Contractor ‘employment’ status clarified as Tilson ruling is overturned on appeal

IR35 Test

Contractors concerned about having their employment status called into question as a result of last year’s Tilson versus Alstom Transport ruling can be reassured, as an Employment Appeal Tribunal (EAT) judge has overturned the original ruling on appeal. Contractor Andrew Tilson was awarded employment rights, in the form of a claim for unfair dismissal, by Employment Judge Smail at an Employment Appeal Tribunal (EAT) in March 2009.

Tilson’s end-user client Alstom Transport appealed the decision and EAT Judge McMullen upheld the appeal, denying Tilson employment rights. This was done on the basis that Judge Smail was wrong to have dismissed the contracts as being a ‘sham’. Further weight behind the decision came from the fact that Alstom Transport’s counsel was not given the opportunity to present additional evidence to confirm the contracts were indeed valid.

Matt Boddington from Accountax was not surprised to see the appeal succeed: “This was not an unexpected outcome in the circumstances and demonstrates that when parties strike a bargain with their eyes open on the basis of a client and independent contractor relationship, then the Courts will uphold that view. This is a sensible and pragmatic result.”

However, Boddington’s view is that the ruling will have little significance for IR35 cases, as he explains: “The [IR35] legislation allows HMRC to construe an implied legal relationship where one does not actually exist, whereas employment law generally does not, which is the main thrust of this ruling.”

Intention of the parties is relevant

Commenting that the case was visiting “yet again the complex relationships of agency workers”, Judge McMullen noted that Judge Smail had “referred to the leading authorities but there have been further developments in this area since his judgement.”

This was not an unexpected outcome in the circumstances and demonstrates that when parties strike a bargain with their eyes open on the basis of a client and independent contractor relationship, then the Courts will uphold that view

Matt Boddington, Accountax

McMullen went on to highlight that it was clearly the intention of Tilson to be a contractor, and that he had actively resisted attempts by Alstom Transport to recruit him to become an employee.

“The intention of the Claimant [Tilson] was to remain an independent contractor, and the intention of the Respondent [Alstom Transport] was to change that so as to bring him onto the staff,” said McMullen, “Thus, if the intention of the parties was looked at, the relationship was only one of independent contractor.”

Original tribunal judge ‘wrong in law’

Tilson won the original ruling on the basis that Judge Smail concluded that the contracts between his payroll company Silversun Solutions, the agency Morson Human Resources, and the end-user client Alstom Transport were a sham, and that the notional contract was one of employment.

According to Judge McMullen: “Deciding whether a document accurately reflects the reality, or is on the other hand a complete sham, involves a holistic approach to the document, and the judge [Smail] did not take that.”

Implications for contractors

Immediately following the announcement of the original ruling in July 2009, employment law experts privately expressed to ContractorCalculator their view that the ruling by Judge Smail was in error and that any appeal mounted by Alstom Transport would most likely be successful.

Any hope that ‘perm-tractors’ might secure employment rights for themselves have been dashed, although as highlighted by Accountax’s Boddington, genuine contractors in business on their own right will not be able to use the ruling to support an IR35 defence.

But what is now certain is that contractors will not find the original ruling used as case law to determine that their legitimate contractual relationship with the agency and end-user client is called into question as a sham.

Published: Wednesday, February 03, 2010

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