A recent case in the Court of Appeal (Tilson v Alstom Transport) dealt with the application of the ‘necessity’ test for implying a contract of employment between an agency worker and the end-user business where the worker is fully integrated into the organisation.

Mr Tilson worked as a technical engineer for Alstom Transport, which provides maintenance services for a train operating company. He occupied a managerial position within the company and was subject to its supervision and control. For example, he had to apply to his line manager if he wished to take holiday leave. He had rejected an approach from Alstom inviting him to become an employee and continued to work under a somewhat complex, quadripartite arrangement whereby he was paid by Silversun Solutions Ltd., less a 3 per cent service charge. There was no formal written contract regarding this arrangement. Silversun provided Mr Tilson’s services to Morson Human Resources Ltd. under a contract which contained a clause (clause 3.1) stating that neither Morson nor Alstom was entitled to ‘seek to exercise any supervision, direction or control’ over Mr Tilson. Finally, there was a general contract between Alstom and Morson under which Morson undertook to provide a wide range of services to Alstom, including the provision of individual workers, but there was no specific documentation relating to Mr Tilson’s assignment.

After he had worked for Alstom for more than two years, Mr Tilson’s engagement was terminated and he brought a claim for unfair dismissal. It was therefore necessary for him to establish that he had a contract of service with Alstom, for the purposes of the Employment Rights Act 1996, and a pre-hearing review took place to this end.

A contract of employment can only be implied where it is necessary to do so in order to give business reality to the working arrangements. Mutuality of obligation and control are determining factors but earlier case law has established that the fact that the conduct of the parties is more consistent with an intention to contract than not is insufficient to imply a contract and it is fatal to the implication of a contract that the parties would or might have acted in exactly the same way in the absence of a contract. Nor can the Employment Tribunal (ET) imply a contract because it disapproves of arrangements that it sees as existing to avoid the employer’s obligations to its employees.

The ET held that a contract of employment should be implied in this case. Not only did Alstom exercise a significant degree of supervision and control over Mr Tilson, but the Employment Judge also found that clause 3.1 of the contract between Silversun and Morson was ‘bogus’, being merely a mechanism for payment which involved ‘an attempt to engineer a structure that deflected the possibility of an interpretation of employment’. The contract could not therefore be relied upon as truly reflecting the working relationship between Mr Tilson and Alstom and it was necessary to imply a contract of service.

This decision was overturned by the Employment Appeal Tribunal (EAT). In particular, no claim had been made that the above-mentioned contract was a ‘sham’ and this issue should not therefore have been considered by the ET. In any case, its decision was based on just one clause in the contract whereas the Judge should have taken a ‘holistic’ approach to the document.

In dealing with the points raised on appeal, the Court of Appeal found that the parties would have acted in exactly the same way if there had been no contract of employment. A significant degree of integration of a worker into an organisation is not inconsistent with the existence of an agency relationship and is a factor of very little weight when considering whether or not a contract of service exists. Just because someone looks and acts like an employee does not automatically mean that they are an employee. The fact that Mr Tilson had to apply to his line manager before taking annual leave was not sufficient to justify the implication of a contract.

The Court also found that Alstom had at no time given any contractual undertaking that it would not seek to control Mr Tilson’s activities. Whilst the degree of control that existed was inconsistent with clause 3.1 of the contract between Morson and Silversun, there was no evidence that it was not consistent with the conduct of, or any undertaking given by, Alstom, and Mr Tilson had chosen to work under those conditions.

Lastly, the Court supported the view of the EAT that Mr Tilson’s refusal of the offer to become an employee of Alstom illustrated that there was no contract in place and was a powerful factor militating against such implication.