'After 6 months on a
1-year contract, I was called away from my desk one morning, to be given a letter
telling me my contract was terminated without notice, and I was immediately
escorted from the building. I've not
been paid for (or got timesheets for) my last 2 weeks work. The agency claim that the contract was
terminated under a clause which says they can do so if the Client says it is
not satisfied with my performance.'
In my last article we
looked at the above situation from the viewpoint of the simple contractual
relationship between your company and the agency. Now I want to go onto consider your personal
position from the point of view of employment law - what has become known as
the 'nuclear option'.
The fundamental
question we have to ask is whether or not the Contractor is an 'employee', as
defined by employment law, of either the Agency or of the Client. That is a question we have to ask separately,
in relation to each. In this article I'm
focusing on the Client, but don't lose sight of the fact that the same
questions and logic apply in the case of the Agency.
The express written
contractual chain is, as usual, Individual-Company-Agency-Client. There is generally no direct express
contractual link either between Individual and Agency, or between Individual
and Client - although there may sometimes be, for example where the Agency insists
on the Individual also being a party to the Agency contract, or where the
Client requires the Individual to sign a separate confidentiality agreement.
For employment law
purposes, the starting point is that a 'contract of employment' is defined by section
230 of the Employment Rights Act 1996 as 'a contract of service or
apprenticeship, whether express or implied, and (if it is
express) whether oral or in writing'.
This is very broad, and recent cases have appeared to move the
boundaries by making clear that 'implied' can include
circumstances where the only express contracts forming part of the overall
relationships are between other parties - thus even though there may be no
express contract between the parties in question, there can still be an implied
contract between them.
So the next question
is whether or not that implied contract is a 'contract of employment'. And we therefore move onto the more familiar
ground common both to this question, and to the IR35 test - is the nature of the
hypothetical relationship one which would be employment, if the contract were
direct?
In the case of Ready
Mixed Concrete South East Limited v Minister of Pensions and National Insurance
(1968) it was said that:
"A
contract of service exists if these three conditions are fulfilled.
(i) The servant
agrees that, in consideration of a wage or other remuneration, he will provide
his own work and skill in the performance of some service for his master.
(ii)
He
agrees, expressly or impliedly, that in the performance of that service he will
be subject to the other's control in a sufficient degree to make that other
master.
(iii)
The
other provisions of the contract are consistent with its being a contract of
service.'
The three questions
are therefore whether
1
there is an obligation
to perform the services personally;
2
there is
submission to a sufficient degree of control;
and
3
the other
terms are not inconsistent with an employment relationship.
Here, it seems to me (looking
to the terms of the written contracts in the chain for assistance as to the
actuality of all the relevant relationships) that there was certainly an
obligation to perform the services personally;
there was certainly submission to a sufficient degree of control; and no other terms were inconsistent with an
employment relationship. Just as the
written contracts indicate that the overall relationships would probably have failed
the IR35 test, so the implied relationship between Individual and Client is
likely to pass (for very similar reasons) the test of whether or not there is
an implied contract of employment between them.
So what are the
consequences of that?
First, there is a
right to a notice period before the 'contract' can be terminated. A minimum notice period is laid down by
statute, depending on the length of time the relationship has subsisted,
although (1) statute provides that a longer period shall apply if it has been
so agreed, and (2) that does not affect the right of either party to terminate
without notice if justified by (in employment law terms) the conduct of the
other party. Here, it seems to me that
the right to a 28-day notice period in the written contract may well also be
imported into the implied contract of employment. And therefore since there were clearly no
conduct-related grounds for termination without notice, there may be a good
case for claiming 4 weeks at the contractual rate.
Secondly, if the
relationship had subsisted for more than a year, a separate right not to be
unfairly dismissed would also have arisen.
Where there has been an unfair dismissal (as might well have been the
case here, if only the relationship had in fact lasted that long) the
entitlement is to a basic award (calculated in the same way as a redundancy
payment - see below), and to an additional award, designed to compensate for
actual losses resulting from the dismissal.
And thirdly, if the
relationship had lasted for more than 2 years, then if it had been properly
terminated (or had simply expired without being renewed) there may also be a
right to a redundancy payment of a week's pay (subject to a maximum of £230 per week!) for each year of the relationship (1.5 weeks
for each year where the individual is over 42).
Finally, what does
all this mean to the Contractor whose contract has ended? It means that in certain circumstances, (s)he
may have rights over and above those in the written contract to compensation,
either on premature termination, or on expiration without renewal; and also that these are rights which may be
exercised not only against the Agency, but also against the Client directly,
through the Employment Tribunal.
I'd really appreciate your feedback on this FAQ - so mail me and tell me what you think of it, if it's been useful to you, or let me know of any specific problem you have where I may be able to help.
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