England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand, London, WC2A 2LL
		4th May 2005

Lord Justice Keene:

1. This is another appeal which is concerned with the legal problems which arise from the increased use of workers supplied by an employment agency to a client in situations where, in the past, the worker would normally have been regarded as the employee of either the employment agency or the client. The employment status of the worker in such cases may be relevant in a number of types of ways. It may, for example, affect whether anyone is vicariously liable for the torts committed by him in the course of his work. But one of the most important ways in which such an issue may be relevant, as in the present case, is in respect of the statutory right enjoyed by employees not to be unfairly dismissed. Putting it shortly, it is only an "employee" who has the right under section 94(1) of the Employment Rights Act 1996 ("the 1996 Act") not to be unfairly dismissed by his "employer".
2. Who is an employee? According to the definition provided by section 230(1) of the 1996 Act, he is

"an individual who has entered into or works under (or where the employment has ceased, worked under) a contract of employment."

A contract of employment is then defined by section 230(2) as meaning

"a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing."

A contract of service is not further defined. It appears that the legislature took the view that a contract of service was a creature already sufficiently well-known to the law and was content to leave it to the courts to apply the principles established in the case-law for determining when a contract of service exists or does not exist. The contrast normally drawn in those decided cases has been between a contract of service and a contract for services, the latter being where the task covered by the contract is performed by an independent contractor.

3. The present appeal arises out of a claim for unfair dismissal brought by the appellant, Mr Bunce, against the present respondent, Postworth Limited, trading as Skyblue, and G.T. Railway Maintenance Limited, trading as Carillion Rail. As the employment tribunal found, Skyblue is an employment agency and Carillion Rail is an associated company whose business is railway maintenance and civil engineering. The appellant is a welder, who entered into an agreement with Skyblue, as a result of which he was sent on a regular basis to carry out welding work for Carillion Rail and other companies. It is not in dispute that, in the 52 weeks before his engagement was ended by Skyblue on 19 December 2002, the appellant worked on 142 assignments, mostly for Carillion Rail but on 39 of them for other companies engaged in railway maintenance. He worked for all or part of each of those 52 weeks. However, the employment tribunal concluded that he was not an employee of either Skyblue or Carillion Rail and that in consequence it had no jurisdiction to hear his unfair dismissal claim.
4. No appeal was lodged against the decision that he was not an employee of Carillion Rail. The appeal to the Employment Appeal Tribunal ("the EAT") concerned solely the issue whether he had been an employee of Skyblue within the meaning of section 230 of the 1996 Act. The EAT upheld the decision on that issue by the employment tribunal on two grounds: first, that there was an absence of mutuality of obligation between the appellant and Skyblue, and secondly that on the facts, particularly the minimal control exercised by Skyblue (as opposed to Carillion), the tribunal had been entitled to conclude that there was no contract of service with Skyblue. That decision of the EAT is now challenged in the appeal to this court.
5. It is necessary to set out the relevant facts in more detail. The employment tribunal found that the appellant's relationship with Skyblue began when he signed a written agreement on or about 10 November 2001. The document was entitled "Associate - Term and Conditions of Engagement". The terms expressly provided that this was a contract for services as between Skyblue and the appellant and stated that

"for the avoidance of doubt these Terms and Conditions shall not give rise to a contract of employment"

between Skyblue and the appellant. Clause 3(a) provided that Skyblue agreed to engage the services of the appellant on "these Terms and Conditions" and

"shall undertake to obtain suitable assignments for the Associate (i.e. the appellant) with clients to work as assistant welder."

A subsequent provision specified that he would be paid at an hourly rate of £12. Clause 3(b) stated that the failure of Skyblue to obtain suitable Assignments for the Associate

"shall not give rise to any liability on the part of the Employment Business (i.e. Skyblue) and the Associate recognises that there may be periods between Assignments when no work is available."

Clause 3 (c) provided that

"The Associate shall not be obliged to accept an Assignment offered by the Employment Business."

