England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE EATRF 98/0528/3

COURT OF APPEAL (CIVIL DIVISION )

Royal Courts of Justice

Strand

London WC2

Thursday, 11th March 1999

B e f o r e :

LORD JUSTICE HIRST

LORD JUSTICE PETER GIBSON

LORD JUSTICE AULD

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EXPRESS AND ECHO PUBLICATIONS LIMITED Appellant

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ERNEST TANTON

Respondent

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(Computer Aided Transcript of the Stenograph Notes of Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Telephone No: 0171-421 4040

Fax No: 0171-831 8838

Official Shorthand Writers to the Court)

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MR. J. SWIFT (instructed by Messrs Foot & Bowden, Plymouth, Devon) appeared on behalf of the Appellant/Respondent.

THE RESPONDENT appeared in Person.

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J U D G M E N T

( As approved by the Court )

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Crown Copyright

LORD JUSTICE PETER GIBSON: Once again this court is asked to look at the question whether a person engaged to work for another in return for payment is an employee under a contract of service or a self-employed contractor under a contract for services.

That question arises in this way. The appellant, Express & Echo Publications Limited, had employed the respondent, Ernest Tanton, for a period until he was dismissed by reason of redundancy in 1995. But on 14th August 1995 he was re-engaged to work for the appellant under a new agreement, whereby the appellant intended, and Mr. Tanton agreed, that Mr. Tanton should not be an employee. Mr. Tanton later changed his views on his relationship with the appellant, and on 7th July 1997 he applied to the Industrial Tribunal complaining of what he described as breach of contract, written statement of employment particulars. By that he meant, as appears from the details which he gave in his IT1, that he was asking for his status as an employee to be confirmed and he was also asking, as was his right if he were an employee, for a written contract of employment containing the terms of his employment.

The appellant, by its notice of appearance, opposed Mr. Tanton's application. It did so on the ground that he was an independent contractor engaged by it. That dispute gave rise to a preliminary issue as to whether Mr. Tanton was an employee or a self-employed contractor. If the latter, then his application would have to be dismissed.

That issue came before the Industrial Tribunal chairman sitting alone on 9th September 1997. In his decision, which was sent to the parties on 16th September 1997, the chairman said that, in a case of this nature, it is necessary to look at the overall position, and that, whilst it is useful to consider a number of different factors which may be pointers, it is not necessarily the case that any one factor can tip the balance either way. He made a number of findings of fact, including the following:

(1) When Mr. Tanton was engaged by the appellant in August 1995, it was the intention of the appellant, and Mr. Tanton having little alternative agreed, that he would be a self-employed driver. Both parties regarded the relationship as a relationship of contractor and client rather than employer and employee, though, as I have said, Mr. Tanton later changed his view of that.

(2) From the outset the Inland Revenue took the view, and would countenance no view other than, that Mr. Tanton was an employee, and so Mr. Tanton received payments from the appellant under deduction of tax and national insurance contributions as if he was an employee.

(3) It was not until January 1996 that Mr. Tanton was sent a copy of what the appellant maintained was his contract. That was a document called "An Agreement for Services", the required transport and delivery services which Mr. Tanton was to provide being specified in the schedule to the agreement. That form of contract was clearly designed to take Mr. Tanton outside the ambit of a contract of employment and to make him a self-employed contractor.

(4) Mr. Tanton refused to sign the agreement which he found unacceptable.

(5) Mr. Tanton's duties as a driver were to pick up newspapers and deliver them at various points in Devon on a fixed run in a particular order dictated by the appellant.

(6) The vehicle which he was to drive was provided by the appellant.

(7) Mr. Tanton was to wear the uniform of the appellant and that uniform was provided by it.

(8) His remuneration was a fixed fee per journey calculated by the appellant and not negotiated. That sum took into account the appellant's estimate of the time required and its views of the appropriate rate per hour.

(9) That amount was fixed no matter how long Mr. Tanton in fact took, and Mr. Tanton could not increase his earnings by doing more work.

(10) Mr. Tanton received no sick pay or holiday pay.

(11) Only two provisions of the Agreement for Services were mentioned by the chairman as not having been observed. They were an obligation in paragraph 15 of the schedule to maintain the vehicle and an obligation in paragraph 17 of the schedule for Mr. Tanton to clean the vehicle on a weekly basis.

(12) Clause 3.3 of the Agreement for Services provided:

"In the event that the Contractor is unable or unwilling to perform the Services personally he shall arrange at his own expense entirely for another suitable person to perform the Services."

To this I should add what was contained in paragraph 13 of the schedule, where it is stated:

"In the event that the contractor provides a relief driver, the contractor must satisfy the company that such a relief driver is trained and is suitable to undertake the services."

