Contracts of Employment - Sham

The Court of Appeal has handed down their decision in Protectacoat Firthglow Ltd v Szilagyi which has clarified the approach tribunals will need to take in assessing whether or not a written document is a sham. The following points have been distilled from the leading judgement of Lady Smith.

1. The question must always surround 'what the true legal relationship is between the parties'. If there is a contractual document, that is ordinarily where the answer will be found. But, if it is asserted that the document does not accurately represent or describe the true relationship, the tribunal has to decide, on all the evidence, what the true relationship is;
2. The court or tribunal has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties, not only at the start of the contract but, if appropriate, as time progresses.
3. Commenting on Consistent Group Ltd v Kalwak&Ors [2008] EWCA Civ 430 (29 April 2008), a document which can be shown to be a sham "designed to deceive others" will be wholly disregarded in deciding what is the true relationship between the parties, but it is not only in such a case that its contents cease to be definitive.

I think Sedley LJ summed up the test most precisely when he held at para 73 of the judgement.

"...in the field of employment at least, it is more helpful and
relevant..to ask in a case like this not whether the written agreement is a
sham but simply what the true legal relationship is. Although there will be
in many cases (as there was in this one) an intention to conceal or
misrepresent the actual relationship, there is no logical reason why this
should be a universal requirement."

This is an important authority for those dealing with disputes and potential disputes surrounding the employment relationship; advice should always be sought when drafting documentation and negotiating contractor or agency agreements.

I can be contacted on gda@hrlegalpartners.com for any further advice.