England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL
TRIBUNAL (HIS HONOUR JUDGE PETER CLARK)

		Royal Courts of Justice Strand, London, WC2A 2LL
		23rd April 2004

Lord Justice Pill:

1. These are appeals against decisions of the Employment Appeal Tribunal, His Honour Judge Peter Clark presiding, sent to the parties on 30 May 2003 whereby they dismissed appeals from Redrow Homes (Yorkshire) Ltd and Redrow Homes (North West) Ltd ("Redrow") against decisions of Employment Tribunals. There are two Employment Tribunal decisions, the first given on 26 February 2002 by a tribunal held at Leeds and the second on 24 September 2002 by a tribunal held at Flint. In each case, the tribunal had been asked to decide whether applicants were "workers" within the meaning of the Working Time Regulations 1998 (SI 1998/1833). The Leeds tribunal heard an application by Mr B Wright and the Flint tribunal by Mr K Roberts and others that they were workers within the meaning of the Regulations. In each case, the unanimous decision of the tribunal was that the applicants were workers and, as such, were entitled to the compensation relating to entitlement to leave in Regulation 14. In Wright, calculation of the amount due was adjourned. In Roberts, Redrow was ordered to pay £658 to each of the eight applicants.
2. Mr Wright is a bricklayer by trade and worked for Redrow between 9 October 2000 and 23 April 2000 on two of its sites in West Yorkshire. He worked with another bricklayer, Mr R Milner. The tribunal found that they were offered work by Redrow's Mr Hall at remuneration rates he stipulated and Mr Wright received Redrow's pre-printed form, to which I will refer, which named him alone. In the event, Mr Wright and Mr Milner performed their services as bricklayers personally throughout the whole period.
3. Mr Milner was largely responsible for making claims for payment of sums due. The claims indicated the proportions in which the payment should be divided between him and Mr Wright. Payments were made weekly into each man's bank account. The form showed the gross amount, the amount of retention against defective workmanship and the amount of tax deducted. Mr Wright had what is known as a CIS4 Certificate which obliged Redrow to deduct tax at the rate of 18% from each payment. Mr Wright earned a total of about £9600.
4. Redrow provided the bricks, pre-mixed mortar, a forklift truck and driver, scaffolding and normally one labourer per site. Mr Wright and Mr Milner provided their own hand tools. They were given a set of drawings and were subject to a building programme. Subject to their obligation to conform to the building programme, and to daily outside limits of time, they could regulate their hours and work to suit themselves.
5. The tribunal found similar facts in the case of Roberts and others. There were eight originating applications, including that of Mr Roberts and each of the men worked for Redrow from July/August 2000 to January/February 2001. There were two gangs of workers each comprising four men. Mr Roberts' gang of four included one, Mr Forbes, who worked only as a labourer. Redrow employed a site manager on each of their many residential house building sites, together with a forklift truck driver and a labourer. By way of payment, each bricklayer received a valuation sheet and was paid weekly.
6. The tribunal found that the applicants accepted the offer of work in accordance with typed conditions which, we were told, were slightly different from those in the Wright case but not materially so. The other bricklayers did not receive a copy of the document containing the conditions.
7. The Working Times Regulations 1998 amongst other things implement Council Directive 93/104/EC on Working Time. Regulation 2(1) provides a number of definitions. It is provided that:

" "Worker" means an individual who has entered into or works under (or, where the employment has ceased, worked under) –

(a) a contract of employment; or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual."

8. It is not suggested that the applicants worked under a contract of employment. Nor is it suggested save, possibly, as an aid to construction, that the closing words of sub-paragraph (b) dealing with "profession or business undertaking" have any relevance. Redrow do not claim the status of client or customer. The applicants' case is that they entered into or worked under a contract whereby each of them undertook to do or perform personally work for Redrow. The case turns upon whether the individual applicants had undertaken to do the work specified in the contract personally.
9. The written contract consisted of a form entitled Official Order accompanied by "Conditions and Acceptance of Order". In the Wright case, Mr Wright was named on the Official Order, site details were provided and it was stated:

"Please undertake, execute, carry out and complete the undermentioned works subject to:

a) the undermentioned conditions and

b) the terms and conditions of business of Redrow Group plc.

Acceptance of this order will be deemed to be acceptance to all the said conditions."