The agreement provided for a time-sheet to be produced at the end of each week by the Associate to Skyblue, the time-sheet being signed by a representative of the Client. Skyblue would then pay the Associate at the agreed hourly rate for the hours worked, subject to deductions for National Insurance, income tax and any other deductions required by law. Under the agreement the appellant was entitled to paid annual leave but not to sick pay.

6. Clause 7(a) of the agreement dealt with an Associate's obligations in respect of the conduct of an assignment. It is relied on by the appellant as being of importance to this appeal. It stated that the Associate agreed that during every Assignment and afterwards as appropriate he/she would

"(a) Co-operate with the Client's staff and accept the directions, supervision and instruction of any person in the Client's organisation to whom he/she is responsible and conform to the Client's rules and regulations and normal hours of work and practice."

7. Clause 8 provided as follows:

"(a) The Employment Business may at any time without notice and without liability instruct the Associate to end an Assignment.

(b) If the Associate is unable for any reason to work on an Assignment he/she should inform the Employment Business by no later than 1hr prior to the start time on the first day of the absence to enable the Employment Business to make alternative arrangements with the Client."

8. There was also, as part of the same document, a set of terms headed "Associate's Agency Agreement". These too were signed by the appellant. Many of the terms were the same as or similar to those in the first part of the document, but they also provided that the Associate appointed the Employment Business as his agent to arrange Assignments with Clients. Clause 2(a) stated that

"This and the Client Temporary Agreement regulate Assignments undertaken by the Associate with the Client under a contract for services, which applies on each occasion when the Associate provides services to the Client."

"The Client Temporary Agreement" was said to be a document "in the form shown overleaf which sets out the terms upon which the Associate provides services to the Client". That document is not in evidence.

9. The tribunal found that the appellant was provided with training, certification materials and tools by Skyblue.
10. The tribunal did not make any explicit findings about how the system set up under these arrangements operated in practice. Evidence in witness statements filed on behalf of the respondents indicated that, when Skyblue were told by a client, such as Carillion Rail, of the need for a certain number of welders, Skyblue would then identify that number of individuals on their data base. Skyblue then would telephone a person on their data base, such as the appellant, about the assignment. If he accepted it, he would be told the location and nature of the job. Once there, he was directed what to do by the local supervisor. When the work was done, it would be inspected by a welder inspector employed by Carillion Rail or other end-client company, as the case might be. The client company in due course would pay Skyblue on a monthly basis a sum based on the number of welders and hours worked that month and their hourly rates. The tribunal found that the rate of pay for the appellant was considerably higher than that of employees of Carillion Rail.
11. It was also found that in November 2002 there was a change in management responsibilities for those such as the appellant, with his immediate line manager becoming an employee of Carillion Rail. The tribunal did not regard this as changing the relationship between the appellant and Skyblue, and that is not suggested by either party to this appeal.
12. Eventually there were complaints by Carillion Rail about alleged deficiencies in the appellant's work and on 19 December 2002 he was informed orally by Skyblue that they were terminating the relationship.
13. In its extended reasons, the employment tribunal referred to a number of authorities on the meaning of a contract of service. It cited the well-known passage from the judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497, at 515 where 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."

The tribunal noted that mutuality of obligation had been described as the "irreducible minimum" required for a contract of employment, referring to Nethermere (St. Neots) Limited v. Gardiner [1984] ICR 612. Referring to the written agreement of 10 November 2001 in the present case, the tribunal found that that necessary mutuality of obligation did not exist. The appellant was not entitled to expect a constant stream of work and Skyblue would not insist upon him accepting assignments offered to him.

