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
(Mr Justice Elias, the President)
UKEAT/0535/06/DM

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/04/2008

Lord Justice Rimer :

Introduction

1. This appeal, by Consistent Group Limited ("Consistent"), is against an order of the Employment Appeal Tribunal ("the EAT") dated 18 May 2007 (Elias J, the President, sitting alone) dismissing an appeal against a decision of an Employment Tribunal (Chairman, Mr E. Lloyd Parry, sitting alone) promulgated with reasons on 11 September 2006. Consistent is the first respondent to claims brought by Ms K Kalwak and others for compensation for unfair dismissal and other monetary relief based on the assertion that the claimants were either "employees" of Consistent or engaged by it as "workers". Their complaints were that they had been dismissed for proposed trade union membership or activities contrary to section 152 of the Trade Union and Labour Relations (Consolidation) Act 1992, that they had been denied notice pay in breach of contract and that there had been unlawful deductions from their wages. The second respondent to the claims is Welsh Country Foods Limited ("WCF"). The matter before the Chairman was a preliminary issue as to whether the claimants were employees or workers or neither; and, if they were employees or workers, whether with Consistent or WCF. The Chairman dealt with the preliminary issue by dealing with the case of one of the claimants, Ms Bachorska.
2. The Chairman held that the claimants were employees employed by Consistent under a contract of employment and that their claims should proceed to a determination. It followed from that finding that the claimants were also "workers" for the purposes of the relevant statutory provisions. He also found that the claimants were neither employees of, nor workers engaged by, WCF, a finding challenged neither before the EAT nor before us. The EAT concluded that the Chairman was entitled to find that the claimants were employed by Consistent under a contract of employment. It is that decision that is challenged. The only ground of appeal is the assertion that the Chairman's decision was insufficiently reasoned, one permitted by the full court on 18 September 2007.

The background facts

3. I take these from the Chairman's findings. Consistent is an agency that provides staff for food processing factories and hotels, mainly the latter. It deploys mostly Polish nationals. WCF produces food products and has a factory in Winsford. It also runs hotels. It uses staff provided by Consistent. The first relevant document is an agreement dated 12 September 2005 between (1) Consistent (called "the Company") and (2) WCF (called "the Client") in relation to WCF's hotel business. This was entered into after the dismissal of the claimants in June 2005 and did not relate specifically to WCF's food processing activity in which the claimants had been engaged. But the Chairman took its terms as being the same as, or equivalent to, those in existence between Consistent and WCF at the time material to the claimants' cases (the agreement in fact purported to describe its commencement date as 6 January 2005, which pre-dated their arrival on the scene). Although it applied only to hotel work, the Chairman assumed that it also applied to people sent by Consistent to work for WCF in its food processing business.
4. Under the agreement Consistent was to provide staff to WCF, which was to pay Consistent for that service. The Chairman referred to the following provisions in an opening section, described as "… points about our contract, which are very important to us":

"1. You [WCF] will be expected to provide a minimum of 48 hours work a week for each of our staff. Experience shows that they resign if you do not. …

6. All staff introduced by us [Consistent] shall remain employed by us and may not work at your hotel through any other medium (e.g. self-employed, employed directly or employed through another agency). There is a £1500 penalty if they do.

5. He then referred to clauses 14 and 26 of the "Standard Terms and Conditions of Business (Staff Contract)". I will also refer to clauses 2, 3 and 15:

"2. The Company shall endeavour to supply such Staff as the Client may require to work under the Client's direction and control.

3. The Company shall act as an employment business in respect of this Agreement and may engage the Staff either under contracts of service or contracts for services. The Company shall supply to the Client the names of the Staff and shall pay all fees due to the Staff under their contracts for services to the Staff ….

14. The Client shall provide a minimum of 48 hours' work per full week (or pro rata) for each of the Staff. …

15. The Client hereby confirms its intention to hire any Staff that are hired for at least three months, save where it has indicated the contrary to the Company. ...

26. The Client shall be responsible for providing to the Staff day-to-day instructions relating to the services required and accordingly the Client agrees to be responsible for acts, errors and omissions of the Staff at all such times as if the Staff were engaged directly by the Client. …"

6. The claimants are Polish nationals. Whilst in Poland, they arranged for Consistent to place them in work. They came to England at the end of April 2005, when Consistent accommodated them in a house in Liverpool and then, after "they came under attack from local people", in a Travel Lodge at Wrexham. Each claimant signed a contract ("the contract") with Consistent on 2 May 2005. They signed it in both English and Polish versions.
7. The contract was entitled "Self-employed subcontractor's CONTRACT FOR SERVICES". Each claimant was described as "the Subcontractor". "Client" was defined as meaning "a hotel, factory or other person with whom Consistent has or has had an agreement to provide services" (WCF was a client). "Services" included "night, factory or room cleaning or kitchen portering provided by the Subcontractor or any of his servants or agents (together with him, the Personnel)." The contract included these provisions:

"Term: This Agreement shall run from [the date of signature, referred to as "the Date"] until termination ('the Term') by either party giving two weeks' notice, but if the Subcontractor breach or persistently fail to fulfil this Agreement, Consistent may terminate it forthwith. …

Obligations: The Subcontractor shall provide Services on an ad-hoc and casual basis from the Date as required by Consistent. While Consistent will try to give the Subcontractor as much notice as possible when offering work, there is no obligation upon Consistent to provide such work, nor upon the Subcontractor to accept any work so offered, and Consistent may use the services of the Subcontractor only when mutually agreed, with no obligation by either party other than to honour a specific, pre-agreed period of engagement. The Subcontractor is not an employee of Consistent and is not entitled to any fringe benefits such as sick pay, holiday pay or pension rights.

Substitution: Where the Subcontractor has agreed to provide Services to Consistent, he shall perform the Services himself or, if he cannot, he shall inform Consistent and shall ensure that the Services are performed by the Personnel, whom the Subcontractor warrants and undertakes will be competent, suitable and sufficiently experienced.

Fees: Consistent shall pay fees ('the Fees') to the Subcontractor for the Services of the Personnel as follows:

- where the Personnel occupy accommodation in rented lodgings provided by Consistent … : £3.44 per person per hour for the first 40 hours a week and £4.85 per hour thereafter;

- where the Personnel receive one hot meal per shift at the Clients' premises: £4.13 per person per hour for the first 40 hours a week and £4.85 per hour thereafter;

- where the Personnel occupy accommodation in rented lodgings (as described above) and receive one hot meal per shift at the Clients' premises: £2.92 per hour for the first 40 hours a week and £4.85 thereafter;

- where the Personnel occupy accommodation at the Clients' premises and receive full board: £3.17 per person per hour for the first 40 hours a week and £4.85 thereafter;

- otherwise, £4.85 per hour.

