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Cite as: [1993] UKEAT 496_91_3006

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BAILII case number: [1993] UKEAT 496_91_3006

Appeal No. EAT/496/91

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 30th June & 1st July 1993

Judgment delivered on 1st October 1993

Before

HIS HONOUR JUDGE J HULL QC

Ms R CHAPMAN

MR A FERRY MBE

PERTEMPS GROUP PLC APPELLANT

MR R NIXON RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellant Miss J Beale

(of Counsel)

Messrs Sankey Reynolds

23/31A Golmore Row

BIRMINGHAM

B3 2BS

For the Respondents IN PERSON

Amicus Curiae Mr N Garnham

(of Counsel)

HIS HONOUR JUDGE HULL QC This is an appeal by Pertemps Group Plc ("Pertemps") from the decision dated 8th July 1991 of the Industrial Tribunal sitting at Bristol. By that decision, on a preliminary issue, the Industrial Tribunal held that Mr Nixon was employed under a contract of employment with Pertemps and that he was, accordingly, entitled under S.81 of the Employment Protection (Consolidation) Act 1978 to pursue a claim that he had been made redundant and was entitled to a redundancy payment. Section 81 does not of course apply to those who work under other arrangements: for example it does not apply to persons who are self-employed, who work as independent contractors, or who enter into a "contract for services" rather than a "contract of service".

Pertemps are an Employment Business within the meaning of that expression in the Employment Agencies Act 1973. That Act gives a wide definition to "employment": by S.13(1)(a) it includes employment by way of a professional engagement or otherwise under a contract for services. It is of course a far wider concept than employment under a contract of employment in the Employment Protection (Consolidation) Act. Under 13(3) of the Act of 1973, "employment business" is the business of supplying persons in the employment of the person carrying on the business to act for, and under the control of, other persons in any capacity. Because of the wide definition of "employment" in this Act, such persons would include people employed by the employment business under contracts of service and people employed by the employment business under contracts for services. The latter may be described as "self-employed" or "independent contractors".

The Act of 1973 also applies to "employment agencies"; an employment agency is defined by S.13(2) as meaning the business of providing services for the purpose of finding workers employment with employers or of supplying employers with workers for employment by them. Pertemps was referred to by the Industrial Tribunal in the present case as an employment agency, but this was evidently said without reference to the provisions of the 1973 Act. There was never any suggestion that Mr Nixon was employed by any person apart from Pertemps, the employment business.

There is no dispute about the primary facts. Mr Nixon is a fitter/machinist who was born on 23rd July 1926. On 17th July 1987, when he was 60, he entered into a contract headed "Conditions of Employment" with Pertemps. This contract described him as a Temporary Worker and its terms were as follows:

"1. Temporary Workers are engaged under a contract for services, the terms of which are set out below and which apply to each and every assignment.

2. The Employment Business agrees to offer to the Temporary Worker opportunities to work as a where there is a suitable assignment with a hirer, (hereinafter called the client) requiring such a Worker. The Employment Business reserves the right to offer any assignment to such Temporary Workers as it may elect where that assignment is suitable for several workers.

3. The Temporary Worker is under no obligation to accept such an offer but if accepted he/she owes the normal common law duties of an employee as far as they are reasonably applicable.

4. The Employment Business shall pay to the Temporary Worker wages calculated at a minimum hourly rate of for each hour worked to be calculated weekly subject to deductions for the purpose of National Insurance, PAYE, or any other purpose for which the Employment Business is required by law to make deductions.

5. The Temporary Worker shall at all times when services are due to a client comply with the following conditions:

(a) Not to engage in any conduct detrimental to the interests of the Employment Business;

(b)To be present during the times, or for the total number of hours during each day and/or week as may be agreed;

(c)To take all reasonable steps to safeguard his/her own safety and the safety of any other person who may be affected by his/her actions at work;

(d)To comply with any disciplinary rules of [sic] obligations in force at the premises where services are performed to the extent that they are reasonably applicable;

(e)To comply with all reasonable instructions and requests within the scope of the agreed services made either by the Employment Business or the client;

6. There is no obligation by the Employment Business to provide or the Temporary Worker to serve any normal number of hours in any day or week. In the event of the Temporary Worker declining to accept any offer of work, or failing to attend work for any reason, for any period the contract shall terminate.

7. The Temporary Worker is entitled to payment from the Employment Business for holiday accrual, details of which are available from the Employment Business on application.

