Protectacoat Firthglow Ltd v Szilagyi [2009] EWCA Civ 98 CA

employment status | sham contracts | intention to deceive not necessary

The Court of Appeal has upheld an employment tribunal finding that an individual was an employee, despite the existence of a services agreement. For such an agreement to be a sham, there is no need for there to be an intention to deceive a third party.

Mr Szilagyi worked for Protectacoat Firthglow Ltd for a short period, and was paid cash. He was required to sign some documents, which were not explained to him. One document was a partnership agreement, between an installer (Mr Szilagyi) and an assistant, with the division of profits being 60% to 40%. The second document was a service agreement, whereby the partnership undertook to provide services to Protectacoat. There was also, apparently, a hire agreement, whereby Mr Szilagyi would pay to hire a van, tools and equipment from Protectacoat. Mr Szilagyi continued to work for Protectacoat for some months. In that time the assistant changed. A dispute arose when Mr Szilagyi said that a job required a scaffold but Protectacoat held that ladders were adequate. Protectacoat terminated the agreement. Mr Szilagyi claimed that he had been unfairly dismissed for refusing to work in unsafe conditions. He argued that he was an employee and that the documents were a sham. Protectacoat maintained that he was not an employee but an independent contractor.

The employment tribunal held that Mr Szilagyi was an employee and that the written documents were a sham. The tribunal found that Protectacoat claimed to its customers that its installers were employees and that installers were told to tell customers that they were employees. The hire agreement was also a fiction because there was no charge. Further, the partnership did not provide its own equipment as required under the service agreement. Pay for work was made (with tax deducted), direct to the individuals, rather than to the partnership on invoicing. Mr Szilagyi was required to attend the workplace each morning and after each job was completed. Installers were required to work exclusively for Protectacoat, which dictated how jobs were to be done. Mr Szilagyi was also told that if he did not do a job he was “fired”. The Employment Appeal Tribunal upheld the tribunal’s decision and Protectacoat appealed to the Court of Appeal.

Referring to Consistent Group Ltd v Kalwak and others [2008] IRLR 505 CA, the Court of Appeal held that, when determining if a contract is a sham, the court or tribunal has to consider whether or not the words of the written contract reflect the true intentions or expectations of the parties. The Court of Appeal in Consistent held that, to hold that a services agreement is a sham, there must be a finding that some words in the contract were included to create a misleading impression from the agreement’s true effect. However, the Court of Appeal in the present case held that the judgment in Consistent does not require that there be an intention to deceive a third party. The true legal relationship between the parties determines whether or not a written contract is a sham. Although there are cases, such as this, where there is an intention to conceal or misrepresent the true relationship, this is not necessarily a universal requirement. Where it is asserted that a written document does not reflect the true relationship, the court or tribunal has to determine what the true relationship is, on the evidence.

In this case, the employment tribunal had been entitled to find that the partnership and service agreements were shams, as they did not represent the true intentions or expectation of the parties. Therefore the appeal was dismissed.

Case transcript of Protectacoat Firthglow Ltd v Szilagyi (on the BAILII website)

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