Taxes: [Consistent was to pay any income tax or national insurance under section 44 of the Income Tax (Earnings and Pensions) Act 2003 and Schedule 1 to the Social Security (Categorisation of Earners) Regulations 1978 and the Subcontractor was to pay any other taxes he might owe]

Supplies of Services and Charges: Consistent may make supplies to the Subcontractor for board, lodging, transport, translation, accountancy or other supplies ('the Supplies') which Consistent, or through it any Client, provides to any of the Personnel for the better performance of the Services. If work is available, the Subcontractor may provide Services either to a Client where the Personnel obtain their own Supplier or to a Client where (whether on or off site) Consistent provides or arranges the Supplies. The Subcontractor authorises Consistent to deduct from the Fees the following charges, any of which Consistent may alter after giving two weeks' written notice –

Translation charge: £25.00 per year for each of the Personnel using Consistent's translation service.

Accountancy charge: £100.000 per year for each of the Personnel using Consistent's accountancy service.

Supplies of board and lodging shall be free of charge.

Deposit: [this provided for the payment by each of the Personnel of a deposit of £300 in weekly tranches of £75. This was security for leaving the lodgings clean, tidy and in good order and for good conduct. It was returnable at the end of the term or kept (either in whole or part) against damage or gross misconduct]

Lodgings: [this provided that, where Consistent provided lodgings, the Subcontractor was to tell Consistent the name of all Personnel in them and to tell them the lodging rules. The Subcontractor was to leave, and to ensure that the Personnel left, the lodging clean and in good repair at the end of the Term]….

Circumvention: The Subcontractor shall not, whether directly or indirectly, interfere in any contract between Consistent and any Client; solicit or seek to solicit a contract directly with any Client; dissuade any Client from continuing any contract with Consistent or from entering into any new contract with Consistent; or libel or slander Consistent, its directors, managers, personnel or Clients. Nevertheless, the Subcontractor may provide Services to any other person if, in Consistent's reasonable opinion, there is no conflict with or circumvention of the Subcontractor's ability to provide services for Consistent or to Clients." …

Extent: This, the entire Agreement between the parties, supersedes any previous agreement between them. It may be varied only in writing, signed by both parties. …"

8. Another relevant document is headed "Being Self-employed – What It Means". It was signed by each claimant and dated the same day as the contract, but the Chairman found it was only given to each claimant after he had signed the contract. He found it was not a contractual document and did not purport to amend the contract. I will call it "the supplemental document". Its material provisions were:

"The Consistent Group only offers self-employed contracts to its staff. What this means is as follows:

1. You can work for anyone else as well as working for Consistent.

2. You can refuse to do the work offered for any reason; however, you are obliged to tell one of Consistent's supervisors if you wish to do so and you will not be paid for any time not spent working.

3. You may send a substitute to work in your place, provided that he is suitable for the position. His work is then your responsibility and, unless you have notified Consistent to the contrary, Consistent will pay you and you will be responsible for paying him. …

4. Unless you have already refused to the work offered, you must send a substitute to do your work if you do not do it yourself.

5. You will not have any of the rights that an employed person normally has in law not to be unfairly dismissed.

6. Consistent is not obliged to pay you the national minimum wage; however, it does pay the equivalent adjusted for your accommodation and/or meals. … [paragraph 6 then set out how the pay was calculated]."

9. Following the signing of the documents, the claimants were accommodated in a house in Crewe. There were already six Poles there who were working for WCF. The Chairman found that each week a total of £56.40 was deducted from their pay for accommodation and cleaning, with a right to increase it on two weeks' notice. He found that little (if any) cleaning was done. The day after arriving at Crewe, the claimants were taken to WCF's Winsford factory where they were medically checked to ensure that they were sufficiently healthy to work in meat packing. They started word as meat packers at the factory on 6 May 2005.
10. The Chairman referred, in less than three lines, to the evidence of Ms Bachorska, the test claimant, evidence which he accepted. Since those findings were the basis for a central element of his decision, I quote them in full:

"3.20 Ms Bachorska wanted to work many hours. But sometimes she wanted time off. When she asked for it, it was refused. In practice, she had to work when required."

11. The Chairman further found there "was some talk" of the claimants joining the Transport and General Workers' Union, but Consistent told them it consisted of bad people and they were discouraged from joining. Eventually, the claimants gave two weeks' notice under the contract terminating what the Chairman referred to as "their employment" (the "Term" provision provided for such notice). His finding was that they were then told that they would finish work the next day and that they had to leave the accommodation immediately. He found that Consistent had ensured that they registered themselves as self-employed persons with the Home Office.

The statutory provisions

12. Section 230 of the Employment Rights Act 1996 ("the ERA") defines an "employee", a "contract of employment" and a "worker" for the purposes of the ERA. It provides, so far as material:

"230. Employees, workers etc

(1) In this Act 'employee' means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act 'contract of employment' means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

(3) In this Act 'worker' (except in the phrases 'shop worker' and 'betting 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;

and any reference to a worker's contract shall be construed accordingly.

(4) In this Act 'employer', in relation to an employee or worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.

(5) In this Act 'employment' –

(a) in relation to an employee, means (except for the purposes of section 171) employment under a contract of employment, and

(b) in relation to a worker, means employment under his contract;

and 'employed' shall be construed accordingly. …"

13. As Elias J pointed out in his judgment in the EAT, it follows that whilst all employees are workers, not all workers are employees. As he put it:

"13. … The concept of employee is narrower, although both concepts require that there must be some obligation to perform services personally. The absence of any such obligation will mean that the status is not that of worker or employee."

The Chairman's decision

14. The Chairman referred to the definitions of an "employee" and a "contract of employment" in section 230 of the ERA and to the definition of a "worker" in regulation 2 of the Working Time Regulations 1998, which is identical to that in section 230. He referred to the provision in section 1 of the National Minimum Wage Act 1998 to the effect that a "worker" qualifies for the national minimum wage. He quoted (inaccurately) from McKenna J's decision in Ready Mixed Concrete (South East) Ltd. v Minister of Pensions and National Insurance [1968] 2 QB 497, at 515, relating to the conditions requisite for the creation of a contract of service. The relevant passage reads:

"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. … 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 and occasional power of delegation may not be."