8. The Employment Business shall be responsible for all statutory deductions relating to earnings related insurance and income tax under Schedule E in accordance with the Finance Act (No.2) 1975, and transmitting these to the Inland Revenue.

9. The Employment Business and the Temporary Worker agree that the nature of temporary work is such that there may be periods between assignments when no work is available.

10. The Employment Business may instruct the Temporary Worker to end an assignment with a client at any time.

11. A Temporary Worker having any complaint connected with the temporary work, its termination or the conduct of or relations with the client or any employee of the client shall have the right to present the complaint to a director or senior manager of the Employment Business"

A fortnight later, on 31st July 1987, Mr Nixon was offered, and accepted, a placement at the Metal Box Company at Wantage, Oxfordshire. He worked there continuously until 2nd November 1990, when he was told that his services were no longer required. Pertemps were unable to offer him any other placement and on 28th November 1990 he wrote terminating the contract with them and claiming redundancy pay.

During the three years he worked at Metal Box, Mr Nixon had worked under the direction of a foreman employed by that Company. The representative of Pertemps made occasional visits to see that all was well.

The Industrial Tribunal analysed the effect of these facts as follows:

"6. Untrammelled by authority we would have little difficulty in reaching a conclusion. It is obvious, in our view, that when a person registers with an employment agency he does not thereupon enter into a contract of employment. There is no obligation on the agency to provide him with work or on the person registering to accept any work offered to him.

7. This situation changed when he was offered and accepted work at the Metal Box Company. There was then a further contract on the terms he had previously signed. The essence of a contract is offer and acceptance and both those requirements were present. It is, therefore perfectly possible that the original umbrella contract was not a contract of employment, but that the contract which arose when he accepted the engagement at the Metal Box Company was a contract of employment or even that it became one once it became apparent that this engagement was to be long-term.

8. The contract then continued until the respondents informed him that there was no longer any work for him. He then reverted to being a person registered with an employment agency, able to accept or reject further offers of work. It is apparent, therefore, that from a contractual point of view the contract between the respondents and the applicant which required him to work at Metal Box Company came to an end and the only continuing contract was the umbrella contract which really put no obligations either on him or on the respondents.

9. During the time that he was working at the Metal Box Company it is necessary to look at the terms of his contract to see whether it amounted to a contract of service or a contract for services. A number of tests have been put forward. In our view it is appropriate to look at a variety of tests since no single test is necessarily conclusive."

The Industrial Tribunal then considered factors which might show whether Mr Nixon's contract (ie the contract with Pertemps) was a contract of service or a contract for services. It observed that he undertook personally to carry out work for remuneration, and was obliged to attend at Metal Box for the hours prescribed. It found that he was under the control, mainly, of the foreman at Metal Box; and it referred to clause 3 of the Contract, "he owes the normal common law duties of an employee as far as they are reasonably applicable" and clause 5(e) requiring Mr Nixon "to comply with all reasonable instructions and requests ... made either by the Employment Business or the client" as being "a very strong indication of employment". Then the Tribunal considered whether Mr Nixon was in business on his own account and concluded that he was not and that, therefore, he was working under a contract of service while at Metal Box.

In the course of this analysis the Tribunal referred to Ready-Mixed Concrete (S.E.) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497, Market Investigations Ltd v. Minister of Social Security [1969] 2 QB 173 and Lee v. Chung [1990] IRLR 236. Each of these was a case in which the worker was paid by and was in contract with the employer for whom the work was done - there was no "employment business" which employed and paid the worker and supplied him/her to work for the client. The Industrial Tribunal, however, applied those decisions to the present case. At paragraph 11 of its Decision it observed:

"It has been suggested that the fact that he was required to attend for work at the premises of a third party suggested that there was no contract of employment, but in our view there is no weight to that suggestion. Employees of contractors often work at the premises of third parties and contracts of this nature may be long term or open-ended. Examples are building contracts, cleaning contracts and executives working on secondment. In our experience it is not uncommon for employees to spend the whole of the term of their employment working on the premises of a single third party."

The Tribunal then stated (paragraph 14) that "...unless bound by specific authority to the contrary, our view based on the principles and authorities set out above is that during the period when [Mr Nixon] was working for [Pertemps] at the Metal Box Company he was so working under a contract of service". The Tribunal then, and only then, turned to consider the cases where an employment business supplied its own worker to the client, to work for the client. Those cases, Wickens v. Champion Employment [1984] ICR 365, Ironmonger v. Movefield Ltd [1988] IRLR 461 and an unreported decision of the Employment Appeal Tribunal Bolshaw v. Pertemps Group, EAT/458/79, were all distinguished by the Industrial Tribunal on their facts and, accordingly, it held that Mr Nixon was employed by Pertemps under a contract of employment.

