In a case concerning ownership of intellectual property (Sprint Electric Limited v Buyer’s Dream Limited), although neither of the parties called into question the description of the employment relationship between them, the High Court found that ‘where…the Court has concerns that the labels that the parties have chosen to apply to their relationship are untrue or inaccurate, and have been applied as a device to avoid the payment of taxes that are properly due, the Court can and should consider the issue of its own motion’.
In 1997, Dr Potamianos and Sprint Electric Limited (SEL) entered into what they referred to as a ‘contract for services’, whereby Dr Potamianos would provide technical services in the form of high level IT expertise by way of a service company, Buyer’s Dream Limited (BDL), he had set up for this purpose. The effect of this arrangement was to reduce the tax burden for both parties.
For practical purposes, Dr Potamianos was SEL’s sole programmer. He developed source code used in motor controllers which SEL is in the business of designing, developing and selling. BDL always retained the source code, however, and only supplied a number of versions of compiled object code to SEL that could be loaded and executed on SEL’s motor controllers. He was an integral part of the company and various other tax-efficient agreements were made between the parties over the years.
A dispute subsequently arose which resulted in SEL claiming ownership of the intellectual property in the source code in 2017.
The High Court ruled in favour of SEL. An examination of the 1997 contract clearly showed that Dr Potamianos was obliged to perform the services he had contracted to provide personally. Even though the wording of the contract purported to establish a consultancy relationship between BDL and SEL, the Court was of the view that in reality the relationship was one of employer and employee.
Having determined that Dr Potamianos was an employee, the Court found that the intellectual property at the centre of the disagreement had been created in the course of his employment and therefore belonged to SEL.
This case demonstrates that employment status has implications beyond tax status and employment rights. We can advise you on any contractual matter to ensure all potential implications have been taken into account. Please contact our Employment team on 020 7822 4000, or email firstname.lastname@example.org.