15. The Chairman attributed to McKenna J the proposition that "there must … be an irreducible minimum of obligation on each side to create a contract of service." That observation was made by Stephenson LJ in Nethermere (St Neots) Ltd v. Gardiner [1984] IRLR 240, at 245. The Chairman identified the key marks of a contract of service as being "personal service, control, consistency and mutuality."
16. In summarising the contract and supplemental document, the Chairman commented on their effect. He did so against the background that each claimant was asserting that, insofar as the contract purported to be one for services, it was a sham and that in reality it was a contract of service. He said that the first sentence of the "Obligations" term in the contract (by which the subcontractor "shall provide services on an ad-hoc and casual basis as required by Consistent") was inconsistent with the latter part of that term (by which Consistent was not obliged to offer work to the subcontractor and the subcontractor was not obliged to accept any work that Consistent offered). The point was arguably correct, but I disagree that it resulted in the "Obligations" term being ambiguous or uncertain. It must be read as a whole and its sense so read is that Consistent was not required to offer any work to the subcontractor, who was in turn not required to accept any work that was offered.
17. As for the "Substitution" provision, the Chairman said:

"3.12 It is to be noted that the circumstances enabling the substitution to take place arose solely when the claimant could not do the work personally: not merely because she did not want to do it or chose for whatever reason not to. And there was an obligation to provide a replacement ('shall ensure'). Thus work must be done by the claimant and if she could not do it, she must provide a substitute: so the contract provided. Further, I learnt, any substitute had to undergo a health check, as befitted those working in the food processing industry.

3.13 But again, the documents are ambiguous. … [The supplemental document] … provided, unconditionally, at paragraph 2:-

'You can refuse to do the work offered for any reason'.

This is far more generous than 'there can only be a substitution if you cannot do the work'. [The ET then referred to paragraph 3 of the supplemental document and, after observing that that document was not a contractual document, continued] 'It does not cover quite the same ground as the contractual terms under 'Substitution' It does not specify the circumstance (that the claimant cannot do the work) which in the contract triggers the right to send a substitute …." (Emphasis added)

18. That is not in my view an accurate summary of the "Substitution" provision, at any rate if (as I read it, with reference in particular to his opening point in paragraph 3.13) the Chairman was relying upon it as supporting the view that the contract imposed upon the subcontractor an obligation to do all the work that Consistent asked of him. The "Substitution" provision only operated in a case in which the subcontractor had first agreed to provide the particular services asked of him: it was, therefore, consistent with the "Obligations" term and was doing no more than to focus on the subcontractor's obligation once he had so agreed. It makes plain that, at that point, he must perform the services personally save only when he cannot do so (illness would be an example), when he is entitled to provide a substitute. The Chairman's reference to paragraph 2 of the supplemental document as more generous than – and, I infer, inconsistent with – the "Substitution" provision missed the point. The relevant comparison was not between paragraph 2 and the "Substitution" provision but between paragraph 2 and the "Obligations" provision, between which there is no inconsistency. The Chairman was correct that, insofar as it dealt with substitution, the supplemental document did not cover quite the same ground as the "Substitution" provision, and paragraph 4 can be read as suggesting that, once the subcontractor had agreed to do the relevant work, he had a wider right of substitution than the contract conferred. But the Chairman was right that this was not a contractual document.
19. The Chairman expressed his conclusions on the preliminary issues before him in paragraphs 5.1 to 5.11 of his judgment. His task was, amongst other things, to decide whether the claimants were employees or workers employed by Consistent. I quote first what he said in his opening paragraphs:

"5.1 The contract … does not unambiguously reflect the actual relationship between [Consistent] and the claimants. It purports to be a contract for services. It seeks expressly to avoid the relationship of employer and employee that would be created by a contract of service. But if a contract is to remove from a person the rights the law normally gives for his protection, the terms in which the denial is expressed must be clear. It appears above that this contract is self-contradictory as to the claimants' obligation to work. Thus the provisions in the contract as to that obligation do not with unambiguous clarity serve to release the claimants from it. I had to decide from all the circumstances whether the claimants were in fact bound by contract to work to [Consistent's] order. The assurance that they did not have to formed no part of any agreement between them.

5.2 The further attempts in the contract to make it appear not to be a contract of service are insufficient to gain that end. Its provision as to whether there may be substitution is restrictive. Substitution is only permitted where the claimant 'cannot' do the work personally: otherwise there is an obligation to do it. … What is involved in the words used here is, in the words of McKenna J in Ready Mixed Concrete, 'a limited or occasional power of delegation'. Even where she cannot do the work, the claimant must warrant the substitute's competence. Otherwise, presumably, there will be no substitution, only perhaps a sickness absence. The provisions as to substitution here were not inconsistent with a contract of employment."

20. The Chairman's premise in paragraph 5.1 appears to have been that a contract for service is the default position and that the contract in this case had sought, unsuccessfully, to disguise itself as a contract for services. His point in paragraph 5.1 that it was self-contradictory as to the claimant's obligation to work was, with respect, wrong: he had misinterpreted the "Obligations" term. By the end of paragraph 5.1 he has not, however, yet decided whether the claimants were bound to work to Consistent's order. He considered he had to decide that "from all the circumstances". His point in paragraph 5.2 about the "Substitution" provision did not, for reasons I have given, take that inquiry further. The Chairman continued as follows (I shall number his sentences for ease of subsequent comment):

"5.4 (1) Since I could not rely on the purported contract alone to reflect accurately the real relationship between [Consistent] and the claimants, I strove to infer from all the material before me what were the terms of the agreement (there certainly was an agreement) between them. (2) Ambiguities and contradictions in documents I resolved against the party relying on the document for their advantage – in this case [Consistent and WCF]. (3) I found that if there were a strong or established practice, it suggested an agreed term: the parties acted according to what they believed their rights and obligations in practice were. (4) Thus, I noted that [Consistent] told the claimants what to do and where to go; and they provided transport to get to work. (5) I noted that [Consistent] in one part of their purported contract placed an obligation on the claimants to work as required. (6) I noted further [Consistent's] insistence that at least for the first three months of any claimant's employment, 'any staff introduced by us shall remain employed by us and may not work at your hotel through any other medium (e.g. self-employed …)'. (7) [Consistent] may not claim the advantage of being employers in their relations with [WCF], and also claim the advantages inherent in the claimants' being self-employed when the obligations of an employer seem too onerous. (8) They saw themselves as employers of the claimants. (9) The picture that I saw was of the claimants going to work at [WCF's] factory when they were told to and having no practical alternative – that is, no more alternative than an employee ever has to stay away from work: this was their job; they did it when they were told to because [Consistent] told them to do it."

