Agency worker almost got the best of both worlds

26 November 2010

A significant EAT decision ­ which could have enabled contractors who are caught under IR35 legislation to also claim employment rights ­ has been overruled by the Court of Appeal.

IR35 legislation states that all income a contractor receives from an agency or client should be taxed like an employee (income tax and NIC’s) if the contractor is treated like a regular employee (i.e. filling a permanent position).  This is in order to prevent these so called disguised employees effectively avoiding employee tax payments.

The EAT ruled in Alstom Transport -v- Andrew Tilson that Mr Tilson (who worked for Alstom Transport through recruitment company Morson International) had the right to claim unfair dismissal, even though he was not “employed directly” by Alstom Transport.

Mr Tilson:

  • Was completely integrated into Alstom Transport’s business;
  • Was subject to a large degree of control from Alstom Transport relating to his daily work;
  • Had to have any holiday leave authorized by Altrom Transport and;
  • Was offered a full time employed job but he declined with the argument that without it he would benefit from a higher income.

On termination of Mr Tilson’s engagement with Alstom Transport, he claimed unfair dismissal (a right not ordinarily available to contractors, only to employees). The ET decision looked behind the contractual arrangement and held it was merely a disguise for employment.

However, on appeal, the decision was overturned (Court of Appeal) on the grounds that as there was no formal contract between Alstom Transport and Mr Tilson and that fatally he had declined an offer of employment with Alstom. The CA held that it was incorrect for the EAT to imply a contract between Mr Tilson and Alstom Transport, even if the terms of the inferred contract would mirror a contract of employment.  Mr Tilson was not an employee and therefore did not have the right to claim unfair dismissal.

The full case can be read here.