Tripartite arrangements don’t necessarily enable an agency to escape accountability

The question was raised as to whether, in a tripartite agency relationship, an employment relationship exists between an employee and their intermediary agency. For instance, Ryanair DAC employs some pilots directly, while subcontracting others. A Mr. Lutz successfully applied to an advertisement for pilots and was contracted on 10 August 2017 by MCG Aviation Ltd. (now Storm Global Ltd.). From July 2018 to January 2020, Mr. Lutz served as a Ryanair-contracted pilot based at Stansted, nominally supplying his services through his own Irish company, Dishford Port Ltd., although it is now accepted that his direct relationship was with MCG. 

Following an incident with Ryanair management on 13 January 2020, MCG terminated its contract with Dishford, effectively ending Mr. Lutz's services. He then brought two claims to tribunal with the support of the British Airline Pilots Association (BALPA) concerning annual leave against MCG under the Civil Aviation (Working Time) Regulations (CAWTR) 2004, and also an equal terms claim against both MCG and Ryanair. Through this action, Mr. Lutz was seeking compensation for not being afforded the same working conditions as employed pilots under the Agency Workers Regulations (AWR) 2010. 

The tribunal found in Mr. Lutz's favour, holding that he was a "crew member" employed by MCG under CAWTR and also an "agency worker" under AWR. Subsequent appeals by Ryanair and MCG were dismissed as, where a worker is supplied by an agency (B) to a principal (C), but has an explicit contract with the agency, the agency remains the employer. Mr. Lutz's services to Ryanair were thus explicitly governed by his contract with MCG, which expressly stated that he was not employed by Ryanair. The fact that Ryanair exercised exclusive direction and control over Mr. Lutz's work does not necessarily create an implied employment contract or relationship with Ryanair, although it befell MCG to ensure that Ryanair respected the relevant employment laws. Moreover, even though Mr. Lutz had a fixed-term contract for several years, it was nonetheless "temporary", thereby creating a gap in protection for agency workers and introducing ‘unacceptable uncertainty’. 

This case reinforces the "substance over form" approach in determining employment status, in that employers can no longer solely rely on contractual labels such as "independent consultant" or "self-employed" as a pretext to deny workers their employment rights, especially in such tripartite agency arrangements. Thus, agencies should understand that workers employed for extended fixed terms are likely still covered by the AWR and thereby entitled to the same T&Cs as direct employees after 12 weeks. Hence, agencies still have clear responsibilities for certain statutory rights, and businesses relying on "supply chain layering" to outsource labour will need to review their structures.

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Business Valuation in Distress

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.