21. That reasoning is in certain respects unsatisfactory. If, in sentence (1), the Chairman's characterisation of the contract as a "purported contract" was intended to be a precise reflection of his assessment of it, he was saying that it was not a contract at all: perhaps that it was a sham. By the time he arrived at paragraph 5.10, he had decided that the "Obligations" term was a sham. He has not, however, yet directed himself (not did he ever) as to what must be proved before a finding of sham can be made; nor, so it also seems to me, did he make any findings justifying the conclusion that the "Obligations" term was a sham. The same sentence shows, however, that he accepted that there was some agreement between the parties, but that the identification of its terms required inferences to be drawn from all the material before him. There was in fact a considerable body of such material, including evidence from witnesses other than Ms Bachorska, but he made no reference to it. Sentence (2) refers to his exercise in relation to "documents" (plural), although he does not identify which, or which ambiguities or contradictions he has so dealt with. Presumably, though, one document was the "purported contract". The extent of sentences (3) and (4) is to identify limited findings the Chairman had made, none by itself, and taken out of context, providing support for the conclusion that the true relationship was a contract of service: they could be equally applicable if the contract was one for services. Sentence (5) is a reference to the Chairman's misinterpretation of the "Obligations" term. Sentence (6) is referring to paragraph 6 of the opening provisions of the September 2005 contract with WCF, but I do not read "employed" in the quotation as necessarily meaning "employed under a contract of service". It could equally mean "employed under a contract for services" and, in assuming the contrary, the Chairman overlooked clause 3 of this contract, which showed that Consistent was keeping its options open as to the basis on which it engaged staff. On the face of it, paragraph 6 was no more than an anti-poaching provision, and the Chairman was wrong to elevate it into an admission as to the legal relationship between Consistent and its staff. Sentence (7) is therefore based on a false premise, but even if the premise were right sentence (7) advances a legal proposition of doubtful soundness. Sentence (8) makes an assertion for which the Chairman provided no support. Sentence (9) reflects an image he may have been entitled to form: but on what evidence?
22. Let me continue with the Chairman's reasoning. He said:

"5.5 In their agreement with [WCF], [Consistent] secured a minimum of 48 hours' work a week for the claimants and, subject to a proviso, a minimum period of 3 months' employment. In deciding what [Consistent] saw as their obligations, I bore this in mind. It seemed difficult for them to deny an obligation to provide work, and yet make these two stipulations. If in making the agreement with the claimants [Consistent] had openly revealed having secured these terms, it would have gone without saying that they had to provide the benefit of the terms to the claimants: an implied obligation to provide work. Again, they may not seek one advantage from [WCF] but not carry its import through for the benefit of the claimants. They behaved as though they regarded themselves as the claimants' employers.

5.6 I decided that the claimants were obliged to work as required by [Consistent]. They were not allowed to decide whether to work: indeed, if it did not suit [Consistent], they were refused a day off. I decided further than the claimants' obligation was to do the work personally subject to a limited and constrained ability to delegate.

5.7 I decided further that there was an implied obligation on [Consistent] to provide them with work. [Consistent] could not properly have included the provisions as to working week and period of employment in their agreement with [WCF] without having such an obligation."

23. This reasoning raises difficulties. First, as I explain when I come to the submissions of Mr Stafford QC, for Consistent, the Chairman was arguably wrong – at least without explaining himself, which he did not – to proceed on the basis that there was in fact a 48-hour a week per staff member commitment from WCF. Secondly, the correct construction of the "Obligations" term is that the claimants were not obliged to work as requested. In paragraph 5.6 the Chairman decided that they were. By paragraph 5.10 he had decided that the "Obligations" term was a sham, but he had not apparently so decided by this stage in his reasoning. What is tolerably clear is that there was no evidence justifying a finding that the paragraph 5.6 work obligation was ever the subject of an express agreement between the parties. Elias J's interpretation of paragraph 5.6 was that the Chairman was there saying that the claimants were under an implied obligation to work. He is probably right about that, because that is what the Chairman found in paragraph 5.7 in relation to Consistent's corresponding obligation to offer the claimants work. If so, the contract into which he is implying the term must be the contract itself, complete with its "Obligations" term. But on that basis the finding of the paragraph 5.6 implied term was an illegitimate one, because it is not possible to imply into a contract a term that contradicts an express term (Equitable Life Assurance Society v. Hyman [2002] 1 AC 408, at 459C to E, per Lord Steyn); and the paragraph 5.6 term contradicts the "Obligations" term. Nor is it apparent why the suggested implied term meets the necessity test to which I refer in the following paragraph.
24. Paragraph 5.7 raises like difficulties. There the Chairman at least makes it plain that the obligation to provide work was an implied one. He was therefore finding that such a term was not expressly agreed. But again, the implied term is inconsistent with the "Obligations" term and so the finding was illegitimate. It is a question of law whether a term should be implied into a contract and there are only four circumstances in which it can be done: (i) "business efficacy", because the contract cannot work without it; (ii) obvious inference – "Oh, of course"; (iii) where the contract is of a particular generic type and it is necessary for the due operation of contracts within the class to make the implication; and (iv) to give effect to the reasonable expectations of the parties (as to (iv), see Equitable, supra, at 459H, per Lord Steyn); but in all cases, the test for the implication of a term is one of strict necessity. I do not understand how a term can, as a matter of necessity, be implied into a contract between A and B because of a provision in a contract between B and C of which A is unaware.
25. The Chairman continued:

"5.8 The only way in which [Consistent] might escape the finding that they were not [sic: the 'not' appears to be wrong] obliged to provide the work was in reliance on the purported contract. I asked myself what was its purpose. At almost every turn, the documents provide for the evasion by [Consistent] of the obligations put by law upon employers for the protection of employees. There is a contradictory, inconsistently-worded attempt to achieve the appearance that the claimants' work is voluntary; similarly that there is a liberal right to delegate. They are told that they do not have the right not to be unfairly dismissed, or to be paid the National Minimum Wage. The reason why the documents sometimes speak with a forked tongue is that in fact [Consistent] wanted to keep a fairly tight control over the claimants. They were given accommodation (and made to pay for it and put in peril of eviction, at a moment's notice as it turns out). They were given transport to work at [WCF's] factory. They were told when and where to work. Here was an arrangement seen to be entirely for the advantage of [Consistent]. They wanted to compete in their business without the encumbrance of employees with rights, and yet to kept a tight enough hold on them to assure their ability to provide enough labour for [WCF]."

26. Having made a questionable finding that Consistent was obliged to provide work, the Chairman here proceeded to consider the basis on which Consistent might escape that obligation. That could only be in reliance on the "purported contract". By the third sentence the Chairman has based himself on a firm premise that the contract is one of employment, and that the purpose of the "purported contract" is to provide a sham pretence that it is not such a contract at all. He castigates it as a "contradictory, inconsistently-worded document", which it is not; and, also inaccurately, describes it as conferring a "liberal power to delegate". Insofar as the latter part of paragraph 5.8 makes assertions of fact that might be relevant to an identification of the nature of the contract ("They were told when and where to work"), the Chairman does not identify the evidence he is relying on and the assertion does not by itself add up to anything of key significance to the central question. Consistent, as an employment agency, would presumably have to give like instructions to the claimants even if the contract was one for services. Most of this part of the paragraph amounts merely to comment founded on the assumption that the true nature of the contract was one of service.
27. In paragraph 5.9 the Chairman rounded things up by saying that the contract was one of employment, the claimants were bound to work, and Consistent had "sufficient control" over the claimants "even though in the nature of the work much had to be disposed of to [WCF]". He said there "was no term that I found to have formed part of the contract inconsistent with the existence of a contract of service." In paragraph 5.10 he said more of the same, repeating that Consistent told the claimants when and where to work, that they might deny them days off, and provided them with transport and accommodation. In this paragraph the Chairman also found, but without explaining, that:

"5.10 … The provisions as to the right not to accept work or to work for other employers were a sham inserted into the documents to give the appearance of relieving [Consistent] from the burdens of being employers, not seriously to reflect the actual relationship between the parties. [Consistent and WCF], in effect, wanted employees, but did not want to pay the necessary price.

