Contract lawyer (UK) Roger Sinclair Egos Ltd

Part and parcel of the organisation – Establishing whether a person becomes ‘part and parcel’ of a client’s organisation can be a useful indicator in some situations. For example, someone taken on to manage a client’s staff will normally be seen as part and parcel of the client’s organisation and is likely to be an employee. [1]

The following paragraphs are extracted from the Employment Status Manual, section ESM1081: [2]

Another factor to be considered in determining status is whether a worker is 'part and parcel of the Organisation'. Denning LJ has said

'The test of being a servant does not rest nowadays on submission to orders. It depends on whether the person is part and parcel of the Organisation.' [3]

In some cases it will be obvious that the person is carrying on a business outside and separate from the Organisation. One example might be a marketing expert who provided advice from time to time on specific problems in return for a fee.

Another example might be a mechanic, with a contract to maintain a firm's office equipment, who was called in by the firm from a base elsewhere when repairs were needed. In both cases those concerned provide services for the firm yet they are not an integral part of it.

But it can be very difficult to decide whether a person works as an integral part of an organisation. Hence this test is usually unhelpful when cases on the border are at issue. Later judgements have played it down. In Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 173, MacKenna J referred to the above quote and stated

'This raises more questions than I know how to answer. What is meant by being 'part and parcel of an Organisation'? Are all persons who answer this description servants? If only some are servants, what distinguishes them from others if it is not their submission to orders.'

The courts have held that the test should not be applied in the casual field where the worker is engaged on a temporary basis. In the case of Lee Ting Sang v Chung Chi- Keung (1 990) 2AC374, a stone mason who only worked occasionally for a particular contractor was found to be an employee. The Privy Council overturned the lower court's decision which had been partly based on the part and parcel test. The judgement included the following comment concerning the remark of Denning L.J.

'As can be seen from the context the remark is obiter and apparently inserted to emphasise the fact that persons working in a professional capacity such as doctors or engineers, may in law be .servants' although their employer would not be expected to order the manner in which they exercise their professional skills. But to apply the test of whether a person is 'part and parcel of the Organisation' is likely to be misleading in the context of a statute which expressly contemplates that casual workers and workers working for two or more employers concurrently may be employed under a contract of service. In the building and construction industry the test may lead to the error of only considering those on the permanent staff as employed under a contract of service and thus excluding all those from the protection of the Ordinance who are taken on for a particular project because, not being on the permanent staff, they are not 'part and parcel of the Organisation'.'

In Stevenson, Jordan and Harrison v. Macdonald and Evans [4] Lord Denning said:

"One feature which seems to run through the instances is that, under a contract of services, a man is employed as part of the business and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it."

"It is often easy to recognise a contract of service when you see it, but difficult to say wherein the difference lies. A ship's master, a chauffeur, and a reporter on the staff of a newspaper are all employed under a contract of service; but a ship's pilot, a taximan, and a newspaper contributor are employed under a contract for services."

In this case an accountant was held to be an accessory to a business, and not part of it - and self-employed.

The distinction may be that the pilot, taximan, and newspaper contributor would hire out their services to many clients for a specific task, whereas the ship's master, the chauffeur, and the reporter on the staff of a newspaper former would be employed more long term by one client. The distinction may be in the permanency of the post, and in its place within the organisation and business structure and the type of services being delivered. The case suggests that where the individual is subject to the employer's organisational control then they are an integral part of the business - and hence that this may be a pointer towards employment. Can their services, for example, be re-deployed to another part of the organisation, perhaps incorporating changes eg of location or to a position which does not necessarily utilise their main skills? Is this simply an extension or re-expression of the 'control' factor?

More recent cases have suggested that this test is too potentially confusing to be of any real use [5]

Overall, the cases suggest:

· where an Individual is integrated into the engager's organisation (and particularly into the primary functions of the organisation), this may suggest an employment type relationship

· being one of a team for a project does not lead to the conclusion that an Individual is part and parcel of an organisation, and hence is not helpful [6]

Comment

what would the position be likely to be in relation to this factor for a hypothetical employee? logic and experience suggests that a hypothetical employee would clearly be an integral part of the organisation, albeit possibly attached to a particular department. Within an organisation, employees (particularly those of similar grades) would generally be expected to have the equal right to be treated as part of that organisation.

what would the position be likely to be in relation to this factor for a hypothetical obviously self-employed person or consultancy (eg Andersens, or by PWC, or EDI?)

· logic and experience suggests that a hypothetical obviously self-employed person or consultancy carrying out the services would maintain his / her own separate and distinct identity as an independent consultant.

do the facts here actually provide a helpful pointer towards either view?

If you're another lawyer or an accountant reading these pages, I'd be happy to discuss any points arising with you - particularly if you'd like to debate any points where you disagree with my views - mail me!

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[1] http://www.inlandrevenue.gov.uk/ir35/guidance.htm

[2] http://www.inlandrevenue.gov.uk/manuals/esmmanual/part1000/esm1081.htm

[3] Bank voor Handel en Scheepvaart NV v the Administrator of Hungarian Property 35TC31 1, page 333

[4] Stevenson, Jordan and Harrison v. Macdonald and Evans 1952 RPC 10

[5] Ready Mixed Concrete (South East) Ltd v Min of Pensions & NI 1968 2QB 497

[6] Hall v Lorimer 1994 IRLR 171

Part and Parcel of the Client's organisation

The issue

The issues here would appear to be whether there is anything either in the contract, or in the actual relationship between Individual and Client, in relation to this factor which

· helps towards a decision on whether that relationship, had it been direct and without a company in between, would have been an employment contract - a contract of service - or a contract for services, or

· would be inherently inconsistent with a contract of employment.

We are considering here the extent to which the Individual becomes integrated within, or remains separate from, the Client's organisation - what features distinguish him / her from the Client's employees?

Legal issues, and the Revenue Guidelines

Guidelines