14. The tribunal then went on to consider whether, if there was such mutuality of obligation, the other factors present indicated that this was a contract of service. It approached this issue by considering the factors set out in the judgment of Mummery J in Hall v. Lorimer [1992] ICR 739. In the light of various factors which it listed, it again concluded that the appellant was not an employee. It also held that he was not self-employed. As I have already indicated, the EAT upheld the tribunal on both points, particularly emphasising, on the second, the lack of control by Skyblue over the work.
15. The finding that the agreement of 10 November 2001 did not establish a contract of service between the appellant and Skyblue is not challenged on this appeal. The submission made by Mr Hogarth, QC, on behalf of the appellant, is that that was simply the umbrella agreement covering the relationship generally between the appellant and Skyblue. But when the appellant was actually working, he was an employee because there was then a sufficient mutuality of obligation. During those periods of work there existed separate contracts for each specific assignment, such a contract arising on each occasion when Skyblue offered the appellant an assignment and he accepted it. It was, it is contended, each such contract which was a contract of service, because the appellant was doing work at Skyblue's request and was being paid for it by Skyblue.
16. It is accepted by the appellant that, when he was working, control over his work was exercisable by the end-user client. Some elements of control remained with Skyblue, such as telling him where the site was at which he was to work, but once he was at the site it was the client who could direct him what he was to do and how he was to do it. But, submits Mr Hogarth, that power of control originated in the written contract with Skyblue, since it was clause 7(a) of that agreement which obliged the appellant to "accept the directions, supervision and instruction of any person in the Client's organisation to whom he/she is responsible". Thus the contractual right of control was originally with Skyblue, who were in effect delegating the power of control to the client. It is contended that that gave Skyblue sufficient control for the purpose of establishing a contract of service under which the appellant was Skyblue's employee, especially when it is combined with the right retained by Skyblue to instruct the appellant to end an assignment: clause 8(a).
17. Mr Hogarth also criticises the employment tribunal's decision for not dealing adequately with the position in respect of separate contracts for each assignment. He has taken us through the various factors listed by the tribunal when it was considering whether there was a contract of service and he argues that some of them were not indicative of the absence of such a contract. He instances amongst others the absence of sick pay, the absence of a disciplinary and grievance procedure and the absence of any need for a period of notice by either party when terminating the arrangement. Furthermore it is said that the tribunal failed to have regard to all the specific criteria set out in Hall v. Lorimer. Finally, it is argued that the tribunal's conclusion that the appellant was neither an employee nor self-employed was bizarre and postulates some new category of worker.
18. It is perhaps helpful to take first this last group of criticisms of the tribunal's decision. It is right that the employment tribunal did not deal at any length with the possibility of a separate contract of service relating to each assignment. What it said on that topic was this:

"Whilst we appreciate from the cases of Dacas v. Brook Street Bureau UK Limited [2003] IRLR 190 and Franks v. Reuters Ltd [2003] IRLR 423 that a "temporary worker" ostensibly with an employment agency can in certain circumstances be regarded as the employee of either the agency or the host company, we find that in this case there is nothing approaching the consistency and continuity of placement that existed in the reported cases."

The reference to "consistency and continuity of placement" may seem a little Delphic, but must have been intended to reflect the fact that, in both the cases mentioned, the individual worker had spent several years working with the end-user client (having been placed there by an employment agency) and that in both cases this court was prepared, partly because of that length of service, to envisage the possibility of a contract of service between the worker and the end-user client. The tribunal here did not deal further with the possibility of a contract of service arising with Skyblue each time the appellant accepted an assignment, but that must be seen in the context of the case being advanced before it on his behalf at that stage in the proceedings. We have in the appeal bundle the written note of the submissions made on his behalf, as well as the summary of them in the tribunal's extended reasons. They do not reveal any suggestion of there being separate contracts of service for each assignment. The respondent's solicitor did deal with this possibility but it is clear that it was not a central issue before the tribunal. That perhaps explains the limited attention given to it in the tribunal's reasons. It is an argument which has only subsequently been adopted on the appellant's behalf.

19. I do not find Mr Hogarth's critique of the tribunal's approach to the factors relevant to deciding whether there is a contract of service persuasive. As Mummery J (as he then was) emphasised in Hall v. Lorimer itself, the factors he referred to were not intended to be exhaustive nor were they to be applied in a mechanistic way. He was at pains to point out (at page 744) that

"The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another."

