438: Pilot engaged through personal service company was agency worker, not self-employed contractor

Agency workers, but not the self-employed, are entitled to holiday pay and sick pay. An agency worker is defined in the Agency Worker Regulations 2010 (AWR) as an individual supplied by a temporary work agency to work temporarily for and under the supervision and direction of a hirer. This will normally be straightforward to establish, but the recent case of Ryanair DAC and MCG Aviation v Lutz illustrates that individuals engaged through an intermediary arrangement may be found to be agency workers despite being described as self-employed in contractual documentation. In this case, the Employment Appeal Tribunal upheld the Employment Tribunal’s decision that a pilot supplied to Ryanair on a five year contract via his personal service company and a recruitment company was an agency worker, not a self-employed contractor.

Mr Lutz was successful in his application to work as a contracted pilot for Ryanair, working alongside its employed pilots. He was asked to set up a personal service company which contracted with MCG, an aviation recruitment business, to supply Mr Lutz to Ryanair. There was a tripartite agreement between Mr Lutz, his service company, and MCG which provided that Mr Lutz was to be engaged by MCG as an independent consultant on a five year fixed term. Under this agreement, Mr Lutz was permitted to use an agreed acceptable and qualified nominated substitute.

Mr Lutz brought a claim for holiday and sick pay under the AWR, arguing that he was an agency worker, not a self-employed contractor as maintained by Ryanair and MCG.

At a preliminary hearing to decide his employment status, the Tribunal ruled that Mr Lutz was an agency worker of MCG. The Tribunal considered that the supply of Mr Lutz’ services through his service company was a ‘fiction’ imposed on him as a result of the parties’ unequal bargaining power and that the purported substitution clause was in reality a ‘sham’ which had been included solely to defeat any claim of worker status.

The EAT has now upheld this decision, agreeing with the Tribunal’s analysis. Looking beyond the express written terms, it was clear that in reality Mr Lutz was supplied by MCG to work temporarily for Ryanair under its supervision and direction. For example, he had no control over rostering, had minimal discretion over how he performed his work, and had to be available for 11 months a year. In addition, the substitution clause was not unfettered and in practice amounted to little more than a request to swap shifts with another Ryanair pilot. The EAT also agreed that a five year fixed term contract fell within the meaning of ‘temporary’ under the AWR on the basis that it was not an open-ended indefinite arrangement.

Subject to any appeal, this case has significant implications for the aviation industry as well as organisations which engage contractors through similar intermediary arrangements. It is a useful reminder that when assessing whether individuals are employees, workers or self-employed, Tribunals will look beyond the written contractual terms to scrutinise the actual facts and circumstances of working relationships, including the degree of personal performance, substitution rights, and supervision and control.