England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
HHJ RICHARDSON
UKEAT/01777/12

		Royal Courts of Justice Strand, London, WC2A 2LL
		9/10/2013

Sir John Mummery:

Introduction

1. The issue at the pre-hearing review in the Employment Tribunal (the ET) was whether an agreement made in writing on 1 August 2009 (the Agreement) between Troutbeck SA, a Panamanian company, and the claimants, Mr Gary White and Ms Katy Todd, was a contract of employment. If it was, the claimants were entitled to pursue their claims against Troutbeck for unfair dismissal and arrears of wages.
2. In this court the issue is whether a question of law arises from the decision of the ET that, although the claimants were "workers", they had not entered into or worked under a contract of employment. The latter ruling was reversed on the claimants' appeal to the Employment Appeal Tribunal (the EAT). Troutbeck now appeals to this court on a point of law with permission granted by Elias LJ on 20 February 2013.
3. At the date of its termination the legal relationship between the parties was governed by the terms of the Agreement. In its dealings with the claimants Troutbeck acted through a Ms Tejiro Ibru. She is a member of a Nigerian family, which had bought a small farm in Surrey as an investment hoping that it would pay for itself. Acquisition began with the farmland in 1978 and was completed by 1999. The claimants had orally agreed with Troutbeck to caretake and manage that property at Starcross Farm, Tilford, near Farnham. For that purpose, it was also agreed that the claimants would live rent free in a flat adjoining the main house. They have done since 2006.
4. The claimants commenced these proceedings after Miss Ibru of Kensington Park Gardens, acting on behalf of Troutbeck, served a 3 months notice dated 11 March 2010 on the claimants under the Agreement terminating what is described in the notice as "your employment contract." Troutbeck's plan was to sell the farm. When the claimants presented to the ET a claim for unfair dismissal and unpaid wages, Troutbeck denied that the Agreement was a contract of employment.
5. On the opening of this appeal I asked Troutbeck's counsel how he would describe the Agreement, if it was not, as he contended, a contract of employment. His answer was a "commercial contract." Yet within the Agreement there is reference to "this employment agreement": see clause 12(ii). Under clause 2 ("Job Title") Troutbeck agreed to "employ" the claimants to caretake and manage Starcross Farm. It was also agreed that immediately "on ceasing to be employed by the owner" they would vacate the accommodation: see clause 7.
6. A "personal allowance" payable to the claimants was agreed at £600 per month with annual reviews. The Agreement provided that the claimants were entitled to 30 days paid holiday a year. It would be a very unusual to find a "commercial contract" that provided for a party to have 30 days, or any days, annual paid holiday, whereas that provision is commonly found in contracts of employment and reflects the statutory protection afforded to employees, which is not enjoyed by parties to commercial contracts. The Agreement was terminable by not less than 3 months notice by either side.
7. In holding that the Agreement was not a contract of employment, the ET placed emphasis on the absence of actual day-to-day control over the work done by the claimants. The Employment Appeal Tribunal (EAT) took a different view about the significance of the control factor and the overall effect of the Agreement. This appeal is from the order of the EAT dated 23 January 2013. It allowed the claimants' appeal against the ruling of the ET at a pre-hearing review on 6 April 2011 that they were not employed as resident caretakers/managers of Starcross Farm under a contract of employment. The ET had earlier reviewed and confirmed the original decision on 2 March 2012.
8. The review was requested in view of the post-judgment decision of the Supreme Court in Autoclenz v. Belcher [2011] ICR 1157. In that case the issue was what were the terms of an agreement and, in particular, whether the ET could disregard terms in a written agreement and instead base its decision on a finding that the documents did not reflect what was actually agreed between the parties, or the true intentions or expectations of the parties. The Employment Judge explained that in the ET judgment he had attempted to apply the test of what were the contractual terms the parties actually agreed.

More background facts

9. Starcross Farm is an 88 acre property. The Ibru family have never lived in their investment, making only occasional visits at holiday times. The claimants lived in the Annexe flat rent free and looked after the farmhouse along with the rest of the property. They were required to live there in order properly to perform their duties as caretakers/manager. An intention to create a tenancy of the property was expressly negatived in the Agreement, the occupation being stated to be under a non-assignable licence. Nothing was stated about negativing an intention to create an employment relationship.
10. No very precise duties were set out in the Agreement. The claimants were under a duty to take care of the accommodation and grounds and were responsible for day-to-day management and efficient maintenance and management. No hours of work were fixed. There was no day-to-day control of what they did or how they did it. Both claimants did other work: Mr White operated his established business as a jobbing builder (GB Building Services) from premises in Godalming and Ms Todd was employed at the University of Surrey. It was provided in the Agreement that the claimants could be employed by or in any other work, provided that it did not diminish or restrict the performance of their duties under the Agreement: see clause 9.
11. The ET commented that, although the facts of the overall picture were not in dispute, the evidence of the details about the work undertaken and the financial arrangements was "rather vague": see [4]. The ET found that Mr White's family had a history of involvement with Starcross Farm; that Troutbeck was the sole employer; that the claimants voluntarily signed the Agreement; that the claimants were not paid on a regular basis; that the Ibru family rarely visited Starcross Farm ("very occasionally for holiday purposes"); that Miss Ibru had specifically divested the Ibru family of day-to -day control and delegated responsibility to the claimants; and that the precise duties to be carried out by the claimants were never specified.