28. That is the finding the Chairman made that the "Obligations" term was a sham. He provided no overt reasoning for that conclusion. He ought properly first to have identified the principles by reference to which a contract, or a term in it, can be regarded as a sham and then provided at least a summary of his findings as to why the "Obligations" term fell within those principles. The former is an important consideration because a finding that the contract was in part a sham required a finding that both parties intended it to paint in that respect a false picture as to the true nature of their respective obligations (Snook v. London and West Riding Investment Limited [1967] 2 QB 786, at 802; Shalson and others v. Russo and others [2005] Ch 281, at 341 ([187] and [188]). The Chairman recorded that he was referred to Snook, but provided no indication that he had had regard to the applicable principle. Was there any evidence on which he could have found that the "Obligations" term was a sham? The judgment does not identify any.
29. I have yet to come to the criticisms that Mr Stafford levelled at the Chairman's reasoning but I have said enough to indicate that I regard it as having been deficient. It involved a misinterpretation of the contract; the making of a finding that its true nature was a contract of service, with no explanation as to how that finding was arrived at beyond the unexplained, and ostensibly fallacious, assertions in paragraphs 5.6 and 5.7; and the assertion that the "Obligations" term was a sham, without any reasoned finding as to the basis for, or justifying, that conclusion.

The appeal to the EAT

30. Consistent appealed against the Chairman's decision. The appeal was based on several grounds, including that no reasons were given for certain of his findings of fact, which were said to fly in the face of the evidence, and that his conclusions were built on sand. That point was fully developed in a skeleton argument which, in line with modern practice, made no pretence at being skeletal. In view of Mr Segal's submissions on the appeal to us, it is important to see how Elias J dealt with the case.
31. As for the point that the Chairman's findings were insufficiently reasoned, Elias J covered this in [22] to [27] of his judgment. The thrust of the complaint was that the Chairman had not explained why he accepted Ms Bachorska's evidence in preference to Consistent's and reliance was placed on this court's decision in English v. Emery Reimbold & Strick Ltd [2002] EWCA Civ 605; [2003] IRLR 710 to the effect that it is necessary for an appellate court to understand why the judge reached his decision. Mr Segal's responsive submission to Elias J was that it was the Chairman's task to assess the witnesses; and provided there was some evidence that he accepted that was capable of sustaining his conclusion, there was no scope for the EAT to interfere. That submission was in principle correct, as Elias J accepted, but it did not comprehensively meet the point against which it was advanced, which was why the Chairman made the findings he did. As to that, Elias J said:

"26. I do, however, have some concerns about the failure by the Chairman to indicate why he was preferring Ms Bachorska's evidence over that given by the witnesses for [Consistent]. Indeed, it is not clear from the decision that the evidence he accepted was disputed at all. It would have been desirable if at least a brief indication had been given as to why he had assessed the evidence in that way, but there is no explanation."

32. Indeed there is not. Whilst it is usual -- although in my own experience rarely useful -- for Chairmen solemnly to list the number of bundles of documents they have been provided with, the witnesses who have been called and the reported authorities to which they have been referred, the Chairman did neither of the first two things. But the reason why Elias J did not regard his omission to give fuller reasons as fatal to the integrity of the decision was because he regarded it as clear, from the judgment as a whole, why the Chairman had reached his decision. And even if it was not obvious why he had preferred Ms Bachorska's evidence on one issue (whether she was refused time off when she asked for it), that was an issue which Elias J did not regard as a particularly important part of the relevant material. Therefore the essential obligation to provide a reasoned decision had been complied with.
33. Elias J's explanation of the correctness of the Chairman's decision was, first, that the "Obligations" term at least imposed upon the claimant an obligation to "honour a specifically agreed period of engagement" and that it followed that a contract was in place during that period. That would apply to the case in which a claimant accepted a particular piece of offered work, his acceptance committing him to perform it. Elias J also pointed out, and I have indicated that I agree, that in such event the claimant must perform the accepted work personally and may only delegate it under the "Substitution" provision if he "cannot" do it. Thus the power of substitution was only a limited one and was not inconsistent with the contract during that specific engagement being one under which the claimant was either an employee or a worker. On the face of the contract there was, therefore, an obligation on the part of the claimant to provide personal service of a sufficient quality to render him an employee or a worker during the period of the particular engagement.
34. Elias J then considered whether the contract between Consistent and the claimant came to an end when a particular engagement was concluded. That raised the question whether there was there "an overriding or umbrella contract operating during this period", which in turn depended on whether there was some mutuality of obligation existing in that period. There would be such mutuality if there were a duty on Consistent to offer work and upon the claimant to accept it. The Chairman had found, in paragraphs 5.6 and 5.7, that there were obligations on both sides to this effect.
35. Elias J accepted first -- differing from the Chairman -- that on a fair reading of the "Obligations" term there was no obligation on Consistent to offer or on the claimants to accept work, and I agree. He then considered whether it was implicit in the contract that there was nevertheless some mutual obligation between Consistent and the claimants respectively to offer and accept work. He first considered the effect of the "Circumvention" clause, which he interpreted as meaning that Consistent could prevent the claimants from working elsewhere whilst the contract remained in force. That is probably correct, and Elias J said, at [47], that it "strongly supports the Chairman's view that in reality there was an obligation on these claimants to accept work for [Consistent] if it was offered" (although the Chairman had not relied on the "Circumvention" clause in coming to the view he did). For myself, whilst I recognise the commercial force of Elias J's point, I would stop short of a conclusion that the effect of the "Circumvention" clause was implicitly to impose an obligation upon the claimants to accept offered work in the face of the express provision in the "Obligations" term to the contrary effect. For reasons given, the "Circumvention" provision could not impliedly have overridden that express provision. At [48], Elias J recorded the correct submission of Consistent's counsel that a term cannot be implied that contradicts an express term, but he appears to have overlooked it. Nor did he explain why it was necessary to imply such a term.
36. Elias J then considered whether Consistent was under an implied obligation to offer work. He referred to the Chairman's findings in paragraphs 5.6 and 5.7. Whilst he did not apparently regard the Chairman as relying exclusively on the WCF agreement for finding the implied duty on Consistent to offer work to the claimants (although that is all that the Chairman appears to have relied on), he anyway disagreed, obviously correctly, with the view that that agreement provided any basis for implying an obligation upon Consistent to offer work to the claimants. But, at [50], Elias J nevertheless expressed the view that whilst Consistent was not promising work to any claimant, "it would be a necessary implication of the arrangement that at least whilst the staff were being accommodated by [Consistent], and were obliged to provide the rent, they would have a right to priority for any work which was available as against those not so accommodated". That amounted to a finding of a limited, implied obligation on the part of Consistent to offer work to the claimants. That raises like difficulties. First, Elias J did not explain why he regarded it as necessary to imply such a term. Secondly, it contradicts an express term; and Elias J is not at this point treating the "Obligations" term as a sham.
37. The importance of Elias J's holding in this respect was that it enabled him to conclude that such an obligation on the part of Consistent, coupled with the staff's restricted right to work elsewhere by reason of the "Circumvention" clause, constituted sufficient mutuality of obligation "for the contract to remain in being even when no work was being performed pursuant to a specific engagement." Having reached this conclusion, he added, at [51], "It is true that the Chairman did not imply a duty imposed on the employer in precisely this way, but I think it is implicit in his analysis that certain of the terms were a sham." For myself, and with respect, I have difficulty in identifying any considered analysis in the Chairman's judgment.
38. Having found the implied terms that he did, Elias J went on to consider whether the Chairman had been entitled to find that the "Obligations" term was a sham. Mr Segal's submission to Elias J was that the Chairman had not meant that it was a sham in the true sense, that is a document cast in terms deliberately designed by the parties to mislead third parties or the court as to the nature of the parties' true mutual obligations (Snook v. London and West Riding Investment Ltd [1967] 2 QB 786, at 802). That was not an obviously easy submission, since to any lawyer the word "sham" in relation to a contractual document has the Snook meaning and the Chairman did not suggest he was using it in a different sense (if there is one), let alone explain any such sense. Mr Segal's suggestion (see Elias J's judgment at [54]) was that the Chairman meant no more than that "these terms did not in fact reflect the true nature of the relationship, and that the Chairman was fully entitled to reach that conclusion." That looks like another way of saying that the Chairman regarded the terms as a sham.
39. In substance, Elias J accepted that submission. I consider it helpful to set out his reasons for doing so. Whilst this is a second appeal, with the primary focus on whether the Chairman's decision disclosed an error of law that justifies a re-hearing, I confess my own respectful difficulty in following the Chairman's essentially unreasoned judgment. If, however, Elias J is able to explain and justify the Chairman's conclusion, that may avoid the need for a re-hearing:

"55. There is a difference between a sham and a variation. Where the court finds that the contract or certain terms within it are a sham it is making a finding that they never did reflect what the parties true intentions were. Where there is a variation, the agreement as originally entered into is valid and properly reflects the intentions of the parties but subsequent words or conduct create new rights and obligations which may even contradict the original terms.

56. The possibility that the express terms may be dismissed as a sham was recognised by Peter Gibson LJ in Express and Echo v. Tanton [1999] ICR 693. That was a case which concerned whether there was an obligation personally to perform the work. The Court of Appeal emphasised that the answer to that question had to be determined by asking what legal obligations bind the parties rather than by focusing on how the contract was actually carried out. So in that case the fact that in practice the individual had always personally carried out the work would not demonstrate that there was a contractual obligation to do so, and the Employment Tribunal decision was overturned for wrongly drawing such an inference.

57. The concern to which tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship. Peter Gibson LJ was alive to the problem. He said this (p 697):

'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."

58. In other words, if the reality of the situation is that no-one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.

59. Applying this principle here, in my judgment the Tribunal was entitled to say that this was a situation where there was no realistic possibility that these claimants, as heavily dependent as they were on the economic power of the agency, would be free to accept work as and when offered, nor to work for someone else whilst the contract they had signed remained in place. They had come from Poland expecting to work for the agency, their continued accommodation depended on doing such work, and there was no realistic chance of their working elsewhere, at least whilst the agency needed their services. On these matters the formal document bore no relationship to reality. Tribunals should take a sensible and robust view of these matters in order to prevent form undermining substance, and this is precisely what this Chairman did. I detect no error of law.

60. In my view, therefore, there is a mutuality of obligation between the parties which continues even when the worker is not working pursuant to a pre-agreed work stint. Furthermore, the nature of these obligations is plainly located in the field of work. It has not been, and could not sensibly be, suggested that these claimants are providing these services in the course carrying on a business or profession. There can be no real doubt that the provision of personal services is the essential feature of the contract.

61. It follows in my judgment that these claimants are workers for the periods they actually worked (which would bring them within the Minimum Wage legislation); and that status will continue in the gaps between work if the above analysis is correct."

40. I do not find that passage easy. The observations in [55] are not in point because the Chairman did not find that the parties either expressly or impliedly varied the terms of the contract following its signing. The observations in [56] indicate that, in order to identify the true nature of the parties' contractual obligations, it will or may not be sufficient merely to look at what the parties have done under the contract (which is all the Chairman appears to have done). It will instead be necessary to determine what their legal obligations were. In this case, for example, the fact that, let it be assumed, the claimants always accepted work when it was offered to them, did not mean that they were obliged to; and the "Obligations" term indicated that they were not. As for [57] and [58], the points made there, in particular in the observations of Peter Gibson LJ, are that there will be cases where the contract, or certain of its terms, can legitimately be regarded as a Snook sham, in which event the tribunal's task will be to find what the true nature of the contract, or the relevant terms, was or were. If, however, Elias J was saying that it is or might be enough for a court or tribunal simply to look at a particular contractual term and substitute for it a different one that it regarded as reflecting a more likely bargain between the parties, then I question the correctness of that. It is not the function of the court or an employment tribunal to re-cast the parties' bargain. If a term solemnly agreed in writing is to be rejected in favour of a different one, that can only be done by a clear finding that the real agreement was to that different effect and that the term in the contract was included by them so as to present a misleadingly different impression.
41. It follows that I have reservations as to whether Elias J was correct to arrive at the conclusions he did in [59] and [60], which amounted to upholding the Chairman's conclusion that Consistent was bound to offer work to the claimants, who were in turn bound to accept the work offered, and that there was thus a mutuality of obligation between the parties even when the claimants were not performing a particular pre-agreed work stint. The Chairman may have been right so to find. But he had first to explain, with proper reasons, why he regarded the "Obligations" term as a sham. He did not.