Miss Beale, in a most clear and careful submission, criticised many aspects of the Industrial Tribunal's decision. The contract into which the parties entered was, as stated by the Tribunal itself, a contract for services, not a contract of employment. There was no principle of law, and no finding of fact, which entitled the Tribunal to discover a second contract, under the "umbrella" of the first contract, which came into existence when Mr Nixon began to work at Metal Box. Miss Beale pointed out certain apparent fallacies in the Tribunal's reasoning, and particularly criticised the logical process by which it arrived at a conclusion on the basis of the "two party" cases and only then turned to see whether it could distinguish the "three party" cases. Miss Beale's submissions, summarised in her skeleton argument, are referred to more fully later in this judgment.

Mr Nixon, who appeared in person, did not feel able to make any submissions of law to us, but we were further assisted by Mr Garnham, appearing as amicus curiae at the request of the Employment Appeal Tribunal. Mr Garnham submitted that the question whether Mr Nixon was employed under a contract of service or not was primarily a question of fact for the Industrial Tribunal, that the description by the parties of the nature of their relationship was not conclusive, and that there were factors which pointed towards a contract of service. But he nonetheless submitted that the conclusion of the Industrial Tribunal was seriously flawed, that there was no evidence to support the "second contract" hypothesis, and that there was nothing to support the suggestion that the "first contract" had changed in some way into a contract of service during Mr Nixon's work with Metal Box. Relying in particular on Ironmonger v. Movefield [1988] IRLR 461, he submitted that the Tribunal's decision was wrong in law.

Where parties have entered into a written contract that document is prima facie conclusive of their obligations. In particular, the conduct of the parties after the contract has been entered into is not admissible as an aid to construction. We entirely accept that the "label" which the parties have applied to their relationship is not conclusive: when the contract is construed it may or may not appear that the label is correct. Of course the conduct of the parties will have to be considered if it is alleged that the purported contract is a "sham", ie not intended by the parties to embody their true agreement, and it may be relevant if it is alleged that the contract should be rectified, or has been consensually varied in some way, or if it is alleged that one party or other is estopped by subsequent conduct from relying on the contract. No such submissions were made to us, and we therefore proceed to consider the contract whose terms we have set out above.

Clause 1 of the contract provides that temporary workers are engaged under a contract for services, the terms of which are later set out and which apply to each and every assignment. Clause 2 provides that Pertemps agrees to offer the temporary worker opportunities to work where there is a suitable assignment with a client. Clause 3 provides that the temporary worker is under no obligation to accept such an offer.

In our view those terms are consistent with the statement that Mr Nixon was employed under a contract for services.

Clause 3 then provides that if the temporary worker accepts such an offer he owes the normal common law duties of an employee as far as they are reasonably applicable. The Industrial Tribunal found that provision "a very strong indication of employment". We accept Miss Beale's submission that, on the contrary, it is a strong indication to the contrary, since it suggests that some at any rate of the common law duties of an employee are not applicable.

Clause 4 provides that Pertemps is to pay the temporary worker wages on an hourly basis subject to deductions for the purpose of national insurance, PAYE or any other purpose for which Pertemps was required by law to make deductions. The Industrial Tribunal considered that this showed he could not be regarded as being in business on his own account. However, Pertemps were obliged by law to make these deductions even if the temporary worker was employed under a contract for services: see sections 15 and 16A of the Taxes Management Act 1970 and section 134 of the Income and Corporation Taxes Act 1988, re-enacting provisions of section 38 of the Finance (No.2) Act 1975. So far from indicating that the contract is a contract of employment (in which case it would hardly be considered necessary to mention the well known topic of PAYE and national insurance contribution deductions) this points in our view to the correctness of the description of the contract as being a contract for services.

