Contractors in the Energy Sector – a Warning for the Unwary
Posted: Friday 30 July 2010
A recent case involving British Energy Generation Limited received a fair amount of media attention and could potentially have far reaching consequences for the sector. It involved an individual (Sarah Lucas) who had worked as an administrator for the company for over 6 years until June 2009. In terms of the written agreements between her and the company, her status was described as a “contractor”. She commenced work as an agency worker and transferred between agencies over the years. During a part of the time she provided her services to the agency through a limited company in which she was a shareholder and employee (an arrangement which was principally made for tax purposes). When the claimant got cold feet about her tax arrangements, she claimed that she was in fact an employee of British Energy and a dispute then ensued, resulting in BE refusing to accept a grievance from her as she was not an employee. She then reverted to an arrangement with the agency but did not sign her contract or submit timesheets to the agency.
When the relationship eventually terminated, Ms Lucas raised a Tribunal claim alleging (among other things) unfair dismissal. The right to claim unfair dismissal is limited to “employees” and therefore on the face of it, the Tribunal should not have had jurisdiction to hear the matter.
However, the Tribunal in Bristol found unanimously that the relationship between the parties had “become a relationship of employer and employee”. As such, the Tribunal could consider the claim and the matter will now be taken forward to a full hearing. While this case may turn on its specific facts and indeed may be subject to an appeal (given its potential effect) it is an important warning shot to employers.
If the decision is not overturned, it could result in many “contractors” within the industry being able to claim rights normally reserved only to those who are employees. As well as the right not to be unfairly dismissed, other statutory rights including those relating to sick pay and holidays could also apply.
Employers must be careful to ensure that a relationship which is initially badged as one involving a “contractor” does not, over the course of time, change to become one more akin to an employment relationship. When the Tribunals are asked to consider such questions they look at a variety of criteria to allow them to come to a decision on the basis of all the relevant factors.
There are certain key tests which the Tribunal are likely to place particular weight upon. The first of these relates to whether the individual is required to provide “personal service”, i.e. they cannot send a substitute to do the job. The issue of the level of control that the employer has over the individual is also important and therefore the individual’s autonomy in the role can be significant. The extent of the mutuality of the obligations between the parties is also revealing as it shows the extent to which the individual must be provided with work and their obligations to actually carry out the tasks given to them.
A wide range of other factors may also be taken into consideration such as whether the individual provides their own tools and equipment, the degree of financial risk / investment taken by the individual and the level of their integration into the employer’s business. Tax status can also be a guide to employment status although clearly it is not in of itself a definitive answer.
Relationships can change over the years and employers, particularly in the Energy sector which utilises such workers to a considerable extent, must be careful to ensure that the ongoing status of their personnel is kept under review. The British Energy case involved the individual changing roles a great number of times over the eight years of her employment, but always via the agency, one way or another. Interviews for different posts were carried out by BE staff and she reported directly to BE staff members and, latterly, took on some of their roles. If you are contracting with an agency for staff, then it is advisable that any changes in staffing requirements are also conducted via the agency and that the agency confirms those arrangements each time the role changes. You should also seek an undertaking from the agency that they will take all reasonable steps to ensure that their documentation is up to date at all times and seek an indemnity against any losses or costs arising as a result of their failure to do that.
