Employment status: was a pilot engaged through an intermediary an agency worker?
Every year we think about the cases coming up which are likely to have the biggest impact on employment law. We included Jason Lutz v Ryanair DAC & Anor in our 2025 look ahead which the Court of Appeal has recently decided.
Although the case arises from the aviation sector, its implications are far reaching - it highlights that engaging individuals through an intermediary is not enough to conclusively point to self-employment.
Facts
In addition to the pilots employed directly, Ryanair had an arrangement with a recruitment company called MCG Aviation Ltd ('MCG') for the supply of ‘contracted pilots’. This gave Ryanair flexibility to respond to fluctuating demand.
Mr Lutz successfully applied to Ryanair to work as a ‘contracted pilot’. MCG then contacted him and requested that he establish a service company, which he called Dishford Port Ltd. A service agreement was entered into between Mr Lutz (Dishford's ‘company representative’), MCG (the ‘contractor’) and Dishford Port Ltd (the ‘service company’) to last for five-years, unless terminated earlier. The schedule to the agreement stated that “The Company Representative shall perform the duties as pilot as required by the Hirer…” The hirer was Ryanair.
Following training, Mr Lutz started working, wearing a Ryanair uniform and carrying a Ryanair ID card. He booked annual leave with Ryanair, and it was Ryanair who set his rotas. However, he was paid by MCG and there were some occasions when they were involved in operational matters; for example, when he missed a shift MCG reprimanded him and when Mr Lutz was ultimately dismissed, while Ryanair conducted the disciplinary process, it was MCG that issued the dismissal letter.
Following his dismissal, Mr Lutz brought two claims:
- A claim for payment of annual leave against MCG; and
- An equal terms claim for compensation against MCG and Ryanair for not providing the same working and employment conditions, especially concerning pay and/or annual leave, that would have been available to a pilot employed directly by Ryanair.
MCG and Ryanair argued that Mr Lutz was self-employed, so was not entitled to bring these claims. Therefore, a preliminary hearing was held to decide Mr Lutz's employment status.
Did Mr Lutz have the required employment status to bring these claims?
Holiday pay claim
Mr Lutz brought a claim against MCG under regulation 4 of the Civil Aviation (Working Time) Regulations 2004, which entitles a ‘crew member' to four weeks of paid annual leave (pro-rated for those who have worked less than a year). Therefore, Mr Lutz needed to be recognised as a ‘crew member’ of MCG.
The employment tribunal concluded that Mr Lutz was a crew member employed by MCG, and the EAT agreed. MCG appealed to the Court of Appeal.
By the time it reached the Court of Appeal, it was accepted that Dishford, the service company, was ‘fictitious’, and that Mr Lutz was a worker. The outstanding question was: who was his employment relationship with. MCG or Ryanair?
The Court of Appeal held that the principle established in James v London Borough of Greenwich applied. In James, the Court of Appeal found that an employment contract is not established between the principal (Ryanair in Mr Lutz's case) and the agency worker, just because an agency worker works full-time for several years and becomes integral to the principal's organisation.
While Mr Lutz worked under Ryanair's exclusive direction and control, the Court of Appeal stated that this was typical in such a tripartite arrangement. It also referred to the contractual arrangement between Mr Lutz and MCG which expressly stated that he was not employed by Ryanair.
Therefore, the Court of Appeal concluded that Mr Lutz was a crew member employed by MCG. This means he can proceed with his claim against MCG for payment of annual leave.
Equal terms claim
Under regulation 5 of the Agency Workers Regulations 2010, agency workers are entitled to the same basic employment conditions as if they had been directly employed by the hirer to do that job.
An ‘agency worker’ is an individual who is supplied by an agency to work temporarily for and under the supervision and direction of a hirer.
As Mr Lutz was supplied for a fixed term of five years, the tribunal and the EAT both found that this was temporary and he was consequently an agency worker.
However, Ryanair appealed arguing that ‘temporary’ actually means ‘short term’. Alternatively, if it does mean ‘for a limited period’, they argued that the focus should be on the purpose and nature of the work supplied, rather than the contractual position, which the EAT had failed to consider.
The Court of Appeal found that the definition of ‘temporary’ in Moran v Ideal Cleaning Servies Ltd was correct. Moran held that a contract is temporary when it is not permanent and can be terminated when a condition, such as the expiry of a fixed period or the completion of a specific project, is satisfied.
It agreed that determining if a worker is supplied temporarily or permanently involves considering the purpose and nature of the supply but stated that this can be determined by looking at the terms of the contract between the worker and the agency.
The Court of Appeal concluded that as it was an express term of the contract that Mr Lutz would work for Ryanair for a five-year period he was working ‘temporarily’. He was therefore an agency worker and can continue with his equal terms claim. As both the hirer and agency can be held liable, Mr Lutz is bringing this claim against both MCG and Ryanair.
A hearing will now take place to determine the substance of these claims.
Key takeaways
Requiring individuals to establish a service company to appear self-employed does not guarantee that this arrangement will withstand the examination of an employment tribunal (or HMRC). You must correctly identify whether an individual is an employee, worker or is genuinely self-employed. If you get this wrong and mistakenly treat someone as self-employed when they are, in fact, a worker, you will become liable for employment related payments. The biggest of these is often holiday pay, which can be claimed for many years.
It's not always easy to get this right. There's no fixed test you can apply which will always give you the correct answer. It's always best to seek legal advice to ensure that you get it right from the start.
If your organisation uses agency workers, it's also important to stay informed about changes which are coming under the Employment Rights Bill. The Bill proposes new entitlements for agency workers, including the right to a guaranteed number of hours following each reference period (likely 12 weeks) based on the hours they have worked, reasonable notice of available shifts and any changes to agreed shifts, and compensation for short notice shift alterations.
The Bill is currently being debated in the House of Lords following which it will return to the House of Commons for consideration of proposed amendments. It's likely that the Bill will receive Royal Assent this autumn. According to the government's recently published roadmap, (which we explore in our article, Timeline: when will the Employment Rights Bill come into force?) these proposed changes relating to agency workers are scheduled to take effect in 2027.
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