ stated that, "in order to imply a contract to give business reality to what was happening, the question was whether it was necessary to imply a contract of service between the worker and the end-user, the test being that laid down by Bingham LJ in The Aramis [1989] 1 Lloyd's Rep 213, 224: necessary . . . in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist."

For Bingham LJ simply showing that the conduct of the parties is more consistent with an intention to contract than not is insufficient to imply a contract, it being fatal to this if the parties would have behaved similarly whether or not the contract existed.

As the law stands, "it is not enough ...that because the Claimant looked like an employee of the Trust, acted like an employee and was treated as an employee, the business reality is that he was an employee and the ET must therefore imply a contract of employment" (Heatherwood and Wrexham Park Hospitals NHS Trust v Kulubowila & Ors).

The Court of Appeal indicated that despite agency status being effectively a sham operated by employers, "in order to avoid incurring the obligations they owe to their employees", employment tribunals are not allowed to intervene, that an employment judge will in vain attempt to use Section 203 of the Employment Rights Act 1996 which voids contractual terms whereby employees contract out of their statutory rights. As the law says no contract exists in the first place, S.203 does not apply.

Important in the EAT decision rejecting the necessity of implying a contract (and even exceeding its authority in substituting itself for the employement tribunal by declaring that there had been no contract, an error as previously decided in the dismissal case of Wilson v Post Office [2000] IRLR 834, and driven home in O'Kelly v Trust House Forte [1983] and Hellyer Bros v MacLeod [1987] whereby an EAT may only substitute its decision for that of the ET if it was the only possible decision after clarifying the law ) was the conduct of the parties after the relationship began and how it portrayed the relationship between them (as per Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] ICR 1183). The Claimant refused the employer's invitations to become an employee with a contract of employment as he regarded himself as an independent contractor.

The Court of Appeal did not accept that because one clause of a contract is false that invalidates the whole contract, which undermined the ET's decision that the contract was bogus.

As to when an ET decision will be allowed to stand following a mistake in the law Dobie v Burns International Security Services [1984] was quoted whereby a judgment must be "plainly and unarguably right" despite the misdirection.

Despite the worker being well integrated into the company this was not inconsistent with the existence an agency relationship, of the absence of a contract between worker and end user. It is normal to be integrated into the mainstream business and this will involve control over the manner in which the work is done although the degree of integration may be relevant to any argument as to the existence of a contract of service.

Where both parties agree that no contract exists and where they can't agree on what the terms which of a contract would contain, this acts to counter to any implication of a contract (after Baird Textile Holdings Ltd v Marks and Spencer plc [2002]. Marks and Spencer had on a number of occasions deliberately abstained from entering into an umbrella contract necessitating notice before termination, so it was therefore decided that no contract could be implied on the principles of necessity ).