Such factors as the presence or absence of a grievance procedure have been regarded as of some relevance: see, for example, McMeechan v. Secretary of State for Employment [1997] ICR 549 at 565(3). But what is clear is that the tribunal sought to apply the approached commended in Hall v. Lorimer – indeed, it quoted from the relevant passage in that case, and I can see no basis for criticising its conclusion. In any event, the appellant does not challenge that conclusion, insofar as it relates to the "umbrella" written contract of 10 November 2001. None of his arguments focuses on the real issue in this case, which is whether there were separate contracts of service with Skyblue each time an assignment was accepted, or at least a sufficient possibility of the existence of such contracts to justify remitting this matter to the employment tribunal to consider the issue afresh.

20. That issue involves two propositions: first, that a further contract between the appellant and Skyblue came into existence in respect of each assignment; and secondly, that each such contract with Skyblue was a contract of service. On the first of those issues, Mr Hogarth relies on a number of authorities to demonstrate that it is legally possible to have both a general "umbrella" contract in cases such as this and specific contracts for each assignment. Such a possibility seems to have been envisaged by Sir John Donaldson, M.R., in O'Kelly v. Trusthouse Forte plc [1983] I.C.R 728 at 763, a case dealing with casual catering staff. It was said that, if there was an umbrella or master contract,

"it would be a contract to offer and accept individual contracts of employment and, as such, outside the scope of the unfair dismissal provisions."

In McMeechan, an employment agency case, this court held that each specific engagement on which a worker went was capable of giving rise to a contract of employment. Moreover, Waite LJ, with whom the rest of the court agreed, said at page 563:

"There is nothing inherently repugnant, whether to good relations in the workplace or in law, about a state of affairs under which, in an employment agency case, the status of employee of the agency is allocated to a temporary worker in respect of each assignment actually worked, notwithstanding that the same worker may not be entitled to employee status under his general terms of engagement."

There was, in fact, in that case no master or umbrella agreement between the temporary workers and the agency (see page 551), and as each specific job arose, a job sheet containing detailed contractual terms was completed. It was, therefore, a strong case on its facts. Nonetheless, the statement of principle set out above and relied on by Mr Hogarth was not confined to cases where there was no umbrella agreement. That decision was followed in Clark v. Oxfordshire Health Authority [1998] IRLR 125, again a decision of this court.

21. I have no difficulty in accepting that there may, in certain circumstances, exist both a master or umbrella agreement, governing the relationship between a worker and an employment agency, and individual contracts in respect of specific assignments or tasks. As a matter of legal principle, that is entirely possible. It is in reality more likely that individual assignment contracts will exist with the agency where there is no master agreement containing detailed terms in being, as in McMeechan, than where there is, since the terms of the latter may well cover what is to happen on each assignment. Thus in Dacas v. Brook Street Bureau there was an express master agreement between Mrs Dacas and Brook Street Bureau but this court found that there was only that one contract, Mummery LJ saying at paragraph 64:

"There was no basis in the documents or in the evidence for finding another contract between Brook Street and Mrs Dacas governing her work at West Drive,"

that being the location of the council hostel where Mrs Dacas had worked on a specific assignment. Indeed, Mr Hogarth was unable to refer to any reported case where there has been found to exist, as between the worker and the employment agency, both a master contract and separate contracts for each assignment. Nonetheless, it is, I accept, a situation which could arise and the authorities indicate that that is so.

