|
Case background
Back in 2001 Hewlett Packard were involved in two employment tribunals. The first case involved a contractor called O'Murphy who had worked at HP between 1994 and 2000 via his own company and an agency. Initially he was successful in his claim for unfair dismissal on the grounds that he was really an employee of HP. The Employment Tribunal held that:
“we find that the existence of CT ( O’Murphy’s service company) was no more than for administrative purposes and had no material impact on the relationship between the applicant and either the Agency or the respondent”
This judgement raised the spectre that contractors working under conditions which were likely, under IR35 legislation, to have them taxed as disguised employees of their clients could at least aspire to claim employment rights from their “disguised employers.” This confirmed what, for many clients, was their worst fears!
However, on appeal later that year the Employee Appeal Tribunal reversed the decision, and found in favour of HP (Appeal No: EAT/612/01). The EAT found that although many of the usual status tests suggested that O’Murphy might be an employee of HP:
“There was no proper legal or factual basis on which the Tribunal was entitled simply to ignore the existence of CT and they were wrong to find the existence of CT was no more than for administrative purposes and had no material impact on the relationship between Mr O'Murphy and Eaglecliff or HP.”
It went on to conclude that “there was no contractual nexus between Mr O'Murphy and Hewlett Packard.”
Shortly after this judgement the second case appeared before another employment tribunal. This case involved another contractor, Mr J Williams. Like O’Murphy, Mr Williams had worked at Hewlett Packard for several years before being dismissed – apparently at least in part because HP objected to Mr Williams’s views about IR35.
Writing about his case on another web site Mr Williams noted that the issue of substitution was a major point of contention. While his company’s contract with the agent gave him a right of substitution the agent “stated that they would not accept a substitute as the client forbade it”.
Having been dismissed by HP Mr Williams claimed for unfair dismissal. But the Employment Tribunal, in contrast to the O’Murphy case, found that Mr Williams was not an employee of HP. According to Mr Williams a significant factor in this finding was the fact that he had a right of substitution.
Mr Williams appealed the decision and his case will be heard at the Employment Appeal Tribunal in London. It will be interesting to see if the outcome differs from that of the O’Murphy case. Apart from the issue of substitution Mr Williams is arguing, amongst other things:
1] that he was integrated into the client’s management to the extent that he supervised some of the client’s staff and
2] that he was not engaged for a specific project but was engaged for general support duties and
3] that during his 4 year period with HP he did not have time for, and did not have, any other clients.
If Mr Williams does succeed then it will again demonstrate to clients that they must ensure that they engage contractors (whether via agents or not) on business to business terms if they want to be sure of avoiding employment risks.
If he fails then it is likely to reinforce the view that it is very difficult in employment law to establish an employer-employee relationship between a client and a worker who is an employee of another company.
Whether this will affect tax law status issues under IR35 will remain to be seen. IR35 decisions remain highly vexed as a result of the need to consider the “hypothetical” relationship that might have existed between the worker and the client had the intermediary not existed.
IR35 expert, Kevin Miller will be attending the EAT and will be reporting exclusively for Shout99 on the events, outcome and significance for freelancers.
To comment on this story, please use the Reply button below.
--
KevinM © Shout99.com 2002
|
