The Secretary of State for Business Innovation & Skills v Studders & Ors

An agency worker is an employee of the employment agency only where the evidence establishes a contract of employment with that agency. The essential requirements include mutuality of obligation and an appropriate degree of control by the alleged employer.

A written agreement stating that the relationship is a contract for services is not conclusive, but it carries substantial weight unless the evidence establishes that it does not reflect the parties’ actual agreement. Statutory deductions of PAYE and National Insurance do not indicate employment where the agency was legally required to make them. Control over holidays, without control over the work itself, is insufficient.

The Employment Tribunal declared that three agency workers were employees of Unity Personnel Ltd, an insolvent employment business, and that the Secretary of State was liable to make payments under sections 182 and 188 of the Employment Rights Act 1996.

The workers had signed agreements describing the relationship as a contract for services. The agreements imposed no obligation on Unity to offer work, no obligation on the workers to accept assignments, and permitted either party to terminate without notice. Day-to-day control was exercised by the end user, although Unity had some control concerning holidays.

The Secretary of State appealed, arguing that the Tribunal had misapplied the requirements of mutuality and control and had failed to give proper weight to the written agreement.

1. Appeal allowed. The Employment Tribunal’s declarations were set aside and the claims were dismissed.
2. Under section 230 of the Employment Rights Act 1996, a contract of employment requires the individual to work under such a contract. Applying the principles in Ready-Mixed Concrete, the necessary minimum included mutual obligations and an appropriate degree of control by the alleged employer.
3. The written agreements expressly provided that they were contracts for services, that no contract existed between assignments, that Unity was not the employer, that the workers were not obliged to accept assignments, and that either party could terminate without notice. Those provisions were consistent with the parties’ actual legal obligations.
4. The Tribunal’s finding that Unity was obliged to provide work during an assignment, and that the workers were obliged to perform it, was inconsistent with the agreement. The workers were free to refuse assignments and to terminate them. The fact that a worker who accepts an assignment must perform it does not itself establish mutuality with the agency.
5. Unity exercised no control over the times or manner of the work. That control belonged to the end user. Its modest control over holidays did not satisfy the control requirement, particularly because paid leave was required by regulation 32 of the Working Time Regulations 1998.
6. The statutory obligation to deduct PAYE and National Insurance was neutral and could not support a finding of employment. There was no evidence that the agreement was a sham or that the parties had conducted themselves as though Unity were the employer.
7. McMeechan did not make mutuality and control irrelevant in agency cases. It had to be considered on its own facts.

• Employment Appeal Tribunal: appeal from the decision of the Manchester Employment Tribunal, sent to the parties on 29 July 2010. The Employment Appeal Tribunal allowed the appeal and dismissed the claims.