22. The issue on this part of the case is whether such separate contracts did exist, as between the appellant and Skyblue, in respect of each assignment, as well as the written agreement of 10 November 2001. In considering this issue, one has to bear in mind the very detailed provisions of that written agreement. They dealt not only with the rate of pay which the appellant was to receive on each assignment but also with the "Conduct of Assignments", that is to say, how he was to conduct himself on each assignment. Clause 7 required him to co-operate with the client's staff and to accept the directions of the client's responsible persons; to take all reasonable steps for his and others' safety; and not to act in a way detrimental to the client's interests. By clause 13 he undertook to observe all health, safety, environmental and welfare requirements in force at any site. And, as I have set out earlier, clause 2(a) of the Agency Agreement part of that document stated that that Agreement and the Client Temporary Agreement "overleaf" regulated assignments undertaken by the Associate with the Client.
23. Given these very detailed provisions governing the relationship between Skyblue and the appellant in respect of each assignment, I can see little room for individual contracts between those parties for each assignment. It was clearly implicit in that agreement that, once the appellant had accepted a specific assignment, he would carry it out. I say nothing about the possibility of individual contracts between the appellant and the end-user client, as envisaged in Dacas: that is not a line of argument advanced before us. But on the evidence and documents in this case, I am not persuaded that there was a second contract between Skyblue and the appellant each time he was sent on a specific engagement.
24. However, even if there was such a contract for each assignment, whether arising separately from the document of 10 November 2001 or in some way under its provisions, the appellant faces the further hurdle of establishing that such contracts were contracts of service with Skyblue. On that issue, the legal principles applicable were recently and authoritatively reviewed by this court in Dacas and I do not find it necessary to engage in a further analysis of previous authorities. The court in that case (paragraph 49) re-emphasised the point that

"there is an "irreducible minimum of mutual obligation necessary for a contract of service", i.e. an obligation to provide work and an obligation to perform it, coupled with the presence of control: see, for example, Carmichael v. National Power plc at pp 45 (per Lord Irvine of Lairg) and 47 (Lord Hoffmann); Montgomery v. Johnson Underwood at paragraphs 21, 23, 46 and 47 and the other authorities cited in the judgments in those cases … … . In the absence of a contract, or of a contract having those features, the applicant cannot qualify as an employee, even though it may well seem surprising not to regard the applicant as an employee. A tribunal must, however, resist the temptation to conclude that an individual is an employee simply because he is not a self employed person carrying on a business of his own: Wickens v Champion Employment [1984] ICR 365 at 371 and Ironmonger v Movefield Ltd [1988] IRLR 461 at paragraphs 19-21."

I note in passing that those two authorities referred to by Mummery LJ and endorsed by him, both of them being employment agency cases, do indeed provide support for the employment tribunal's approach in this case, namely that the appellant was not an employee simply because he was not self-employed. In any event, whether or not there is some sui generis category of worker neither self-employed nor an employee under a contract of service, the question remains whether in this present case there was a contract of service with Skyblue.

25. The importance of control as a feature of contracts of service and in particular control not only over what the worker does but how he does it is long-established. In the vicarious liability case of Mersey Docks and Harbour Board v. Coggins and Griffith (Liverpool) Ltd [1947] AC 1, Lord Porter in a well-known passage at page 17 emphasised that what matters is the ability to control the method of performing the task. He added:

"It is true that in most cases no orders as to how a job should be done are given or required: the man is left to do his own work in his own way. But the ultimate question is not what specific orders, or whether any specific orders, were given but who is entitled to give the orders as to how the work should be done."

26. In Montgomery v. Johnson Underwood Limited [2001] ICR 819 Longmore LJ saw such control as an essential feature of a contract of service:

"Mutuality of obligation and the requirement of control on the part of the potential employer are the irreducible minimum for the existence of a contract of employment." (paragraph 46)

In Dacas, the court rejected the argument that there was a contract of service between Mrs Dacas and the employment agency, not only because of a lack of mutuality of obligation but also because the agency

"did not exercise any relevant day-to-day control over her or her work at West Drive … … The real control over the work done by Mrs Dacas at West Drive and over her in the workplace was not exercised by Brook Street." (per Mummery LJ at paragraph 64)

There are many other authorities which indicate that such control will normally be a necessary condition, though not always a sufficient one, for the existence of a contract of service.