10. The works are specified as "brickwork" and "items and costs" are specified in considerable detail. Provision is made for payment to be made weekly. The Official Order includes the following provision:

"The contractor is to ensure that a copy of their current Health & Safety Policy together with a Method Statement for the work is forwarded to our offices prior to commencement on site"

11. In the document "Conditions and Acceptance of Order" twenty-three conditions are set out. Argument has centred mainly on conditions 1 and 6:

(1) that the Contractor having had an opportunity of inspecting our Conditions of Contract shall be deemed to have noted its provisions, and hereby agrees to be bound by them insofar as they are applicable to his subcontract.

(6) LABOUR

In respect of all operatives employed by the Contractor, the Contractor is responsible for and shall keep the Company indemnified against any claim or liability for National Insurance, Graduated Pension Contributions, Pay-As-You-Earn, Holiday Pay, Construction Industry Training Board levy. Travelling Expenses and other emoluments payable, all other payments required by Law or otherwise which may be necessary for the proper execution of the contract work whether current or introduced during the period of the contract.

The Contractor must at all times provide sufficient labour to maintain the rate of progress laid down from time to time by the Company, and shall supply such labour with all necessary tools and equipment.

On each site where the work is in progress the Contractor must maintain a competent foreman or chargehand who has complete control of all labour engaged on the work. Any instructions given to such foreman or chargehand shall be deemed to have been given to the Contractor.

Condition 20, which Redrow submit is readily reconcilable with Condition 6, provides:

(20) SUBLETTING

No order, nor any part order issued by the Company shall be assigned, sublet or transferred without the prior consent in writing of the Company. In the event of any such assignment, subletting or transfer, the Contractor shall be responsible for securing compliance with these conditions in every respect.

12. Reference was made to other conditions:

(16) PROGRAMME OF WORK

Programmes of work issued by the Company from time to time must be adhered to rigidly, in regard to both rate of progress and the sequence in which work is to be completed.

(17) HOURS OF WORK

No Contractor or employee of the Contractor shall be permitted to work on site outside normal working hours of 8.00am to 5.30pm Monday to Friday, Saturday 8.00am to 12.00 noon inclusive, unless prior to consent has been given by the Company in writing and only then when the Company's appointed supervisor is on site.

Condition 18, having dealt with payment, states that the company "requires Contractors to provide their VAT registration number or statement that they are not VAT registered".

13. For Redrow, Mr. Stafford QC submits that the men are not workers within the meaning of the Regulations because there is no contractual obligation on Wright or Roberts, or any of the others, to do the work "personally". Moreover, it is submitted that Condition 6 was a term of the contract and the condition plainly contemplates that work may be done by other men. It provides that the contractor must supply sufficient labour to maintain the rate of progress laid down and all necessary tools and equipment for such labour. The clause also requires the contractor to maintain a competent foreman or chargehand on site. These are requirements inconsistent with a personal obligation. It is submitted that a personal obligation cannot be inferred from the presence of the subletting clause. A party to the contract can employ other bricklayers without subletting the contract. The status of additional labour taken on by the contractor is the contractor's problem and does not affect the position as between the contractor and Redrow. Each contractor is under an obligation to complete the specified works, it is submitted, and may employ other men to do it.
14. Mr Stafford submits that in finding that Wright, Roberts and the others were workers within the meaning of the Regulations, the Employment Tribunals have erred, in particular by having regard to the way in which the contracts were performed by the individuals concerned. In Wright, the Employment Tribunal stated, at paragraph 25:

"Furthermore, in construing the contract, we are entitled to have regard to all the circumstances. They include the fact that the contract was performed personally throughout the period of engagement. We find that that reflected the parties' expectation that it would be so performed."…..

15. At paragraph 31, it was stated:

"Looking at the above factors, we are left with the clearest impression that the applicant was in a subordinate and dependent position vis-a- vis the respondent, similar to that of an employee. We find accordingly that the respondent's status was not by virtue of the contract with the applicant that of a customer of a business undertaking carried on by the applicant. The applicant and Mr Milner were not a firm. They were two individual workers who worked together and personally provided their service as bricklayers to the respondent."

