Perhaps recognising a shift in the working world to more flexible models and away from the traditional model of master and servant and then employer and employee, the Tribunals have become increasingly willing not to infer employment contracts on top of notionally arm’s-length contractor arrangements.  Good news for users of agency and consultancy personnel.   

Two caveats before we go any further – first, proving that your individual is not an employee does not necessarily mean that he is denied the increasing number or rights afforded to statutory “workers”.  Second, while this may be the Employment Tribunals’ position, it is far from clear that the HMRC (which also has the power to “re-assess” contracts from self-employment to employment) will take the same approach.   Mostly good news, anyway.   

In Smith -v- Carillion issued earlier this month, the Employment Appeal Tribunal re-emphasised the hoops which an individual must get through to show that he is actually an employee.  Until James -v- London Borough of Greenwich in 2008, the tendency had been for the Tribunals to tot up the aspects of the relationship which looked like employment and then those that didn’t, stick a moistened finger in the wind and then using an unholy and largely unappealable mix of gut-feel and discretion, come down on one side or the other.  Sentiment suggested that if the individual would be left without remedy by a finding that he was not an employee, the balance might more easily fall in his favour.  James took a much stricter view.  You can only imply a term into a contract (here, that the relationship was one of employment) if it is necessary to do so, said the Court of Appeal, not just because it feels right on balance.    

Mr Smith was a prime case for a “sympathy” vote – he had suffered substantial losses through being blacklisted for union activities, but these were losses he could only sue for if he were an employee.  The Employment Tribunal dismissed his claim for that status “with considerable reluctance … he had suffered a genuine injustice and we greatly regret that the law provides him with no remedy“.   

Nonetheless, the necessity test prevailed.  In practice that means that you can only imply an employment contract if the day-to-day facts of it are not explicable by any other means – if those facts would equally fit an agency or self-employment or worker relationship, then that leaves no room for the imposition of an employment contract.  The Tribunal agreed that to outward appearances Smith would be indistinguishable from members of Carillion’s employed staff but “the fact that someone appears to be an employee cannot be regarded as lending support to the contention that as a matter of law he has become an employee”.  

Leaving aside the HMRC risk, it appears that following Smith end-users of agency or self-employed staff now face a much lesser risk of their sliding onto the Schedule E payroll by a form of legal osmosis.  No longer should these things turn upon the precise degree of integration within the workforce or of the day-to-day control exercised over them.  No longer need you fear blowing up an extensive chain of contractual documentation and supply contracts by inadvertently inviting your contractors to the staff party.  The issue is not now whether the daily facts and cosmetics of the relationship are consistent with an employment contract, but whether they are inconsistent with anything else.