Protectacoat Firthglow Ltd v Szilagyi

In order to claim unfair dismissal, claimants must show that they are employees. In Protectacoat Firthglow Ltd v Szilagyi, the Court of Appeal said that tribunals must first look at the written documentation governing the relationship to ascertain a claimant’s employment status. However, if a party has evidence that the documentation did not reflect the true intentions of the parties then tribunals have to look at the relationship itself.

Basic facts

Mr Szilagyi started work for Protectacoat in March 2006. After his first few weeks of work, he given a set of proforma documents to sign but with no explanation as to what they were.

The first document was, in fact, a partnership agreement in the name of M & G Coatings with Mr Szilagyi named as “installer” and another man as his “assistant”, which stated that the Partnership Act 1890 applied.

The second document was a services agreement between M&G Coatings and Protectacoat, which stated that the partnership would provide services for the company, although clause 10 stated that it was not prevented from providing services to other organisations.

In November 2006, Protectacoat terminated the agreement following a dispute about whether a scaffold was needed for a particular job. Mr Szilagyi claimed unfair dismissal, but the company said, among other things, that he was not an employee.

Tribunal and EAT decisions

An employment tribunal held that the partnership and services agreements were a sham and “did not represent the true nature of the relationship between the parties”. It said that in reality, Mr Szilagyi was an employee of Protectacoat for a number of reasons including the following:

  • That although the contract stated that Protectacoat would pay for each job into the partnership bank account, it paid Mr Szilagyi and his assistant, net of tax, directly into their own accounts 
  • That although Mr Szilagyi was supposed to hire a van from the company at a cost of £210 per week, in reality it was provided free of charge 
  • That although the partnership was supposed to provide all the tools and equipment, Protectacoat provided them as well as the fuel for the van
  • That although the contract said that Mr Szilagyi and his assistant could undertake work for others, the evidence showed that Protectacoat expected him to work for them exclusively
  • That Mr Szilagyi and his assistant were required to attend at Protectacoat's yard every morning at 7.30 and had to return to the yard on completion of each job
  • That Protectacoat claimed publicly and directly to its customers that its installers were employees not subcontractors

The EAT agreed with the tribunal’s decision.

Court of Appeal decision

And the Court of Appeal also agreed. It said that in order to decide whether a written contract was a sham, courts had to establish the true relationship between the parties. The answer would normally be found in any contractual documents that existed.

It then went on to state that if a contract could be shown to be a sham to deceive others, it would have to be completely disregarded in deciding the true nature of the relationship between the parties.

However commenting on the decision in Consistent Group v Kalwak and ors (see weekly LELR 77), the Court of Appeal held that sham contracts are not limited to cases where the contract is deliberately designed to deceive the true nature of the relationship between the parties.

“If the evidence establishes that the true relationship was, and was intended to be, different from what is described in the document, then it is that relationship and not the document or the document alone which defines the contract”, regardless of whether there was any actual intention to deceive a third party.

Applying that principle to this case, the Court concluded “that the employment judge was entitled to conclude that both the partnership and the services agreements were shams in that they did not describe or represent the true intentions and expectations of the parties”.