When trying to decide if someone is an employee or a worker, tribunals have to consider whether the individual is working under a contract (among other things). In Plastic Omnium Automotive Ltd v Horton, the Employment Appeal Tribunal (EAT) held that as there was no contract between Mr Horton and the company to which he provided his services, he could not be a worker.
Basic facts
From 2011 to 2019, Mr Horton provided programme management services to Plastic Omnium Automotive Ltd (POAL) under a written agreement with two service companies - ProMan and ProManOne Ltd - from which he took a salary and dividends. The companies also supplied the services of an engineering project manager and there was another shareholder who provided advice and was paid dividends.
Under the agreement between the service companies and POAL, Mr Horton was required to provide his services personally and was not paid for holidays or sickness absence. In addition, the number of days on which he was to provide his services were determined by POAL. He did not have to clock in and out, he was not appraised and was not subject to any disciplinary procedure.
Overall, however, Mr Horton was treated more or less the same as the company’s other programme managers. He was given an access card to its premises, a laptop computer, a company email address and was included in all their training days. In late 2015/early 2016 POAL asked Mr Horton if he would consider becoming an employee but he turned down the offer as he found the existing arrangement more beneficial.
In early October 2019, POAL gave notice that it would terminate the contract with effect from 30 November. Mr Horton invoiced the company for 21 days of work but only received payment for 19 days. He claimed unlawful deduction from wages on the basis that he was either an employee under section 230(1) of the Employment Rights Act 1996 (ERA) or a worker under section 230(3)(b). POAL contended that he was neither.
Relevant law
Section 230(1) states that “employee” is an individual who works under “a contract of employment”.
Section 230(3) states that a worker is an individual who has entered into or works under:
(a) a contract of employment, or
(b) any other contract … whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
Tribunal decision
The tribunal judge found that the 2011 agreement between POAL and the service companies reflected the true agreement between the parties; was clearly regarded as beneficial by Mr Horton; and that both parties had complied with its terms. As that agreement was “plainly inconsistent with there being a contract of employment”, the judge concluded that Mr Horton could not be an employee. However, because he was in a “subordinate or dependent” position in relation to POAL, it decided that he was a worker under section 230(3).
POAL appealed, arguing that the judge had not explained how there could be mutuality of obligation (when one party is obliged to offer work and the other is obliged to accept it) in the absence of a contract of employment between Mr Horton and POAL.
EAT decision
The EAT agreed, holding that the tribunal had failed to consider a crucial issue - the identity of the parties to the 2011 agreement.
Whilst it was clear that Mr Horton had worked “under” a contract, it was not between him and POAL, but between POAL and the service companies which had their own legal identity. Once the tribunal had found there was a contractual arrangement in place, it should have considered whether there were other facts which would indicate whether POAL was a client of those service companies.
However, as the tribunal had found that there was only one contractual agreement between the separate legal entities, ProMan/ProManOne, and that it represented the true intention of the parties, the EAT allowed the appeal and substituted a finding that Mr Horton was not a worker.
Comment
In this case, the tribunal failed to properly consider the contractual agreement and whether POAL was a client or customer of the service companies through which Mr Horton worked. This would have been a relevant consideration had the tribunal not found that the only contractual agreement was between the service companies and POAL.