16. In Roberts, the Tribunal held, at paragraph 8, that it was "the common intention and understanding of the parties that all the applicants would undertake to work personally", and at paragraph 17 that "there was mutuality of obligation for the purposes of whether the applicants were workers because of the factual matrix in this case". The Tribunal cited fully, and, as did the Wright Tribunal, relied on a judgment of the EAT, Mr Recorder Underhill QC presiding, in Byrne Brothers (Formwork) Ltd v Baird and Ors [2002] IRLR 96.
17. Considering sub-paragraph (b) of the definition of worker in Regulation 2(1), Mr Recorder Underhill stated, at paragraph 17(4) and following:

"(4) It seems to us that the best guidance is to be found by considering the policy behind the inclusion of limb (b). That can only have been to extend the benefits of protection to workers who are in the same need of that type of protection as employees stricto sensu – workers, that is, who are viewed as liable, whatever their formal employment status, to be required to work excessive hours (or, in the cases of Part II of the Employment Rights Act 1996 or the National Minimum Wage Act 1998, to suffer unlawful deductions from their earnings or to be paid too little). The reason why employees are thought to need such protection is that they are in a subordinate and dependent position vis-à-vis their employers: the purpose of the Regulations is to extend protection to workers who are, substantively and economically, in the same position. Thus the essence of the intended distinction must be between, on the one hand, workers whose degree of dependence is essentially the same as that of employees and, on the other, contractors who have a sufficiently arm's-length and independent position to be treated as being able to look after themselves in the relevant respects.

(5) Drawing that distinction in any particular case will involve all or most of the same considerations as arise in drawing the distinction between a contract of service and a contract for services – but with the boundary pushed further in the putative worker's favour. It may, for example, be relevant to assess the degree of control exercised by the putative employer, the exclusivity of the engagement and its typical duration, the method of payment, what equipment the putative worker supplies, the level of risk undertaken etc. The basic effect of limb (b) is, so to speak, to lower the pass-mark, so that cases which failed to reach the mark necessary to qualify for protection as employees might nevertheless do so as workers.

(6) what we are concerned with is the rights and obligations of the parties under the contract – not, as such, with what happened in practice. But what happened in practice may shed light on the contractual position: see Carmichael [2000] IRLR 43, esp. per Lord Hoffmann at pp.[46-47]."

18. Mr Recorder Underhill added, at paragraph 18:

"Self-employed labour-only subcontractors in the construction industry are, it seems to us, a good example of the kind of worker who may well not be carrying on a business undertaking in the sense of the definition; and for whom the 'intermediate category' created by limb (b) was designed. There can be no general rule, and we should not be understood as propounding one: cases cannot decided by applying labels. But typically labour-only sub-contractors will, though nominally free to move from contractor to contractor, in practice work for long periods for a single employer as an integrated part of his workforce: their specialist skills may be limited, they may supply little or nothing by way of equipment and undertake little or no economic risk. They have long been regarded as being near the border between employment and self-employment:………. Cases which 'could have gone either way' under the old test ought now generally to be caught under the new test in 'limb (b)'. The fact that such a subcontractor may be regarded by the Inland Revenue as self-employed, and hold certificates to prove it, is relevant but not decisive."

19. In the judgment of the EAT, reference was made to the "intermediate category" described in Byrne Brothers. However, the EAT relied, in dismissing the appeals, on the presence of clause 1 in the conditions:

"It is plain that the conditions are drafted on the basis that "one size fits all". It is specifically envisaged that not all the terms will be appropriate to all contracts entered into by Redrow…..

Looking at the factual background it is clear to us, as it was to the tribunals below, that it was the common intention of the parties that under the contract the applicants would provide their personal services……. The personal service requirement was made out".

20. Mr Stafford submits that, in concluding that clause 6 did not apply to these applicants, the EAT has made the same mistake as the Employment Tribunals; they have relied on what happened subsequently and how the contracts were performed instead of considering what had been agreed. An expectation that the work would be done personally, which Mr Stafford accepts was present, is not an obligation to do the work personally.
21. In my judgment there is force in the submission that Employment Tribunals should not be deflected from a consideration of the definition of "worker" and from a consideration of terms of the contract in that context by general policy considerations as to the nature of employment and self-employment. The reasoning of the tribunal in Roberts, with its long citation from Byrne Brothers, appears to come close to saying that, because the applicants ought to come within definition of worker, it follows that they do. The Regulations leave parties free to enter contracts and, whether or not the contract includes an obligation to do the work personally, is a matter of construction. The Tribunal in Wright appears to have regarded the "subordinate and dependent position… similar to that of an employee" of the applicants as justifying a conclusion that they came within the definition. Moreover, it does not necessarily follow from the fact that the work was done personally that there was a contractual obligation to do it personally.
22. Mr Recorder Underhill rightly stated at paragraph 17(6) that the tribunal is concerned with the rights and obligations of the parties under the contract. However, the general distinction he attempts to draw at paragraph 17(4) of the judgment must not deflect tribunals, nor, I think, was it intended to deflect them, from considering whether the necessary personal obligation has arisen. Expressions such as "degree of dependence" and "lower the pass-mark" assist little in that task. The guidance in Byrne,cited in the present cases, was given under the heading "business undertaking", the expression which appears later in Regulation 2(1)(b). As such, it does not arise for consideration in this case and it is not necessary to consider it or the guidance given upon it.
23. The tribunals were entitled to construe the contracts in the light of the circumstances in which they were made. An important issue is whether, in those circumstances, condition 6 was a term of these particular contracts. Light may be thrown on that issue by considering, for example, the agreement as to how the contract was to be performed, the method of payment. It is not a question of looking at prior negotiations but "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man". (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912H, per Lord Hoffman). While respecting the tribunals' findings of fact, and admitted facts, this court is in as good as a position as the tribunals to consider that question.
24. Relevant considerations are:

a) Redrow's printed form of contract was plainly intended to cover a wide range of situations, from contracts with substantial contractors to contracts with applicants such as the present applicants.

b) Arrangements between housebuilders such as Redrow and small gangs of workers, such as the bricklayers in these cases, are common in the housebuilding industry. Both Redrow and the present applicants were accustomed to them.

c) Condition 1 binds the applicants to the conditions "insofar as they are applicable to [his] subcontract." Having regard to the wide range of contracting parties by whom the conditions were intended to be used, that provision is totally unsurprising.

d) There is no evidence that Redrow sought to enforce, or intended to enforce against these parties the conditions relating to depositing a current Health & Safety Policy and relevant VAT registration. It can be inferred, as an illustration of the flexibility permitted by Condition 1, that these provisions were not considered appropriate to the contracts with these applicants, as distinct from bigger contractors.

e) The items of work specified were not beyond the capacity of the men to do it themselves.

f) The agreed method of payment was not payment to the named contractor, Mr Wright, but to each individual doing the work. The suggestion that, by agreeing to pay Milner, Redrow was acting as agent for Wright, produces an unnecessary and unlikely complexity. While Milner is not an applicant, it is difficult to discern an intention that his position be different from that of Mr Wright.

g) In Roberts, it was not suggested by Redrow that the other members of the gang were in a position different from that of Mr Roberts.

h) The requirement in Condition 6 for a "competent foreman or chargehand" is foreign to arrangements made, and customarily made, with members of a small gang of bricklayers and it is difficult to conclude that the parties intended it to be included in these contracts..

25. Against that background, each of the tribunals was in my judgment entitled to find that there was "a mutuality of obligation" (Roberts), or "a personal provision of services" (Wright). Criticism can be made of the reasoning in each case but, in context, the conclusion was correct and should be upheld in this court upon a consideration of the evidence. In these contracts, Condition 6 was not intended to be included so as to permit others to do the work. (When the tribunal in Wright used the word "expectation" in paragraph 25, already cited, I believe they meant to convey the state of mind of intention but that finding is not essential to my general conclusion upon Condition 6.)
26. In my judgment, the intention of the parties when the contracts were made involved, in each case, an obligation on the applicants to do the work personally. That makes sense of Redrow's decision to contract with bricklayers individually. The scheme for payment points strongly in the direction of contracts with individual bricklayers to do the work personally. Had the intention been otherwise, Redrow would have been likely to make arrangements with Wright and with Roberts alone and arrange for the payments to be made to them. On the evidence, the finding that the obligation to Redrow of each of the men was personal was justified. An analysis has not been attempted by the parties as to what the position would, on my conclusion, be as between members of the gang, or as between one of them and Redrow, if a member failed to do his share of specified work, and that does not need to be determined in this case.
27. I agree with the EAT that it was the intention of the parties that personal services be provided and I would dismiss these appeals.

Lord Justice Latham:

28. I agree

Mr Justice Holman:

29. I agree that these appeals should be dismissed for the reasons given by my Lord, Pill LJ. I only summarise my own reasoning very briefly out of deference to the sustained argument of Mr Stafford QC to which I pay tribute.
30. So far as is material to these appeals, the definition of "worker" in the Working Time Regulations 1998 may be reduced to:

""worker" means an individual who….worked under …. a …. contract….whereby the individual undertakes to do …. personally any work….for another party to the contract…."

