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Employment status - The Bermuda Triangle

You could be forgiven for believing that no Court responsible for adjudicating on the question of employment status (which has repercussions for the flexible labour market, as well as the collection of PAYE income tax) is ever going to clear up the conundrum of employment status - once and for all.
We are in muddle and the case of Muscat v Cable and Wireless Plc (2006) (EAT) does not untangle the mess left by Mrs Dacas and Wandsworth Borough Council last year when Wandsworth Council found themselves (unwittingly) employers of this agency worker.

Muscat is yet another example of judicial creativity, this time with the end user (client) being lost in the Bermuda Triangle (worker, agency, end user) of employment status. In 2001 Mr Muscat was employed by Exodus. Meanwhile (and in an unrelated twist of fate), Cable and Wireless (“CW”) entered into a contract with an employment agency called Abraxis for the provision of contract and permanent personnel. In September 2001, Exodus reduced its employee head count for business sale purposes and on the 15th October Mr Muscat was dismissed but re-engaged through his newly created (alter ego) service company (E-Nuff Ltd). He was responsible for his own National Insurance and Tax and submitted invoices to Exodus for consultancy services.

In February 2002, C&W took over Exodus and Muscat continued as before. But this time under the direction of the new owners of Exodus (C&W). C&W supplied him with a mobile phone and a laptop, which they paid for, and he was integrated into their own staff. He cleared all his annual leave entitlements with them. C&W described Muscat as an employee and issued him with an employee number (oh dear!).

In April 2002, CW stopped paying invoices from E-Nuff. In fact they told Muscat that he would have to deal with them through an agency, Abraxis. CW sought to distance themselves from E-Nuff (Muscat) by engaging his services through a third party employment agency. Not surprisingly, when they wished to dispense with his services altogether in December 2002, he brought an unfair dismissal claim against them.

The Court of Appeal concluded that it was satisfied that he was an employee. They looked at this triangular relationship and concluded that there was an implied contract between Muscat and C&W before the latter procured his services through Abraxis (the Employment Agency). Further, the Court was satisfied that the relationship had not changed, despite the fact that the remuneration was paid through a third party (Abraxis). The obligations in the contract between Muscat (via his E-Nuff service
company) and the Employment Agency “could be read across” as if they applied to CW directly.

The message here is simple. If as hirer of labour, you start a direct relationship with a worker and then seek to make it indirect, this ain’t going to work. Once your employee - always your employee! If you terminate him/her and engage him through a third party so that you become the end user, you will lose in this Bermuda Triangle relationship. Try to steer a course away from it by using short term engagements of less than 1 year.

For further enquiries please contact Nick Hobden (view full profile) on 01892 701326 or email nick.hobden@ts-p.co.uk.

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