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Rebecca Seeley Harris, Re: Legal Consulting

**Held – Appeal Dismissed (unanimous)
**The Court of Appeal held that there was no proper basis on which any employment tribunal, properly directing itself on the facts, could find that there was a direct contractual relationship between Alstom and Tilson. Tilson was not, therefore, an employee of Alstom.

**Summary
**The Court of Appeal have handed down their judgment that is authority for the proposition that "…the mere fact that there is a significant degree of integration of the worker into the organisation is not at all inconsistent with the existence of an agency relationship in which there is no contract between worker and end user."

The Court of Appeal also held that:

* Even if it can be said that there was a representation or contractual promise effectively made to the appellant, through a third party, that does not create any inconsistency between the end user's conduct with respect to the appellant and any undertakings it has given. * The need to apply to the line manager before taking annual leave is not sufficient to justify the implication of a contract. * If the parties would have acted in exactly the same way if there had been no contract, it is fatal to the implication of a contract: applying The Aramis [1989] 1 Lloyd's Rep 213. * The parties' understanding that there is no contract in place explaining the terms of their relationship, and their inability to reach an agreement on the terms which such a contract should contain, are extremely powerful factors militating against the implication of contract.

**Background
**Tilson ("appellant") began working for Alstom ("respondent") as a technical engineer in 2004 and was promoted to a managerial position until his relationship with Alstom was summarily terminated at the instruction of Alstom in 2006.  Tilson alleges that this termination constituted an unfair dismissal.  In order to claim unfair dismissal at law, however, Tilson had to first prove that he was an employee of Alstom.

There was, however, a complex agency relationship in place under which the appellant's services were provided to Alstom by a third party contractor.  Contractually, Mr Tilson was an operator who provided his services to a contractor Silversun Solutions Limited ("Silversun").  In reality, Silversun was a payment mechanism and Tilson was neither a director nor a shareholder of the company, he had a verbal agreement under which he agreed to pay Silversun a 3% service charge for receiving his remuneration. Silversun contracted with Morson Human Resources International Limited ("Morson") to provide Tilson's services under a "contract confirmation note". Morson, in turn, contracted with Alstom, the end client, to provide the services of Tilson.

**Exercise of Control
**At the employment tribunal the judge concluded that a contract should be implied between Tilson and Alstom.  The judge came to the conclusion that the contract documentation was not a genuine reflection of the relationship between the parties, following the Autoclenz¹ list of 'sham' cases.  The reasoning of the judge was based on the fact that in reality Alstom did exercise considerable control over Tilson despite clause 3.1 in the Silversun/Morson contract, which stated that:

"Neither the Company nor the client shall be entitled to or seek to exercise any supervision, direction or control over the Contractor or the operatives in the manner or performance of the Project."

The judge concluded that this clause and, therefore, the contracts that existed were not genuine and did no more than create a mechanism for payment.  The mechanism involved an attempt to engineer a structure that deflected the possibility of an interpretation of employment. The relationship between the appellant and Alstom could not be explained by the contractual arrengements in existence and, therefore, in those circumstances it was necessary to imply a contract to explain the basis on which the appellant was working for Alstom.  The judge, by concluding that there was an implied contract, found that Tilson was an employee.

**Sham Contract
**Alstom appealed to the Employment Appeal Tribunal (EAT) that the decision was flawed and that the judge was wrong to find that there was any contract in existence at all between Tilson and Alstom.

At the EAT, McMullen J accepted that the issue of 'sham' was not live before the employment judge and should not have been considered by him and certainly not without canvassing the views of the parties.  The Court of Appeal did not, therefore, consider the issue of 'sham' contracts.

McMullen J commented that it was unusual in this case that the would-be employee had at all times asserted that he was an independent contractor and that was with his eyes wide open and articulately understanding the advantages to be gained from remaining as an independent contractor.  As a result, the EAT held that there was no contract in place.

**Implied Contract
**The appellant's case, in the Court of Appeal, was that notwithstanding his unwillingness to enter into an employment contract, in fact as a matter of law he had been engaged by Alstom pursuant to such a contract. There was no express contract in place between Alstom and the appellant, but it was necessary to imply one.

The onus is on the claimant to establish that a contract should be implied² and a contract can only be implied if it is necessary to do so to give business reality to what is happening.   This is as true when considering whether or not to imply a contract between worker and end user in an agency context as it is in other areas of contract law³, the test used being that laid down by Bingham LJ in The Aramis⁴.

"necessary . . . in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist."