Clause 5(a) requires the temporary worker not to engage in any conduct detrimental to the interests of the employment business. If he were employed under a contract of service, a duty of fidelity would be implied; see Chitty on Contracts, paragraph 3902. Accordingly, this express provision is, in our judgment, an indication, though perhaps not a strong one, that the contract is for services. Clause 5(b) provides that the temporary worker is to be present during the times which may be "agreed"; this too is more consistent with a contract for services. Clause 5(c) provides that the temporary worker is to take all reasonable steps for his own safety and the safety of any other person who may be affected by his actions at work; this too would be implied in a contract of service (Chitty, paragraph 3900). Clause 5(d) provides that the temporary worker is to comply with any disciplinary rules or obligations in force at the premises "where services are to be performed" "to the extent that they are reasonably applicable". This, again, is rather more consistent with a contract for services. An employee would be required to comply with the disciplinary rules without qualification.

Clause 5(e) provides that the temporary worker is to comply with all reasonable instructions and requests within the scope of the agreed services made either by the employment business or the client. This too would seem more consistent with a contract for services.

There follow a number of provisions which seem wholly inconsistent with a contract of service. Under Clause 6, there is no obligation by the employment business to provide or the temporary worker to serve any normal number of hours. In the event of the temporary worker declining to accept any offer of work, or failing to attend work for any reason the contract is to terminate. Under Clause 7, the temporary worker is entitled to payment for "holiday accrual": but there is no provision for holidays. Under Clause 9, the parties agree that there may be periods when no work is available.

As Miss Beale pointed out, there is no reason whatever why Mr Nixon should not have entered into similar contracts with other employment businesses.

As is clear from paragraph 6 of the Industrial Tribunal's decision, it reached the same conclusion as we have done, albeit more shortly:

"... It is obvious, in our view, that when a person registers with an employment agency [sic] he does not thereupon enter into a contract of employment. There is no obligation on the agency to provide him with work or on the person registering to accept any work offered to him."

The Industrial Tribunal proceeded to enunciate the "second contract" hypothesis in paragraph 7 of the decision, which we have quoted above. Miss Beale submitted that there was no basis for holding that there was a second contract. In addition to the requirement of offer and acceptance referred to by the Tribunal, there can be no further contract unless the parties intended to create new binding obligations. Here, the parties, when Pertemps offered the opportunity to work at Metal Box and Mr Nixon accepted, were merely taking steps already provided for by the contract of 17th July 1987. Miss Beale relied upon Beesly v. Hallwood Estates Ltd [1960] 1 WLR 549, 558 and Harvela Investments Ltd v. Royal Trust Company of Canada (C.I.) Ltd [1986] AC 207, per Lord Diplock at p.226C to G and per Lord Templeman at p.235. She also referred to the strange conclusion of the Industrial Tribunal that the second contract was "a further contract on the terms he (Mr Nixon) had previously signed". (This conclusion was said by Mr Garnham to be self-evident nonsense; if the second contract was on the same terms as the first, it could not have been a contract of employment). Both Miss Beale and Mr Garnham contested the Tribunal's further conclusion that the second contract, if not a contract of employment at inception, became one once it became apparent that the engagement was to be long-term. When would this moment in time arrive? How could it be identified? If Mr Nixon were to be engaged on a series of (say) six month assignments with different clients, how could the provisions of the Employment Protection (Consolidation) Act conceivably be applied in practice?

In our judgment these submissions are well founded. There is no evidence to support the "second contract" hypothesis and indeed it is destroyed by the very terms in which it is postulated by the Industrial Tribunal. There is no authority to support it as a matter of law and nothing in the surrounding circumstances to lead to the implication of such a contract. The inherent illogicality and inconvenience of the hypothesis are further grounds for refusing to make such an implication.

In those circumstances it would appear that the decision of the Industrial Tribunal must necessarily fall to be reversed since it appears that the Tribunal, as we are, was of opinion that the contract of 17th July 1987 was a contract for services and not a contract of service, and that their analysis of Ready-Mixed Concrete (SE) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497, Market Investigations Ltd v. Minister of Social Security [1969] 2 QB 173 and Lee v. Chung [1990] IRLR 236 was directed to the hypothetical second contract. We have, however, considered the "three party" cases which were cited to us.

In Wickens v. Champion Employment [1984] ICR 365, the employers were referred to as an employment agency although, since they paid the workers, it seems that they must have been an employment business so far as the Employment Agencies Act is concerned. Although the temporaries were on the employer's books there were no permanent contracts with them; the contract was entered into on each occasion when a temporary worker was assigned to a particular task. The terms of these contract are set out at pages 370 and 371 of the report. In many ways they are very similar to those of the contract with Mr Nixon. The contract in Wickens concluded:

"The Temporary Worker is employed under a contract of services with Champion Employment".

