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Hewlett Packard Ltd v. O'Murphy [2001] EAT Hon. Mr Justice Brown Employment Case - Unfair Dismissal In the Employment Tribunal (the Tribunal), the applicant Mr O'Murphy brought a complaint of unfair dismissal against the respondent Hewlett Packard. Hewlett Packard asserts that Mr O'Murphy was not an employee and was, therefore, precluded from making the complaint. The Tribunal was asked to decided on a preliminary issue of whether or not Mr O'Murphy was an employee of Hewlett Packard as defined in s.230 of the Employment Rights Act 1996. The Tribunal decided, when all the matters were put in the balance, that the cumulative effect was not sufficient to outweigh the indicators of a contract for services. Mr O'Murphy was, therefore, judged to be an employee of Hewlett Packard. Hewlett Packard appealed to the Employment Appeal Tribunal (EAT) against the decision of the Tribunal on the preliminary issue that Mr O'Murphy was their employee. Mr Justice Brown stated in the EAT that: "This appeal raises an interesting question on a sophisticated version of an often encountered situation where workers on the books of an Employment Agency hired to third party employers seek to establish that they were in fact employed by those third party employers." There was in this case a variation to the usual pattern in that Mr O'Murphy was providing his services through a limited company which he formed, Circle Technology Ltd (Circle). There was a written contract between Circle and Eaglecliff Ltd, an employment agency, and there was a written contract between Eaglecliff and the client Hewlett Packard, to whom Mr O'Murphy would provide the services. The facts, which are not in dispute, are that Mr O'Murphy was a computer specialist who worked through his own limited company Circle Technology Ltd (Circle), of which he described himself as an employee. In June 1994, Circle entered into a contract with Eaglecliff Ltd, an employment agency, who would provide his services as the "approved consultant" of Circle to the client Hewlett Packard. His job description was that of Contract System Manager. In July 1999, Eaglecliff formally informed Mr O'Murphy that his assignment as Contract System Manager had come to an end. The letter was sent to Mr O'Murphy as a Director of CT. Mr O'Murphy was then engaged under the same circumstances with Hewlett Packard at it's Bristol site as a Contract Business Migration Support Engineer. This contract continued until its termination in October 2000, when Mr O'Murphy claimed unfair dismissal. With the facts not in dispute Miss Rose, counsel for Hewlett Packard, launched a three-pronged attack on the reasoning of the Tribunal.
They agreed with the first point of Miss Rose where she submits that 'in a case of this kind the task of the Tribunal is to ascertain whether there was a contract of any kind between the applicant and respondent.' Brown J continued: "If the applicant fails to satisfy the Tribunal of that that is an end of a claim based on assertion that he had entered into or worked under a contract of employment within the meaning of Section 230 Employment Rights Act 1996." If the Tribunal had asked the question raised in Miss Rose's first point and answered it in accordance with the evidence, the EAT thought that they should have come to the conclusion that there was no contractual nexus between Mr O'Murphy and Hewlett Packard. It was not suggested that the contracts were not genuine and, in those circumstances, the Tribunal could not dismiss them for having no materiality. The EAT relied upon the case of Costain Building and Civil Engineering Ltd v. Smith [2000] ICR 215 and stated that if the Tribunal had given that case more consideration they may have hesitated before being so dismissive of the contractual arrangements in this case. The issue of a contractual 'label' was addressed with reference to the case of Massey v. Crown Life Insurance [1977] ICR 590 which was relied upon by Mr Antell, counsel for Mr O'Murphy. The EAT considered, however, that the statement must be qualified as it was by Lawton LJ at page 597 in that case: "Ferguson -v- John Dawson and Partners 1976 1 WLR 1213 clearly established that the parties cannot change a status merely by putting a new label on it. But if in all the circumstances of the case during the terms of the agreement it is manifest that there was an intention to change status then in my judgment there is no reason why the party should not be allowed to make a change". It is clear from that and the judgment of Lord Denning MR in Massey that whatever the label the court must examine the true nature of the relationship and the terms of the agreement must be looked at. The Tribunal were clearly influenced by the fact that Mr O'Murphy had been integrated into Hewlett Packard's workforce. This argument was considered by Mr Justice Morrison in Secretary of State for Education and Employment -v- Bearman [1998] IRLR 431 where he said this: "The fact that they were to be "integrated" so as to become part of the team says nothing we think to indicate a change of position: In the circumstances of this case integration was consistent with either basis of employment." The EAT dismissed Mr Antell's argument that the contract could be spelt out with reference to paragraph 16.2 in the Tribunal's decision referring to the mutuality of obligation: "The work and payment are not in dispute but what was disputed was whether they rose by way of mutual obligation which they clearly did not." Mr Antell's argument that the contract was varied was thought to be equally untenable by the EAT: "There was no contract between Mr O'Murphy and Hewlett Packard and so that could not be varied. We asked Mr Antell which contract was varied and he submitted both contracts between Hewlett Packard and Eaglecliff and Eaglecliff and CT. However there is no justification on the evidence as to this. Variation was not argued before the Tribunal and they made no finding upon it." It was also stated by the EAT that the Tribunal was not entitled to come to the conclusion that Eaglecliff was an agent of Hewlett Packard and that Mr O'Murphy was paid by Hewlett Packard through Eaglecliff as their agent. There was no evidence to support that finding and ,in fact, the evidence pointed strongly away from it. The EAT held, therefore, that the decision that Mr O'Murphy was an employee of Hewlett Packard could not stand. "On the material before them the only conclusion which the Employment Tribunal could have come to was that he was not employed by Hewlett Packard" What effect, therefore, does this case have with regards to IR35? The first point to mention is that this is a case based on employment law and not tax law. It is not necessarily so that a decision in employment law has any bearing on tax cases. An individual can be self-employed for employment purposes and an employee for tax purposes. It may well seem irrational to the lay person but it is a necessary part of the legal system. This situation can also be seen where an individual is found not guilty of murder in a criminal court but, can be found responsible in a civil case. It maintains the flexibility of the law which, when it goes against you seems to be a travesty but, when it goes in your favour appears to be justice. The second point to mention is that the IR35 legislation specifically states that it is necessary to look at both the contract and the working practices of the individual engagement. The relevant authority will look at a 'notional contract' between the individual and the client as to whether 'disguised employment' can be ascertained. In this case, the Tribunal were required to ascertain whether there was a contract of any kind. Unless the applicant could satisfy the Tribunal that a contract existed, the claim based on an assertion that he entered into or worked under a contract of employment, would fail. The point made in addressing the 'contractual label' was that if, considering all the circumstances during the term of the agreement, it is manifest that that there was an intention to change status then there is no reason why the parties should not be allowed to make a change. In O'Murphy, it was held that the terms of the contract could not have been varied because there was no contractual nexus between Hewlett Packard and Mr O'Murphy in the first place. A third point is that the case was heard in the Employment Appeal Tribunal and although this is 'a court of appeal' it is not 'the Court of Appeal' and, therefore, its rank in terms of court hierarchy (stare decisis) is not of major significance. This case may well be of interest to the 'perceived employer' but as a case against IR35 it is of little unique relevance. |
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