Case update: employment status of PSC contractors

Was a contractor engaged through a personal service company a worker? Andrew Macmillan explains in light of a recent EAT ruling

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Issue

Where an individual provides services to a third-party business through a personal service company (PSC) that they have set up there will be no direct contract between the individual and the business in which the work is carried out. Payments will be made to the PSC for the services provided and then typically the individual will receive payment by way of a wage and dividends paid from the PSC.

In Plastic Omnium Automotive Ltd v Horton the Employment Appeal Tribunal (EAT) considered how these contractual arrangements may impact a claim that the individual had employment rights as an employee or worker of the company where the services had been supplied. 

Facts

Mr Horton had set up two companies, ProMan Design and later ProManOne, for the purposes of providing programme management services to Plastic Omnium Automotive. The contracts entered into between the companies provided that Horton would personally carry out the work and he would act as programme manager. 

There were a number of contracts for projects awarded and the work continued for more than eight years. During this time, Horton reported to the programme director, attended training days and usually worked regular hours Monday to Friday. The working arrangements meant he had been fully integrated into the business and there was no difference in the way he worked and the way employed programme managers worked. 

In late 2015 or early 2016, Horton was asked whether he would consider becoming an employee, which would have entitled him to a salary of £65-75,000 per annum, plus a bonus, a car allowance and a contribution to pension. However, the offer was rejected.

In 2019, notice was given to end the contract under which Horton was providing the services. A dispute arose relating to payments for the services carried out and a claim was brought in the employment tribunal that could only proceed if Horton could establish that he had employee or worker status with Plastic Omnium Automotive.

Decision

The evidence showed that Horton had been integrated into the business, that he was dependent on the work and that he was subordinate to others within Plastic Omnium Automotive, which were factors that led to the employment tribunal finding that Horton’s claims could proceed on the grounds that he had ‘worker’ status.

On appeal though, that decision was overturned. The EAT highlighted that the evidence had also shown that the contract between Plastic Omnium Automotive and the service company reflected the true agreement between the parties. 

Given that finding, it was not possible to declare that Horton had worker status with the company as there was simply no contract between him and Plastic Omnium Automotive. His claims against Plastic Omnium Automotive could not proceed as in the absence of any contractual relationship with that company he was not an employee or worker of it. 

Key points

The decision highlights the principle that for an individual to have employee or worker status there is a statutory requirement that a contract is in place between the parties. This can be expressed or implied in the circumstances. 

If the existence of a contract could be established, then it may be that the individual would have worker status, provided that there was a requirement for personal service and the other party to the contract was not their customer or client. 

It was first necessary though to establish with whom the contract had been made. Where it is ascertained that there is a valid and genuine contract between a personal service company and a business, there will be no grounds to imply any further contract between the individual and the business.

Andrew Macmillan is an employment partner at Gateley Legal