The applicants are individuals. There were contracts between them and Redrow to do work. The only question is whether by the contracts ("whereby") the applicants undertook to do the work "personally". I agree with Mr Stafford that it is irrelevant that later the applicants did in fact do the work personally. The question is whether the contracts themselves bound or required the applicants to do the work personally.

Clause 6

31. I also agree with Mr Stafford that the language of, and duties under, clause 6 of Redrow's standard "Conditions and Acceptance of Order" are inconsistent with an obligation to do the work personally. The first and third sentences of clause 6 contemplate operatives employed by the contractor and the need to maintain a foreman or chargehand in control of them. The second sentence contemplates the provision of sufficient labour to maintain the rate of progress laid down by the company, and there is an absolute obligation under clause 16 rigidly to adhere to that rate of progress. So if clause 6 forms part of the actual contracts between the applicants and Redrow, the applicants could not have "undertaken" or been required to do the work personally and they might well have required to engage the assistance of others.
32. However, the whole of the conditions are governed by and subject to clause 1: the contractor agrees to be bound by the conditions "insofar as they are applicable to his sub-contract." The words "insofar as they are applicable to his sub-contract" are quite neutral in their effect or onus. There is neither a presumption that any particular clause applies unless in some way expressly disapplied, nor a presumption that a clause does not apply unless expressly applied. The conditions were described by the Employment Tribunal in the Wright case as "all embracing" and by the Employment Appeal Tribunal in the conjoined appeals as "one size fits all".
33. In short, the effect of clause 1 is to make the remaining clauses of the printed conditions a "menu" and it is necessary to determine which particular clauses or conditions were applicable to the actual sub-contracts under consideration. This is a different exercise or task from that of construing the meaning of the words used. Rather, it requires the tribunal or court to determine which clauses the parties themselves intended to select, and did select, as applying to their contract. In that task the "matrix of fact" is, in these cases, predominant and, indeed, the only guide as to which clauses or conditions were applicable. Nothing was said or written expressly to apply or not apply any particular clause. The subjective intent of the parties is not admissible, nor do we know it. The question has to be: would reasonable people, in the position of these parties and having all the background knowledge which would reasonably have been available to them in the situation in which they were at the time of the contract, intend to apply or not apply clause 6?
34. At paragraphs 33 – 36 of their judgment the Employment Appeal Tribunal gave their reasons for concluding that clause 6 did not apply to the contracts with these applicants. In my view their reasoning is permissible and their reasons are cogent and we should not interfere with their conclusion that it did not.

Undertaking to do the work personally

35. However, that is not the end of the case or the appeals. The non-application of clause 6 merely eliminates from the contracts and the case a provision that would be necessarily inconsistent with an obligation to do the work personally. The question remains: did the contracts in fact positively require the applicants to do the work personally? Again, this must be determined in the context of the matrix of fact. I agree with the submission of Mr Stafford (although he expressed it more politely) that, with respect to them, the reasoning of both Employment Tribunals is weak and confused and takes into account inadmissible or irrelevant considerations – in particular by placing weight on the irrelevant consideration that the applicants did later in fact do the work personally (see paragraph 25 of the Extended Reasons in the Wright case and paragraph 8 in the Roberts case). I agree, too, with his submission that in paragraph 25 in the Wright case the Employment Tribunal wrongly referred to "the parties' expectation that it would be" personally performed. The correct consideration is not "expectation" but intention.
36. But I consider that on a fair overall reading of their respective Extended Reasons both Employment Tribunals clearly found as a fact that the parties did intend that the applicants must do the work personally. The tribunals are specialist tribunals and the finding was based upon their specialist understanding of the realities of the case. The finding is summarised in the last sentence of the Extended Reasons in the Wright case as "They were two individual workers who worked together and personally provided their services as bricklayers to the respondent." In the Roberts case at paragraph 8 there is a finding of fact: "We find that it was the common intention and understanding of the parties that all the applicants would undertake to work personally." Although that finding is followed by some inadmissible reasoning (by reference to what later actually happened) the tribunal continued: "….it accords with the understanding and common sense of the circumstances…."
37. In the conjoined appeals the Employment Appeal Tribunal said at paragraph 38 of their judgment: "Looking at the factual background it is clear to us, as it was to the tribunals below, that it was the common intention of the parties themselves that under the contract the applicants would provide their personal services."
38. Despite the sustained argument of Mr Stafford, these seem to me to be findings and conclusions of specialist tribunals which accord with common sense and with which, despite errors in the reasoning processes, I would not interfere. I would accordingly dismiss both appeals.