The appeal to this court

42. Mr Stafford, for Consistent, said the essence of the claimants' case before the Chairman was that the contract was a sham, although not in the sense that it was intended to deceive the court but on the basis that it was said to bear no relation to reality. I have indicated that, in principle, I have reservations as to the soundness of that approach. But Mr Stafford went on to explain how anyway the Chairman took the view (in paragraph 5.4) that, as he could not rely on the contract itself to paint the true picture, he "strove to infer from all the material before [him] what were the terms of the agreement …." For that purpose, he had not just the evidence of Ms Bachorska but three witnesses from Consistent who gave a different account as to the way Ms Bachorska and her colleagues were recruited and as to the way the contract operated in practice. In addition, there was evidence from WCF as to the extent to which it demurred from the suggestion that it was expected to provide a minimum of 48 hours work per week for Consistent's staff, although the Chairman appears to have proceeded on the basis that the 48-hour arrangement was a firm commitment. The hearing lasted three days, referable in part to the need for an interpreter, but to a material extent because of an inquiry into matters of contested fact.
43. Mr Stafford's criticism of how the Chairman dealt with that evidence is that he did not deal with it at all. He did not record that any witness other than Ms Bachorska gave evidence. He gave no summary of the evidence he had heard from Consistent's witnesses. He did not identify in what respects it conflicted with Ms Bachorska's. He did not explain how he resolved the conflicts. He just plumped for Ms Bachsorska's evidence, accepting it as if it were unchallenged. That was of material significance given that her evidence that the claimants were required to work by Consistent was inconsistent with Consistent's evidence that they were permitted to refuse to work.
44. More particularly, Ms Bachorska's evidence that she was required to work seven days a week was said to be inconsistent with time schedules showing that she only worked such hours during two of her eight weeks with Consistent. Those schedules also showed that there were days when the staff did not work, in addition to days off identified as holiday. Her evidence was that the workers only had days off when the supervisor permitted it and, if so, that would or might explain the days off shown in the schedules. But Consistent's evidence was that that was not so, the evidence of Caroline Anderson-Zawadzka being to the contrary effect. Her evidence, by which she stood in cross-examination, was that the workers were free to refuse work offered to them. Her evidence was consistent with what the "Obligations" term says. The Chairman did not identify this difference in the evidence nor did he explain why he made the findings he did. Did he disbelieve the contrary evidence? Did he regard it as unreliable for any reason? Nor did he weigh up the extent to which he could or should safely rely on and accept Ms Bachorska's evidence, even though it was expressly criticised as unreliable. In particular, she raised in her oral evidence several matters of direct relevance to the issues which she had not foreshadowed in her witness statement, a matter which resulted in an adjournment so that Consistent could meet the new points, as they sought to.
45. Further documents in evidence (admittedly post-dating the departure of the claimants) were also said to be consistent with its being Consistent's practice to allow workers a day off, when an alternative worker would be asked to work. The evidence of WCF's Jane Corbett was that WCF determined its labour requirements on a daily basis, with the consequence that Consistent similarly had to determine on a daily basis how many workers it needed to provide. As for the 48-hour term in the WCF agreement, WCF had debated this with Consistent and said it would not be acceptable to WCF. In cross-examination Ms Corbett said WCF made it plain it could not guarantee 48 hours a week for each worker. The Chairman ignored this evidence. He simply took the 48-hour provision in the agreement (one post-dating the relevant events) as an accurate reflection of the true arrangement between WCF and Consistent earlier in the year and used it as a basis for imposing an implied term on Consistent to offer work to the claimants which they were bound to do. He provided no explanation as to how, given Ms Corbett's evidence, he had arrived at that result.
46. Mr Stafford's submission was, therefore, that as it was critical to the issue before the tribunal to find whether or not the "Obligations" term did truly reflect the nature of the parties' contract, it was basic that the Chairman had to provide a proper explanation as to why, given the evidential conflicts, he was preferring one side's evidence to that of the other. He said the due performance of the judicial function requires the giving of reasons for the decision. This is not only important so that the parties can know why they have won or lost. It is necessary so that it can be seen that there has been a proper performance of the judicial process. The point also goes directly to the working of the appellate process. Reliance was placed on this court's decision in English v. Emery Reimbold & Strick Ltd [2003] IRLR 710. Lord Phillips of Worth Matravers MR, delivering the judgment of the court, said:

"19. It follows that, if the appellate process is to work satisfactorily, the judgment must enable the appellate court to understand why the judge reached his decision. This does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained. But the issues the resolution of which were vital to the judge's conclusion should be identified and the manner in which he resolved them explained. It is not possible to provide a template for this process. It need not involve a lengthy judgment. It does require the judge to identify and record those matters which were critical to his decision. If the critical issue was one of fact, it may be enough to say that one witness was preferred to another because the one manifestly had a clearer recollection of the material facts or the other gave answers which demonstrated that his recollections could not be relied upon."

47. Mr Stafford's submission was that the issue that was "vital" to the Chairman's decision was whether or not the contract, or at least the "Obligations" term, was a sham. As it seems to me, the Chairman ought in the first instance to have directed himself as to what it is that he who asserts a sham must prove. He did not do so and therefore there is at least a serious question in my mind as to whether he had the correct principles in mind. But Mr Stafford's essential submission was that the finding of a sham was anyway a fact-sensitive matter on which the Chairman had conflicting evidence pointing in both directions. No-one would realise that from his judgment. At least some analysis of the evidence was essential to the determination of the basis on which he decided the claims, but he provided none. Mr Stafford submitted that the matter must be remitted for a re-hearing at which the questions can be answered with proper reasons.
48. Mr Segal naturally did not challenge the proposition that there is ordinarily a duty on tribunals to give sufficient reasons for the findings of fact they make. He recognised that the Chairman was over-economical in his reasoning for accepting the matters of fact asserted by Ms Bachorska recited in his judgment insofar as they differed from Consistent's evidence. I nevertheless understood Mr Segal to maintain the stance that the Chairman's findings in relation to her evidence were sufficient to justify the upholding of his decision. His main point, however, was that a shortage of reasoning cannot justify a re-hearing if, in the context of the case, the relevant issue is of no material significance.
49. In effect, he adopted Elias J's approach that the Chairman's preference of Ms Bachorska's evidence to that of Consistent's went only to one, essentially collateral, point, namely whether or not she had been refused time off when she asked for it. A material part of Mr Segal's submissions was to the effect that, quite apart from the Chairman's thought processes, this was a case where there was, as Elias J indicated, (i) a duty on a claimant personally to perform the services to which he became committed upon accepting any particular piece of work offered to him, and (ii) a continuing umbrella contract that continued to bind the parties during the breaks between specific engagements.
50. I do not understand point (i) to be controversial. It turns simply on the construction of the contract. Point (ii) is, however, a matter of controversy, but it is crucial because the Chairman found, and the EAT agreed, that each claimant was employed by Consistent under a single contract of employment. The Chairman's explanation for his decision was that the "Obligations" term was a sham and there was an obligation on the part of Consistent to offer work and upon the claimants to perform the work offered. I have explained why that issue was a vital one that was not reasoned at all. Elias J nevertheless concluded that the Chairman was entitled to arrive at the conclusion that the "Obligations" term was a sham and, as follows, I have serious reservations about the correctness of that. Mr Segal, however, also adopted Elias J's own view that the basis on which a continuing umbrella contract could be found was because there was necessarily an implied term in the contract that Consistent at least had to give priority offers of work to those claimants for whom it was providing accommodation; and there was further an implied duty upon the claimants to perform any work so offered.
51. I have earlier indicated the difficulty that I have with both parts of that proposition. As any such implied term is inconsistent with the "Obligations" term, it is only possible to find that such a term formed part of the parties' contract if the "Obligations" term is first disposed of. That can only be done if it is first found to be a sham. That requires a finding that, at the time of the contract, both parties intended it to misrepresent their true contractual relationship. The Chairman made no such finding. He instead arrived at his conclusion simply by regarding Ms Bachorska's account of how the contract operated in practice as justifying him in finding that the "Obligations" term was a sham from the outset. That was strictly less than conclusive evidence in support of the conclusion. Another interpretation, which the Chairman did not apparently consider, was that – even accepting Ms Bachorska's evidence – Consistent was simply not respecting her contractual rights (cf. [56] of Elias J's judgment). But even if, contrary to my view, the acceptance of her evidence by itself entitled the Chairman to find that the "Obligations" term was a sham from the outset, he owed it to the parties to show that he had understood their rival evidential cases on that and to make clear not just what factual findings he was making but why. He did not do that.
52. It is obvious that this was a material error on the Chairman's part. The parties are entitled to know why they have respectively won and lost. It is also an essential check on the due exercise of the judicial function. To assert, as the Chairman did, that the "Obligations" term was a sham was relatively easy. To explain why it was a sham was more difficult. But it is the very process of having to provide reasons for his decision that enables a judge to satisfy himself (and, ideally, the parties) that he has arrived at a cogent answer. There can be few judges who have not on occasions embarked upon an articulation of their reasons for provisional conclusion X only to discover that the exercise demonstrates that X is not a tenable conclusion at all and that the right answer is Y. The Chairman never gave himself the chance of such a discovery. With respect, his judgment was manifestly unsatisfactory. His decision cannot be allowed to stand. I would allow the appeal, set aside both the order of the EAT and the Chairman's judgment, and direct a re-hearing of the relevant issues before a differently constituted employment tribunal.

