Case studies: Employment Status

The Facts:

An umbrella company engaged some construction workers under contracts for services. Subcontractors all agreed and signed written contracts. The subcontractors provided services on a site owned and operated by the umbrella company’s client. The umbrella company had no involvement in the day to day activities of the subcontractors, did not monitor the subcontractor’s attendance, and the client provided all the tools and equipment including the PPE. The client paid the umbrella company the agreed fee from which the umbrella company deducted a margin and then paid the subcontractors the agreed rates via CIS. When work at the particular site ended the client told the subcontractors they were no longer required on site.

The Claim:

The subcontractors believed they had been ‘let go’ and that this had been done unfairly. They took advice from a local firm of solicitors and instigated Employment Tribunal claims against both the client and the umbrella company. They alleged that they had been unfairly dismissed because a lawful procedure had not been followed and that they had been wrongfully selected for redundancy. They claimed compensation for unfair dismissal, a redundancy payment, a notice payment, holiday pay, 4 weeks’ pay for failure to provide a written statement of particulars and an uplift on the compensatory award for failure to follow a fair procedure.

The Defence:

The client argued that the subcontractors were not employed by them because they did not have a contract of any sort with them. The absence of contractual relations means that the subcontractors cannot be employees or workers (for the purposes of holiday pay). The client argued that the correct and only respondent to the claim was the umbrella company who contracted and paid the subcontractor.

The umbrella company argued that the subcontractors were not employees or workers. The umbrella company highlighted that the subcontractors had agreed written contracts which precluded them from being workers or employees and that these contracts accurately represented the agreement between them. The umbrella company also argued (in the alternative) that there had not been a dismissal. They argued that the client did not have a contract with the individual and as such did not have the authority to terminate the umbrella company’s contract with the subcontractor and therefore no dismissal had taken place. The client was able to ask a subcontractor not to return to site (it was after all their site) but this did not amount to a termination of the subcontractor’s contract.

The Result:

At a Pre-Hearing Review (PHR) to determine the subcontractors’ status the Employment Tribunal (ET) found that the subcontractors were not employees or workers. The ET placed considerable emphasis on the written contract which the subcontractors had signed without complaint. In particular the Employment Tribunal highlighted the fact that the subcontractors were not obliged to do any work contractually and that in practice the majority of them had on numerous occasions refused work because it either did not suit them or they had something else on. The ET found that this fact alone was evidence that the necessary obligations between the parties to constitute an employment relationship were missing.

With regards to the client the ET accepted that there was no contractual relationship with the subcontractors and that therefore they were wrongly joined to the claim from the outset.


Published: 04.11.13 - Posted In: Case Studies