27. Although Mr Hogarth refers to the exceptional situation of the master of a ship under a charter party, where the master is generally the employee of the ship owner, even though the charterer can direct the employment of the vessel (see Lord Wright in Montreal v. Montreal Locomotive Works Limited [1947] 1 D.L.R. 161 at 169), he accepts the importance of this factor of day-to-day control. It is also accepted that, in the present case, such control over the appellant and his work rested with the client company. That is why the appellant's submission is that it is enough that such control has been "delegated" to the client under a contract with Skyblue, and that this means that Skyblue has sufficient control to be his employer.
28. Is it enough that the ability of the client to control the day-to-day work originates in an agreement with Skyblue? It is to be observed that the contractual term principally relied on by the appellant, clause 7(a), requiring him to accept the directions, supervision and instruction of the client, seems to be a standard term in these contracts used these days by employment agencies. A term in almost identical words was a feature of the agreement in Dacas between Mrs Dacas and the agency, as it was in Stephenson v. Delphi Diesel Systems Limited [2003] ICR 471. It does not seem to have occurred to anyone in those cases that the origin of the client's control in a term of the contract between the worker and the agency was enough for the agency to be seen as having sufficient control for these purposes. Of course, that does not itself invalidate the argument based on "delegation", since it has not previously been considered by the courts.
29. I cannot, however, accept that the mere fact that the client's day-to-day control originates, so far as the appellant's obligation is concerned, in a term of the contract between Skyblue and the appellant is enough to satisfy the requirement for control by Skyblue. The law has always been concerned with who in reality has the power to control what the worker does and how he does it. In the present case, during the periods when the appellant was working on an assignment, it was the client, the end-user, who had the power to direct and control what he did and how he did it. That is not in dispute. Skyblue could not exercise such control over the appellant. Nothing before us in the evidence indicates that Skyblue retained any such power – unlike the situation in McMeechan: see page 553, paragraph (5)(g). Once that state of affairs arose, as it did on any assignment, Skyblue lacked the necessary control over the appellant for him to be seen as their "servant", in the old "master and servant" terminology, during the time he was on that assignment. That the client's power to exercise day-to-day control over him had its origins in the agreement dated 10 November 2001 with Skyblue cannot make good that deficiency. I would reject the appellant's argument based on the concept of delegation.
30. That is really fatal to his case. It means that there was and is no prospect of establishing that there was a contract of service with Skyblue, even during the periods of time when the appellant was working on an assignment. For those reasons I would not upset the decision by the employment tribunal.
31. Like those who constituted the court in Dacas, I recognise that this effectively deprives those in the position of the appellant of much of the protection afforded to workers by the 1996 Act, certainly in respect of the right not to be unfairly dismissed. Indeed, the appellant is in a worse position than Mrs Dacas, because even if he could establish a contract of service with each end-user client, as was suggested in that case, it would not enable him to claim the minimum one year's continuous employment with an employer, required in order to qualify under the 1996 Act for protection from unfair dismissal: see sections 108(1) and 210. But that is the result of Parliament's decision to require a qualifying period of employment before a claim for unfair dismissal can be brought and it seems to be an intended result.
32. What is clear is that there is now a large and growing number of people in full-time or nearly full-time work who, because they work under agency arrangements, do not enjoy the full range of employment rights conferred under the legislation on those working under more conventional arrangements. As Mummery LJ commented in Dacas, paragraph 9, this problem may in due course be regarded as a matter for legislation. It is not one capable of being overcome by judicial creativity. In the absence of such legislation, the state of affairs which I have described will persist, at least in cases such as that of the appellant, since I cannot see that he has the benefit of a contract of service with the employment agency Skyblue.
33. It follows that, for the reasons I have set out, I would dismiss this appeal.

Lord Justice Gage:

34. I agree.

Sir Martin Nourse:

35. I also agree.

ORDER: The Appeal herein shall be dismissed and the Appellant shall pay the First Respondent's costs thereof on a standard basis, such costs to be subject to a detailed assessment if they are not agreed.

(Order does not form part of approved Judgment)