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 EWCA Civ 1308, Court of Appeal - Anya Palmer
The Court of Appeal upheld the decision of the EAT that a contract of service should not be implied where the contractual arrangements in place adequately explained the working relationship between an agency worker and the end user. The parties’ understanding that there was no such contract in place and their inability to reach agreement on the terms which such a contract should contain, are extremely powerful factors militating against any such implication.
The Claimant, Mr Tilson, appealed against an EAT decision which held that he was not an employee of the Respondent train maintenance company (Alstom). The Employment Judge had found that Tilson was an employee and was therefore entitled to bring a claim for unfair dismissal.
Tilson’s services were provided under a quadripartite relationship involving three separate contracts. The first contract was between Tilson and a limited company (Silversun). Secondly there was a contract between Silversun and an agency (Morson). Finally there was a contract between Morson and Alstom, under which Morson undertook to provide a wide range of services to Alstom including the provision of individual workers such as Tilson. A clause in the contract between Silversun and Morson purported to prevent Morson or Alstom from exercising any supervision, direction or control over Tilson in the performance of his services to Alstom. However, the Employment Judge found as a fact that Tilson was substantially integrated within Alstom’s organisation and was subject to a significant degree of supervision and control by Alstom. Tilson had twice been invited to join Alstom as an employee but had refused.
The Employment Judge concluded that the contract between Silversun and Morson was “bogus” as the clause purporting to prevent R exercising supervision or control over A was “entirely bogus”. He concluded that the contracts that did exist created no more than a mechanism for payment. He described this arrangement as “an attempt to engineer a structure that deflected the possibility of an interpretation of employment”. As this contract was bogus, it could not be relied upon as genuinely determining or reflecting the relationship between Tilson and Alstom. It was therefore necessary to imply a contract to explain the working relationship, and this could only be a contract of service.
The EAT overturned this decision, holding that the issue of a sham contract had not been live at trial and therefore should not have been considered by the judge without at least canvasing the views of the parties. Secondly, even if the particular clause relating to supervision and control was a sham, that did not invalidate the whole contract between Silversun and Morson. And finally, independent of the previous two grounds, the evidence did not sustain the finding of an implied contract of service. In this regard it was particularly relevant to examine the conduct of both parties. Tilson’s refusal to accept the invitation to join Alstom as an employee clearly demonstrated that he believed himself to be an independent contractor, and it was axiomatic from Alstom’s offer of employment that it too believed this to be the case. HHJ McMullen QC held that on the basis of these findings he was in as good a position as the Employment Judge to determine the claim himself, and therefore declined to remit the claim back to the tribunal, substituting his own decision instead.
In the Court of Appeal, Elias LJ, giving judgement on behalf of the court, said that absent any agency arrangements a contract of service would readily be implied given the working relationship in place. However, the principles in this area are well-established. Firstly it is for the claimant to show that a contract should be implied (Modahl vBritish Athletic Federation  1 WLR 1192) and secondly, such a contract should only be implied when it is necessary to do so (see most recently James v Greenwich London Borough Council  ICR 545). It is not permissible for a tribunal to conclude that because a worker does the kind of work that an employee typically does, or of a kind that other employees engaged by the same employer actually do, that worker must be an employee. Nor is it legitimate for a tribunal to imply a contract because it objects to the practice of employers entering into arrangements of this kind in order to avoid incurring the obligations they owe to their employees.
In this case, the employment judge was wrong to conclude that if the relevant clause governing supervision and control in the contract between Silversun and Morson was bogus, the whole contract was invalid. He was also wrong to conclude that this would cause the contract between Morson and Alstom to fall away. There was no basis for either of these two conclusions. Even though the relevant clause in the Silversun/Morson contract did not reflect the reality of the working relationship, Alstom was never a party to that contract. Furthermore, the contract between Alston and Morson fully explained why the Claimant was working for Alstom. The only proper inference is that the parties would have acted in exactly the same way if there had been no contract between them and that is fatal to the implication of a contract (The Aramis  1 Lloyd’s Rep 213 applied). The Court of Appeal agreed with the EAT that this conclusion was strongly reinforced by the conduct of the parties. Although Elias LJ did not go as far as to suggest that a contract could never be implied in such circumstances, the parties’ understanding that there was no such contract and their inability to agree the terms which such a contract would contain,are extremely powerful factors militating against any such implication.
The Court of Appeal also considered whether the EAT should have remitted the case to the employment tribunal. The Court held that it was not permissible for the EAT to substitute its decision without remission simply because it was in as good a position as the tribunal to decide the case. Remission should only be refused where on a proper application of the law there is only one conclusion that could be reached. While there is much to be said for a relaxation of the traditional rule, this was not addressed in argument so this was not the appropriate case to formulate a modification to the established principles. However, the Court held that the EAT had in fact concluded that there was only one possible conclusion, that no contract existed between Tilson and Alstom. The EAT was correct to do so.
Anya Palmer appeared on behalf of the Respondent, instructed by Zatman & Co.