The Industrial Tribunal held that the temporary workers were not employees of the employment business. Nolan J, giving the judgment of the Employment Appeal Tribunal which upheld the decision of the Industrial Tribunal, said at p.371D:

"We are bound to say that, in the experience of all three of us, we can think of no contract of service, properly so called, remotely resembling the contract which we have just read out. It appears to us to be quite inconsistent with the normal features of an employment under a contract of service, particularly when its terms are read against the background of the evidence given to the Tribunal that there is no obligation upon the employers to find work or for the temporary to accept a booking made on his or her behalf. The relationship between the employers and the temporaries seems to us wholly to lack the elements of continuity, and care of the employer for the employee, that one associates with a contract of service.

There remains the fact, rightly pointed out by Mrs Andrew that there is no evidence that the temporary workers are carrying on business of their own. All there is in relation to that is the finding that there is nothing to stop a temporary from being on the books of any number of agencies. But, in our judgment, the test does not include as a necessary element the question whether the individual carries on a separate business. If it did, then it would follow that a casual worker must always be employed under a contract of service unless he has his own business and that, plainly, cannot be the law."

In Ironmonger v. Movefield Ltd [1988] IRLR 461, Mr Ironmonger had been employed by Unilever until his retirement at age 60. It was proposed that he should be appointed Clerk of Works on a new building project for Unilever. A Clerk of Works is the "eyes and ears of the building owner" and is often, if not usually, the employee of the building owner. On this occasion a special arrangement was reached: Mr Ironmonger was to be engaged for Unilever as a contract worker by Movefield Ltd, who ran a substantial employment agency and employment business. There was therefore a three-party relationship. The question whether there was a contract of employment was said by the Employment Appeal Tribunal to be one of extreme difficulty. It noted that the Industrial Tribunal had concluded that, "If Mr Ironmonger was not self-employed, he had to have an employer" and concluded that this was an error. It referred to the decision in Construction Industry Training Board v. Labour Force Ltd [1970] 3 All ER 220, where the facts were very similar, and cited from the judgment of Cooke J at p.225E:

"The sole question before the tribunal on this part of the case was, as I have said, whether the contracts were contracts of service. These contracts were contracts whereby the workman contracted with the respondents to do work for a third party, the contractor. It was not a question of the respondents lending the services of one of their own employees to the contractor, because the workman never contracted to render services to the respondents at all. I think there is much to be said for the view that, where A contracts with B to render services exclusively to C, the contract is not a contract of services but a contract sui generis, a different type of contract from either of the familiar two. Had it been necessary, I should have been prepared to uphold the decision of the tribunal on that ground".

This Tribunal then added:

"We have taken the view that the contract in this case is one sui generis, and as was said by the members of the Employment Tribunal in Wickens we are bound to say in the experience of all three of us that we can think of no contract of service, properly so called, remotely resembling the contract which existed in the present case between [Movefield] and the applicant."

In Ironmonger the facts were in many ways similar to the present case, and we are fortified by the conclusions and dicta in that case, in Wickens v. Champion Employment, and in Construction Industry Training Board v. Labour Force Ltd, in holding that the contract between Mr Nixon and Pertemps was not a contract of service: and in our further holding that the contract did not become a contract of service when Mr Nixon began to work at Metal Box or at any time thereafter.

We have considered the decision of the Employment Appeal Tribunal in Bolshaw v. Pertemps Group Ltd. We are not satisfied that the terms of the contract in that case were the same as those in the present case, and we do not think that the principles applied by the Industrial Tribunal and approved by the Employment Appeal Tribunal in that case add anything to the cases to which we have referred, although perfectly consistent with them.

We accept that Mr Nixon (whose sincerity has not been questioned) probably had little idea of the legal effect of the contract with Pertemps into which he entered. It may very well be that such contracts should begin with a warning that they are not contracts of employment in the ordinary sense, and that those who sign them must not expect to enjoy the benefits of contracts of employment, such as the right not to be unfairly dismissed, and the right to receive a redundancy payment in appropriate circumstances. The wide definition in the Employment Agencies Act may well be a source of confusion even to those who think that they understand the difference between a contract of service and a contract for services.

If these are just comments then the remedy must lie with the legislature and not with this Tribunal. We are obliged to allow this appeal and to hold that Mr Nixon was not employed under a contract of employment within the Employment Protection (Consolidation) Act 1978.