(13) That right for Mr. Tanton to provide a substitute driver was utilized by him from time to time and exceptionally, throughout a period of six months whilst Mr. Tanton was ill, Mr. Tanton paying the substitute driver, though receiving remuneration from the appellant. Clause 3.3 , as the chairman expressly found, is not a sham.

On those facts the chairman found in favour of Mr. Tanton. He regarded the degree of control exercised by the appellant as of significance, saying that the requirement as to hours, routes, van and uniform were strict, and that they suggested a contract of employment. He regarded clause 3.3 as only one factor out of many. He said that there might come a point where the provision of a substitute was so frequent as to change the whole nature of the arrangement, but that there was no evidence that that point had been approached. Earlier the chairman had said that, while he had taken into account any documents, he was more concerned with what actually occurred than with what the documents recorded as being the obligations of the parties.

On appeal by the appellant, the Employment Appeal Tribunal took the view that the chairman had reached a permissible conclusion, and concluded that no arguable point of law was raised and refused leave to appeal. However, leave to appeal to this court was granted by Pill L.J., as the single Lord Justice considering the application on paper.

Mr. Swift, for the appellant, argues before us that the chairman erred in law in his approach to the determination of the question whether or not Mr. Tanton was engaged under a contract of employment. He rightly submitted that the correct approach is as follows:

(1) The tribunal should establish what were the terms of the agreement between the parties. That is a question of fact.

(2) The tribunal should then consider whether any of the terms of the contract are inherently inconsistent with the existence of a contract of employment. That is plainly a question of law, and although this court, as indeed the Employment Appeal Tribunal before us, has no power to interfere with findings of fact (an appeal only lies on a point of law), if there were a term of the contract inherently inconsistent with a contract of employment and that has not been recognized by the tribunal's chairman, that would be a point of law on which this court, like the Employment Appeal Tribunal before us, would be entitled to interfere with the conclusion of the chairman.

(3) If there are no such inherently inconsistent terms the Tribunal should determine whether the contract is a contract of service or a contract for services, having regard to all the terms. That is a mixed question of law and fact.

It is not entirely clear what terms the chairman did find constituted the agreement between the appellant and Mr. Tanton. He presumably found that there was an oral agreement from August 1995, Mr. Tanton not having received any document until the following year. But the chairman said that he had taken into account any documents, though, as I have pointed out, he also indicated that he was more concerned with what actually occurred than with the obligations of the parties as contained in the documents. The chairman does not say whether or not he found that the terms of Mr. Tanton's engagement were those recorded in the Agreement for Services. The obligations in two provisions in the schedule, as I have commented, were noted as not having been enforced by the appellant, but the chairman clearly regarded the provisions of clause 3.3 as a term of the Agreement, and, moreover, not as mere window-dressing because he found it was not a sham. Further, Mr. Tanton, who has appeared before us today in person, has told us that he always abided by the contract even though he did not agree with it. I take that to have been a reference to the Agreement for Services of which he had been supplied with a copy in January 1996.

Clause 3.3 to my mind vividly illustrates the difficulty in approaching the identification of the terms of the agreement by concentrating on what actually occurred rather than looking at the obligations by which the parties were bound. Of course, it is important that the Industrial Tribunal should be alert in this area of the law to look at the reality of any obligations. If the obligation is a sham it will want to say so. But to concentrate on what actually occurred may not elucidate the full terms of the contract. If a term is not enforced that does not justify a conclusion that such a term is not part of the agreement. The obligation could be temporarily waived. If there is a term that is inherently inconsistent with the existence of a contract of employment, what actually happened from time to time may not be decisive, given the existence of that term. For example, if, under an agreement, there is a provision enabling, but not requiring, the worker to work, and enabling, but not requiring, the person for whom he works to provide that work, the fact that work is from time to time provided would not mean that the contract was a contract of service: consider Clarke v Oxfordshire Health Authority [1998] IRLR 125. For my part, therefore, I think that the chairman went wrong at that point in concentrating on what occurred rather than seeking to determine what were the mutual obligations.

I am inclined to think that the chairman did treat the relevant agreement as being one on the terms set out in the Agreement for Services, save for the two provisions in the schedule, the obligations of which were not enforced. Whether that is right or not in the event does not matter because it is clear that the chairman found the provisions of clause 3.3 to be part of the agreement between the appellant and Mr. Tanton. On its face, clause 3.3 enabled Mr. Tanton, if he were at any time unwilling to perform the specified services personally, not to perform those services himself, but to obtain the performance of the services through an acceptable substitute. That is a remarkable clause to find in a contract of service. In Ready Mixed Concrete South East Limited v Minister of Pensions and National Insurance [1968] 2 QB 497, MacKenna J at page 515 expressed his views on what is meant by a contract of service. He said this:

"A contract of service exists if these three conditions are fulfilled.

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service.

. . . .

