Clients should change way they use contractors

End-users must stop treating contractors as employees and finally learn to treat them as true consultants, if they are not to fall foul of employment law. This is the view of Barry Roback, Chief Executive of JSA, specialist accountants for IT consultants, in the light of the recent Cable & Wireless v Muscat judgement, handed down recently in the Court of Appeal.

Muscat case

The Court of Appeal rejected the argument of Cable & Wireless against the Employment Appeal Tribunal judgement that there was an implied employment contract between themselves and Mr Muscat, an agency worker who had originally been an employee of Exodus Internet Ltd, which Cable & Wireless subsequently took over.

Prior to the takeover, Exodus had encouraged Mr Muscat (their employee at the time), to become a limited company contractor, working through an especially formed limited company called E-Nuff. When Cable & Wireless took over Exodus, however, he was told that it did not deal with contractors directly and that he would have to go through one of their preferred agencies, Abraxas plc. Mr Muscat continued to work as before, although now under the direction of C&W management and was even assigned an employee number. All the equipment that he used was paid for by C&W.

However when C&W subsequently decided that they no longer required his services, Mr Muscat claimed redundancy, which was refused on the basis that his status changed to contractor when he started to work through his Limited Company and Abraxas.

Implications

"The implications of this decision are extremely important," claimed Barry Roback who maintains that contractors, agencies and end-users have been slow to realise the significance of the Court of Appeal ruling which was handed out in March.

Barry Roback He argues that end-users need to stop using contracting simply as a way of reducing their direct payroll numbers and start to hire contractors as genuine consultants. He said: "If an end-user is hiring contractors, they should be treated as genuine consultants, not as hired hands, and held accountable for their efforts. Contractors should be given a brief and allowed to get on with the job."

Mr Roback added that contractors often complain to him that they can't carry out their brief satisfactorily because they face too much interference or control. However he also argued that contractors, in particular, must behave as truly independent operators in attitude, contracting arrangements and working methods.

Wake-up call

He said: "At the moment there are too many arrangements, such as that which arose between Cable & Wireless and Mr Muscat, which appear to be in breach of employment law and which are frankly unfair on contractors. Too many contractors are forced to submit to master/slave relationships because ill-informed end-user clients have a fear of the unknown and prefer to rely on past customs and working practices. Working on the premise of 'if it ain't broke, don't fix it', the fact is that the Cable & Wireless decision just broke it!"

However Mr Roback admitted that it is not always easy to challenge a large and powerful end-user - public sector or huge plc employers often being the worst offenders - but this case should act as a wake-up call for all HR and procurement departments that current practice is not only often unacceptable, it can also prove to be very expensive.

Mr Roback concluded: "There are many good reasons for firms to employ contractors rather than add employees to their payrolls, but these should be based on a genuine need for the kind of fresh and independent thinking that an outside expert can offer, rather than on slightly dubious attempts to hire de facto employees, without incurring statutory obligations.

"The irony is that working in this way is also more beneficial for contractors, as contracts that are constructed as a genuine consultancy arrangement will pass the IR35 tests that attempt to tax contractors as employees if their working practices are akin to that of an employee."