ET judgment

12. The ET judgment set out the facts, which it said were "not substantially in dispute", and the law, with particular reference to s. 230 of the Employment Rights Act 1996 defining an "employee" by reference to an individual entering into or working under "a contract of employment" and to the well known case of Ready Mixed Concrete (South East) Limited v. Minister of Pensions and National Insurance [1968] 2 QB 497 and summarised the rival submissions. The judgment singled out approved indicia of employment: the power of selection, the payment of wages, the right to control the method of doing the work and the right of suspension or dismissal.
13. The ET focussed on the element of control, or rather the lack of it, by Troutbeck via Miss Ibru, in relation to the claimants' work and contractual duties. The ET did not restrict its consideration to terms of the Agreement. It looked at the surrounding circumstances and made the findings already mentioned.
14. In [45] of the judgment the ET stated that:

"…The dominant feature that comes through the detail is that Miss Ibru wanted principally Mr White to husband her family's assets in Surrey and it was to be left up to him largely how that was to be done."

15. The crucial paragraph leading to its conclusion that the claimants were not employees was [50], which reads:

"Standing back and looking at the relationship overall, I find that the Claimants were not employees of Troutbeck. The most important element is that Miss Ibru specifically divested the Ibru family of day-to-day control during the discussions with Mr White, and further the 2009 Agreement delegated responsibility to them. There was never any suggestion of actual control being exercised by the Ibru family, save for the point that if expenditure was to be incurred then that fact had to be reported to them. I note in that respect that the phrase is "reported to" and not "approved by". Being absentee owners, they wanted someone to be responsible for the maintenance and management and make the decisions himself. That is not employment."

EAT judgment

16. In the EAT HHJ Richardson said that there was an error of law in the ET judgment and allowed the appeal. That error was in applying the criterion of control to determine whether the claimants were employees or not. It was held that the degree of control by Troutbeck was sufficient to establish an employment relationship.
17. In the conclusions section of the judgment the EAT agreed with the ET that the correct point of departure was the multi-factorial test in Ready Mixed Concrete and pointed out that control was not the only factor. The ET decided the case "principally on a finding of control" of the claimants [36] . There was no control of the day-to-day kind.
18. The EAT identified the key question as "whether there is, to a sufficient degree, a contractual right of control over the worker. The key question is not whether in practice the worker has day to day control of his own work."[40] All aspects of control are relevant. An employee may be left in charge and trusted to exercise his own judgment. It concluded that Troutbeck retained a right of control to a sufficient degree: see [45]. The ET's approach was wrong in law. There were strong indications in the Agreement that Troutbeck retained a sufficient degree of control, in particular under clauses 4 and 11, even though substantial day-to-day responsibility was placed on the claimants' shoulders. There was a right to control as matter of contract. HHJ Richardson also regarded the label placed by the parties in the Agreement on their relationship as decisive in this case.
19. In all the circumstances the EAT decided that it was entitled to substitute its own conclusion for that of the ET. On the correct application of the law the answer was plain: the claimants agreed to a sufficient degree of control by Troutbeck for it to be their employer.

Troutbeck's submissions

20. Mr Ohringer appearing for Troutbeck said that the EAT wrongly interfered with the "fact-laden" evaluation made by the Employment Judge at first instance without properly identifying an error of law and without holding that the ETs decision was perverse
21. He had no less than six grounds of appeal, all slightly differing aspects of the same point, which is that the employment relationship was a matter for the evaluation of the ET which the EAT should leave alone. The EAT was not entitled to overturn that decision, as it was made without error of law and could not be described as perverse.
22. First, the EAT did not identify an error of law. It did not find that the ET's decision was perverse. The EAT's formulation of the control test did not differ from the test applied by the ET. The EAT substituted a different conclusion by applying the same test in order to overturn a decision which was open to the ET and was legally correct.
23. Secondly, if the EAT applied a different test for control, it was the wrong test. It was contrary to Ready Mixed Concrete in which the emphasis was on the nature and degree of control of the method of work, not just on who has ultimate control. This was a commercial relationship, not an employment relationship.
24. Thirdly, if there was an error of law, the EAT should have remitted the matter to the ET for reconsideration. The question required findings of fact the drawing of inferences and the evaluation of the factual situation, all matters for the ET.
25. Fourthly, if the EAT was entitled to reach its own conclusion on whether the respondents were employees, it erred by looking only at the Agreement. The ET found that the Agreement did not properly record the true agreement between the parties. The EAT should have looked more broadly at the factual matrix to ascertain the true nature of the relationship. It should have looked at the true agreement, not just at the Agreement.
26. Fifthly, in evaluating the relationship, the EAT overlooked the central findings of fact. It did not refer to them. They were important indicators of the low level of control exercised over the claimants' work. The EAT reached a conclusion that was contrary to the ET's findings. The evaluation of the competing factors was a matter for the ET.
27. Sixthly, it was wrong in law to regard the label applied by the parties as decisive. It was only one factor amongst others.