As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job either by one's own hands or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be: see Atiyah's Vicarious Liability in the Law of Torts (1967) pp.59 to 61 and the cases cited by him."

That passage, without the qualification in the last sentence, was quoted with approval by this court in Nethermere (St. Neots) Limited v Gardiner [1984] I.C.R. 612 at p.623 in the judgment of Stephenson L.J., with which Kerr and Dillon LJJ agreed, and the relevant passage in Stephenson LJ's judgment was in turn cited with approval in the Clarke case.

Before I leave the Ready Mixed Concrete case, I should add that that was a case where the owner/driver of a truck, found to be self-employed, had the right under the contract, with the consent of the company for which he worked, to appoint a competent and suitably qualified driver to operate the truck in his place. The company was entitled, however, to require the owner/driver himself to operate the truck for certain periods specified in the contract. In the present case the position is even clearer than it was in the Ready Mixed Concrete case, because, in my judgment, it is plain from clause 3.3 that Mr. Tanton, as a matter of contract, was not obliged to perform any services personally himself if he was unwilling or unable to do so, provided that he could find a substitute driver. In the Ready Mixed Concrete case, MacKenna J regarded the freedom of the owner/driver to choose a competent driver to take his place at other times as a significant feature leading to the conclusion that the contract in that case was a contract for services and not a contract of service.

Mr. Tanton has addressed us today with great courtesy and has helpfully provided us with a statement in writing setting out his submissions. He has told us that it is quite wrong to say that he was not obliged to perform services personally. He has spoken of an unhappy incident occurring on 22nd and 23rd April 1996. On those dates, while he was on sick leave and only able to get about on crutches, he was required by the appellant, he says, to do a shift; the substitute whom he had employed was unable to do the work that day, and Mr. Tanton found himself forced, in great discomfort, to do that work. Unhappily Mr. Tanton does not have good hearing, and he says that he did not appreciate that there was such emphasis by the appellant on personal service by him as a requirement of a contract of employment, otherwise he would have given evidence of this incident to the chairman at the Industrial Tribunal hearing. But no such evidence was given to the chairman, and so there is no reference in the chairman's determination to any such incident. Mr. Tanton has told us that he put these facts before the Employment Appeal Tribunal. But, of course, the Employment Appeal Tribunal is not the tribunal of fact. The Industrial Tribunal is the body appointed by Parliament to determine the facts in industrial tribunal cases. Accordingly, that particular incident cannot help Mr. Tanton. Further, it does not detract from clause 3.3 being a term of his contract.

To return to the authorities, in the Clarke case, Sir Christopher Slade, giving the only reasoned judgment in this court, cited an important statement from the judgment of Stephenson L.J. in the Nethermere case. Stephenson L.J., having quoted what MacKenna J said in the Ready Mixed Concrete case in the passage which I have cited, went on to say (at p.623):

"There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service. I doubt if it can be reduced any lower than in the sentences I have just quoted",

those being the sentences from the judgment of MacKenna J. It is, in my view, plain that Mr. Swift is right in his submission that it is necessary for a contract of employment to contain an obligation on the part of the employee to provide his services personally. Without such an irreducible minimum of obligation, it cannot be said that the contract is one of service. Further, Mr. Swift has pointed out that the law now recognizes unambiguously that a contract of employment involves mutual trust and confidence. That is established by the decision of the House of Lords in Malik v BCCI [1997] ICR 606: see, in particular, Lord Steyn at pages 620 following. This is consistent with a requirement of personal service in a contract of service.

In these circumstances, it is, in my judgment, established on the authorities that where, as here, a person who works for another is not required to perform his services personally, then as a matter of law the relationship between the worker and the person for whom he works is not that of employee and employer. Mr. Tanton has submitted to us that, though the personal service to the appellant was a highly material consideration, it was not conclusive. I am afraid that that proposition cannot stand in the light of the authorities.

In my judgment, on the facts this is a plain case. One starts with the common intention of the parties that Mr. Tanton should not be an employee but should be a self-employed contractor. The terms which the chairman found to be pointers to a contract of service are in no way inconsistent with a contract for services, and, as the chairman himself recognized, some of the facts which he found are pointers to the relationship being one of contractor and client, for example, the absence of holiday pay and sickness pay. But, for the reasons which I have given, clause 3.3, entitling Mr. Tanton not to perform any services personally, is a provision wholly inconsistent with the contract of service which the chairman found the contract to be. In my judgment, therefore, both the chairman and the Employment Appeal Tribunal erred in law. The only conclusion which they could properly have reached was that this was a contract for services. Thus, despite the considerable sympathy which I have for Mr. Tanton, I am satisfied that this appeal must be allowed.

LORD JUSTICE AULD: I agree.

LORD JUSTICE HIRST: I also agree.

Order: Appeal allowed.