Lord Justice Wilson :

53. I agree with both judgments.

Lord Justice May :

54. I agree that this appeal should be allowed for the reasons given by Rimer LJ and with the consequences which he stipulates in paragraph 52 of his judgment. I gratefully adopt his account of the facts and circumstances. I shall shortly state what I regard as the heart of the matter in my own words.
55. The written contract between each of the claimants and Consistent expressly purported to be a self-employed subcontractor's contract for services. The "Obligations" clause, which Rimer LJ has set out in paragraph 7 of his judgment, taken at face value and subject perhaps to fringe submissions about other parts of the contract, would not constitute the claimants as employees for the purpose of section 230 of the Employment Rights Act 1996.
56. One of the issues identified by the Chairman in paragraph 2.2 of the judgment of the Employment Tribunal was that each claimant said that their contract was a sham and was really a contract of employment. The Chairman upheld this contention saying, in paragraph 5.10 of the judgment, that the provisions as to the right not to accept work or to work for other employers were a sham inserted into the documents to give the appearance of relieving Consistent from the burdens of being employers, not seriously to reflect the actual relationship between the parties – see also paragraph 5.1 of the judgment. The Chairman said that, since he could not rely on the purported contract alone to reflect accurately the real relationship between Consistent and the claimants, he strove to infer from all the material before him what were the terms of the agreement. He did so from evidence before the Tribunal, although nowhere does the Chairman say in any systematic way what this evidence was. We know that the claimant's main witness was Ms Bachorska, part of whose evidence is recorded in less than three lines in paragraph 3.20. There is no mention at all of the witnesses called by Consistent or their evidence.
57. The burden of the appeal as it was reformulated by Mr Stafford QC is that the Tribunal's judgment was inadequately reasoned, because there was no attempt to weigh conflicting evidence and to give reasons for rejecting the important parts of that relied on by Consistent. In my judgment, this ground of appeal is made out, so that the appeal should succeed for this reason.
58. Mr Stafford relied on two strands of evidence which the judgment simply did not consider. First, there were schedule documents giving lists of details of what each of the claimants actually did. These were said to support Consistent's case. There was, I thought, some support here, but taken alone these documents were not powerful support for Consistent's case. Second, there was the evidence of Caroline Anderson-Zawadzka, Consistent's contract manager. She said in her witness statement that, when a call was made to a particular subcontractor, they were absolutely free to turn down the offer and no penalty was applied to them if they refused. If they did not want to work, they would usually be asked if they could nominate a substitute. If they did suggest a name, this person would be accepted by Consistent to provide services the following day. She was cross-examined on this evidence, which she maintained (see pages 162-163 of the court's bundle). It was not the case, she said, that Consistent expected the claimants to be available for work. They were free to say no. Consistent provided a choice. They had a large pool of contractors and could easily accommodate refusals. The subcontractors were free to work whenever they wanted during their leisure time and some of them did so to earn extra money. They provided services on an ad hoc basis. When it was suggested that surely this was all a sham, she answered emphatically that it was not a sham. They could decline a day or a week. They were free to call a colleague or a friend as a substitute.
59. This clear evidence does not feature anywhere in the judgment. There is no analysis of it, nor reason given for its rejection. No doubt Ms Bachorska gave evidence to a different effect, although in the main that evidence only appears in the judgment as unattributed conclusions of fact.
60. Elias J in the Employment Appeal Tribunal had some concerns about the failure of the Chairman to indicate why he was preferring Ms Bachorska's evidence over that given by witnesses for Consistent. It was not clear from the decision that the evidence which he accepted was disputed at all. Elias J did not however consider that this warranted a fresh hearing. It was only part of the material relied on and not a particularly important part. It was not the crucial issue in dispute. Certainly it was not the only issue, but the contention that the apparent contract for services was a sham was central to all four issues identified by the Chairman in paragraph 2 of the judgment. Elias J considered that the Chairman had plainly accepted Ms Bachorska's evidence on this point, and it was clear reading the judgment as a whole why he reached the decision he did, even if it is not obvious why he preferred Ms Bachorska's evidence on one particular point.
61. It is, I agree, to be inferred that the Chairman accepted Ms Bachorska's evidence and to that extent we know why Consistent lost. But I am persuaded that that was not enough in this particular case. A decision which does not even acknowledge that directly contrary evidence on a central point was given, let alone explain why it was rejected, is not, in my judgment, sufficient or sustainable. Mr Segal's efforts to say that Flannery v Halifax Estate Agencies [2001] 1 WLR 377 and English v Emery Reinbold & Strick [2002] EWCA Civ 605 should be taken as applying with full force only to a different class of case do not in my view salvage this judgment.