Claimants' submissions

28. Mr Korn, who appeared for the claimants, contended that the EAT was entitled to reverse the ET decision and substitute a finding that the claimants were employees. He submitted a detailed skeleton argument setting forth all his arguments. Their essence can be summarised as follows.
29. First, the EAT identified an error of law in the manner in which the ET identified and applied the control test to the facts. The error is most evident in [50] of the ET judgment.
30. Secondly, there was no error of law in the way that the EAT formulated and applied the correct multi-factorial test. Control was just one factor in the test.
31. Thirdly, the EAT was entitled to substitute the finding that the claimants were employees of Troutbeck, as the decision of the ET was plainly and unarguably wrong.
32. Fourthly, the EAT had regard to the facts found by the ET and did not look only at the Agreement
33. Fifthly, the label comment by HHJ Richardson had to be read in context and in this case the parties had attached the correct label to describe their relationship.

Discussion and conclusions

34. I agree with the ET that the Agreement is, as stated in [47] of the ET judgment, the starting point for the determining the true nature of the relationship between the parties. Neither side says that the Agreement was a sham. It had been preceded by an oral agreement, which was subsequently formalised at Troutbeck's suggestion with more enthusiasm from Troutbeck than from the claimants. The Agreement was legally binding: the dispute between the parties turns on the characterisation of the nature of the relationship created by it.
35. If the Agreement did not create or confirm an employment relationship, it is legitimate to consider what kind of relationship existed between the parties. The claimants were not alleged to be independent contractors carrying on a joint business, or separate businesses, of supplying their services. It would be unusual for independent contractors to be required to live at a particular property in order to perform caretaking and management services in relation to it, such as seeing that it was secure. As well as having to live in the Annexe flat at the farmhouse, the claimants were under a duty to carry out maintenance work in respect of the garden and the farm, such as sheep grazing and hay making.
36. The fact that both claimants did other work elsewhere (Mr White as GB Building Services and Ms Todd as an employee of Surrey University) does not preclude an employment relationship with Troutbeck nor does the fact that the pay arrangements were informal and were operated without deductions by Troutbeck for PAYE and National Insurance.
37. In my judgment, the EAT was entitled to find that an error of legal principle in the ET judgment and to correct it itself. I bear in mind the general rule that the appellate tribunal or court does not readily interfere with the decision of the ET on this issue, unless there is a legal misdirection or a decision that no reasonable tribunal properly directing itself could have reached.
38. The legal error in this case was in treating the absence of actual day-to-day control as the determinative factor rather than addressing the cumulative effect of the totality of the provisions in the Agreement and all the circumstances of the relationship created by it. The ET had found all the relevant facts. There is no point in remitting the case to the ET for more facts to be found. There are no more relevant facts for the ET to find.
39. On the facts already found there can only be one answer to the preliminary point and that is that the claimants were employees of Troutbeck, so that they are entitled to bring a claim for unfair dismissal and for arrears of pay and holiday pay and any other unauthorised deductions from wages.

Result

40. I would dismiss the appeal.
41. In brief, the EAT was right: the ET had erred in law. It wrongly treated the low level of actual day-to-day control by Troutbeck over the activities of the claimants as precluding an employment relationship when, viewed in the round, the relationship between the parties recorded in the Agreement in the setting of the surrounding circumstances presented the principal elements of employment: work by the claimants for reward at a workplace designated by Troutbeck and for the continuing benefit of Troutbeck, plus paid annual holiday reflecting the statutory protection of employees, coupled with a sufficient degree of control over the claimants to preclude their independent status as contractors with their own organisation and working arrangement. The claimants were not operating as independent contractors carrying on a business or businesses of supplying caretaking/management and security services generally. As for labels chosen by the parties to describe their working relationship, they are not necessarily the correct conclusion on the legal nature of the relationship, but in this case both parties signed a document referring to it "this employment agreement" and that was an expression of their intentions confirming the objective analysis of the legal position.

Lord Justice Rimer:

42. I agree.

Lord Justice Longmore:

43. I also agree.