Bingham LJ went on to point out in Aramis that it was insufficient to imply a contract that the conduct of the parties was more consistent with an intention to contract than with an intention not to contract. He continued stating that: "It would be fatal to the implication of a contract that the parties would or might have acted exactly as they did in the absence of a contract."

Elias LJ stated in the present case that:

"It is important to emphasise that if these principles are not satisfied, no contract can be implied.  It is not against public policy for a worker to provide services to an employer without being in a direct contractual relationship with him.  Nor is it legitimate for a tribunal to imply a contract because it objects to the practice of employers entering into arrangements of this kind in order to avoid incurring the obligations they owe to their employees."

Ms Rayner, representing Tilson, submitted that there were three findings of the employment judge in particular which, when considered cumulatively, were capable of justifying the conclusion that there was an employment contract in place.

Firstly, there was very extensive integration of the appellant into Alstom's business.  This was not disputed by Alstom, and it was accepted that if there was a direct relationship between Alstom and Tilson, it would be a contract of service.  The second and related point was the divergence between the representations in the Silversun/Morson contract as to how Alstom would treat the appellant and the actual reality of that relationship. Alstom was strongly asserting control, which was in direct oppostion to clause 3.1 of the Silversun contract, and the fact that the contractual documents were not a true reflection of the working practices, was a powerful factor pointing in favour of implying a contract.

Finally, there was the specific finding that Tilson had to notify his line manager before taking his holiday. It was asserted that although this factor was not capable of justifying implying a contract on its own, it was a contributing factor.

Ms Palmer, representing Alstom, reiterated the arguments found in favour by the EAT and sumitted that "…it was contrary to fundamental contractual principles to imply a contract on the basis of necessity in circumstances where there was a clear and unambiguous stated intention on the part of the appellant that he did not wish to enter into any such contract."

The question before the Court of Appeal was whether the three factors relied upon by the appellant were capable of sustaining the conclusion of the employment judge.  In the view of Elias LJ, they were not, whether considered individually or cumulatively.  Firstly,  Elias LJ stated at para. 50 that:

"…the mere fact that there is a significant degree of integration of the worker into the organisation is not at all inconsistent with the existence of an agency relationship in which there is no contract between worker and end user."

The degree of integration may be material to the issue, where there is a contract, in determining whether that contract is a contract of service,  but is a factor of little weight when considering whether there is a contract in place at all.

Secondly, Elias LJ considered the effect of clause 3.1 and determined that it plainly did misrepresent in a blatant way the extent of the control which Alstom would exercise over the appellant.  But although the conduct of the parties was not remotely congruent with the contractual terms, "…was it necesssary to infer a contract to explain this divergence between the contract and practice."  Elias LJ did not accept that it was.  Alstom never made any representations to the appellant or gave any contractual undertaking that they would not seek to control his activities, the representation was made by Morson to Silversun.  But even if it can be said that a contractual promise was made to the appellant, through Silversun, that does not create an inconsistency between Alstom's conduct with respect to the appellant and any undertakings it had given.

The final point to be considered was whether the need to apply to the line manager before taking annual leave was sufficient to justify the implication of a contract.  Again, Elias LJ thought it was not.

**Unanimous decision
In his lordship's view, there was "…no legitimate basis for implying a contract on the facts, even when considered cumulatively."  In his judgment the "…only proper inference is that: "the parties have acted in exactly the same way if there had been no contract, and as Lord Bingham pointed out in The Aramis** [1989] 1 Lloyd's Rep 213, that is fatal to the implication of a contract.""

The conclusion of the appeal court was strongly reinforced by the fact that there was no common intention or desire that there should be a contract between these parties, at least not on the wage rates the appellant was receiving.  The appellant had expressly abstained from entering into an employment contract with Alstom.

Commenting on this proposition, his lordship stated that he did not suggest that a contract can never be implied if this is contrary to the wishes of the parties, but whether a contract should be implied is ultimately a matter of law and involves an objective analysis of all the relevant circumstances.  He continued: "…the parties' understanding that there is no contract in place explaining the terms of their relationship, and their inability to reach an agreement on the terms which such a contract should contain, are extremely powerful factors militating against any such implication."

Notes

*1.Autoclenz Limited v Belcher [2009] EWCA Civ 1046

1. Modahl v British Athletic Federation [2001] EWCA Civ 1447, [2002] 1 WLR 1192, para 102.
   
2. James v Greenwich London Borough Council [2008] ICR 545. 
   
3. [1989] 1 Lloyd's Rep 213*