Nayak v. Lucent Advisors (UK) Ltd & Anor

Employment status depends on the parties’ actual contractual relationship. In informal arrangements, day-to-day practice may evidence implied terms, but the tribunal must determine whether the contract gave the putative employer a sufficient right of control. A lack of control over how a skilled person performs work does not itself point strongly against employee status.

The tribunal must identify the express or implied contractual terms before deciding whether any are inconsistent with a contract of employment. A description of the arrangement as self-employment, and related tax or VAT arrangements, cannot determine its true character and must not be given undue weight. The qualifying period in section 108(1) of the Employment Rights Act 1996 is not jurisdictional.

The appellant claimed unfair dismissal against two related companies. At a preliminary hearing, the Employment Tribunal held that he had been self-employed throughout and therefore was not an employee of either respondent. It also expressed the view that he lacked two years’ continuous employment.

The evidence accepted by the Tribunal included personal service, extensive direction by Mr Flynn as to meetings and work, invoices headed as service invoices, VAT registration and self-assessment tax returns. The contractual arrangements were informal and largely had to be inferred from the parties’ conduct.

The appeal concerned whether the Tribunal had correctly approached control and contractual inconsistency when determining employee status, and whether continuity of employment had properly arisen at the preliminary hearing.

1. Appeal allowed. The decision that the appellant was not an employee was set aside. The employee-status issue was remitted to Employment Judge Johnson for fresh determination on the existing evidence.

2. The Tribunal had identified the familiar ingredients relevant to a contract of employment, but erred in its application. In an informal relationship, the parties’ day-to-day practice is relevant evidence from which contractual terms may be inferred. The ultimate question on control remains whether there was an express or implied contractual right to exercise a sufficient degree of control.

3. The Tribunal’s emphasis on the absence of control over how the appellant performed his duties was misplaced. A skilled worker may exercise independent professional judgment in performing work while remaining subject to sufficient contractual control. The approach in [2013] IRLR 286 showed why that feature should have carried reduced weight.

4. On the question whether other terms were inconsistent with employment, the Tribunal should first have identified the express or implied contractual terms. It then should have assessed their consistency with employee status. The appellant’s purported election to provide services as self-employed, together with invoicing, tax and VAT arrangements, was not itself a contractual term capable of deciding the issue. The Tribunal should have applied the caution that a label chosen by the parties cannot alter the true legal relationship.

5. The Employment Tribunal’s observation about two years’ continuous employment did not form part of its order. That issue had not been raised by the respondents and fell outside the stated preliminary issue. Further, section 108(1) of the Employment Rights Act 1996 is not a jurisdictional bar. If continuity had fallen for decision, the statutory presumption of continuity in section 210(5) would have applied unless displaced.

6. The Appeal Tribunal declined to substitute a finding of employee status. Given the informality of the arrangements and the evidence before the Tribunal, more than one conclusion could properly be open. The preliminary issue was therefore remitted afresh, without further evidence.

• Employment Appeal Tribunal: appeal allowed; the preliminary decision was set aside and the employee-status issue remitted to Employment Judge Johnson.
• Employment Tribunal: at a preliminary hearing, Employment Judge Johnson held on 11 October 2016 that the claimant was not an employee of either respondent and dismissed the unfair-dismissal claim.