Protectacoat Firthglow Ltd v Szilagyi

When employment status is disputed, the written agreement is ordinarily the starting point but is not conclusive. The tribunal must determine the parties’ true legal relationship. It may examine whether they realistically intended or expected essential terms, particularly those concerning mutuality of obligation and personal performance, to operate as written.

A contractual label cannot create a partnership or contract for services where the substance of the relationship is different. A provision denying any obligation to provide work may be displaced where the parties intended that available work would be offered within a continuing and exclusive relationship. The tribunal must then assess the relationship as a whole, including the degree of control exercised.

Mr Szilagyi brought employment tribunal proceedings alleging that Protectacoat Firthglow Ltd had employed and unfairly dismissed him after he refused to work in allegedly unsafe conditions. Protectacoat relied on partnership and services agreements which described him and an assistant as an independent partnership contracting to provide installation services.

The employment tribunal held that the documents were a sham and that Mr Szilagyi was an employee. The Employment Appeal Tribunal, in UKEAT/0435/07/DA, upheld that conclusion while allowing Protectacoat’s separate appeal concerning the time limit.

Protectacoat appealed against the refusal of an adjournment and the determination of employment status. The central substantive issue was how a tribunal should decide whether written partnership and services agreements represent the parties’ true legal relationship.

1. The appeal was dismissed unanimously. The employment judge was entitled to refuse an adjournment. Protectacoat knew that its depot manager was the only company representative who had dealt directly with Mr Szilagyi and should have arranged for him to be available. It had also failed subsequently to obtain a witness statement showing that his evidence could materially affect the result.

2. Per Smith LJ, with whom Keene LJ and Sedley LJ agreed on the result, the correct inquiry was the parties’ true legal relationship. A written agreement is ordinarily the starting point, but the tribunal may determine whether it reflects their true intentions or expectations, both when made and as the relationship develops. The inquiry is not confined to documents intended to deceive third parties.

3. The tribunal should identify the legal rights and obligations created by the written terms and then consider whether the parties realistically intended or envisaged that essential terms would operate as written. Essential matters include mutuality of obligation and personal performance. Contracts may be partly written, partly oral, or constituted or evidenced by conduct.

4. The partnership label was not conclusive. Section 1(1) of the Partnership Act 1890 required persons to carry on a business in common with a view to profit. The installers had no common business, assets or bank account, and their remuneration was paid separately. The agreements were signed to satisfy Protectacoat’s scheme for avoiding employment status and created only an illusion of partnership.

5. The services agreement also failed to reflect the intended relationship. Although it purported to permit outside work and denied any obligation to provide work, the parties expected an exclusive and continuing arrangement under which Mr Szilagyi would receive available work and attend as directed. Protectacoat’s control over attendance and the manner of performing jobs was consistent with employment. The employment judge had relied in part on an irrelevant health-and-safety consideration and had not expressed every step clearly, but his other findings adequately supported the conclusion that Mr Szilagyi was an employee under section 230 of the Employment Rights Act.

6. Sedley LJ added that, in employment cases, it may be more helpful to ask directly what the true legal relationship is than whether the document is a sham. He left open whether an intention to conceal the relationship is universally required and whether a genuine partnership necessarily prevents its members from having contracts of employment with the work provider.

1. Court of Appeal (Civil Division): The court dismissed Protectacoat’s appeal and affirmed the determination that Mr Szilagyi was its employee: [2009] EWCA Civ 98.

2. Employment Appeal Tribunal: The EAT dismissed Protectacoat’s appeal on employment status but allowed its appeal concerning the time limit: UKEAT/0435/07/DA.

3. Employment Tribunal: At a preliminary hearing, the tribunal held that Mr Szilagyi was an employee and extended time for bringing his claim.