United Kingdom Employment Appeal Tribunal

BAILII case number: [1994] UKEAT 1006_93_2311

Appeal No. EAT/1006/93

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 23rd November 1994

Judgment delivered on 6 February 1995

Before

THE HONOURABLE MR JUSTICE MUMMERY (PRESIDENT)

MR R E HAMMOND OBE

MR A D SCOTT

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MR A J McMEECHAN          APPELLANT

(1) SECRETARY OF STATE FOR EMPLOYMENT

(2) MRS A BOND          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant IN PERSON

For the 1st Respondents LORD MESTON

(of Counsel)

Treasury Solicitor

Queen Anne's Chambers

28 Broadway

LONDON SW1H 9JS

For the 2nd Resondent NO APPEARANCE BY OR REPRESENTATION ON BEHALF OF THE 2ND RESPONDENT


 


MR JUSTICE MUMMERY (PRESIDENT) How do you tell the difference between a person who is employed and one who is not employed? This appeal and the rival arguments presented on it demonstrate how a simple set of facts and a few documents can throw up a problem which ought to be, but is not, easy to resolve.

The appeal is from the decision of the Industrial Tribunal held at Bristol on 19 October 1993. For full reasons notified to the parties on 9 November 1993 the Tribunal unanimously decided that the Secretary of State for Employment was not under any obligation under section 122 of the Employment Protection (Consolidation) Act 1978 to make payments claimed by Mr McMeechan totalling £105.07 owed to him by an employment agency in insolvent liquidation, Noel Employment Limited. The Industrial Tribunal dismissed Mr McMeechan's application and a similar application made by a Mrs A E Bond on the basis that neither of them were employees of Noel Employment Limited.

Mr McMeechan was dissatisfied with the result and appealed by a Notice of Appeal received in the Appeal Tribunal on 2 December 1993. The matter was first heard by the Appeal Tribunal on 21 April 1994 on a Preliminary Hearing when Mr McMeechan appeared in person. The Tribunal was satisfied that the appeal raised an arguable point of law and allowed it to proceed to a full hearing. A direction was made for the production of the Chairman's Notes of Evidence. The Tribunal suggested that Mr McMeechan should seek legal representation. Unfortunately Mr McMeechan has not succeeded in obtaining legal representation. He has done his best to argue his appeal in person.

The Statutory Provisions

The relevant Statutory Provisions in section 106 and 122 of the 1978 Act impose an obligation on the Secretary of State to make payments out of the National Insurance Fund of an amount to which, in the opinion of the Secretary of State, the claimant is entitled in respect of debts to which the sections apply. It is common ground that the Secretary of State must be satisfied that the Applicant was an employee and that his employer has become insolvent. Neither section contains a definition of an employee. Section 153 of the 1978 Act is the interpretation section which provides that:

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

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

"employer", in relation to an employee, means the person by whom the employee is (or, in a case where the employment has ceased, was) employed."

Mr McMeechan claims that he was employed by Noel Employment Limited under a contract of employment and that that Company has become insolvent owing him a debt to which this section applies. The Secretary of State admits that the Company is insolvent, but does not admit that Mr McMeechan was an employee within the meaning of section 153 (1) and, consequently, does not admit that he is entitled to receive any payment under the provisions of sections 106 or 122.

The Background Facts

The Industrial Tribunal heard evidence from Mr McMeechan and Mrs Bond and made the following findings:-

(1) Noel Employment Limited was an employment agency for whom Mr McMeechan and Mrs Bond worked on a series of temporary contracts.

(2) A specimen of the printed contract was put in evidence and the Tribunal referred in general terms to its effect, though they did not examine the detailed provisions in the Decision. The Tribunal pointed out that the contract stated that those engaged by Noel Employment Limited were self-employed, though:

"they contained many factors which would indicate a contract of employment."

(3) Mr McMeechan and Mrs Bond were working for the agency, but were under the control of the companies to which they were sent.

On the basis of those few facts the Tribunal expressed the view that, if they were considering the matter in the absence of authority, they:

"might well take the view that these temporary contracts were temporary contracts of employment."

The Tribunal added:

"This Tribunal sees no reason why a contract of employment should not be temporary and why it should not be subject to be terminated without any period of notice. It seems to us that it would simplify the law greatly if temporary employees, casual workers and any people who were not self-employed and who were not carrying business on their own account in a true sense, were treated as employees under a contract of employment."

Despite those comments the Tribunal concluded that neither Mr McMeechan nor Mrs Bond were employed. They appear to have reached that conclusion for two reasons. First, a Tribunal sitting in Bristol on 13 August 1993 heard another case brought against the Secretary of State for Employment by an Applicant (Royal) previously engaged by Noel Employment Limited and that Tribunal decided that the Applicant was not employed under a contract of employment. The facts of the cases of Mr McMeechan and Mrs Bond were similar to the other case. Secondly, the Tribunal was referred to the decision of the Employment Appeal Tribunal in Wickens v Champion Employment [1984] ICR 365. They considered that they were bound by that decision to find that the Applicants were not employees. In their view the Employment Appeal Tribunal in Wickens decided that temporaries on the books of an employment agency were not in a relationship of employment with the agency because:

"the elements of continuity and care associated with the relationship created by a contract of employment"

were absent.

The Appellants' Submissions

The Ground of Appeal stated in Mr McMeechan's Notice of Appeal was that:

"The decision is inconsistent with the evidence concerning status of employment."

The principal matter which he has put before the Appeal Tribunal is a letter obtained by him from the Inland Revenue since the hearing before the Industrial Tribunal. He had unsuccessfully applied for an adjournment of the Tribunal hearing on the grounds that he wished to call evidence, which was not then available, from the Portsmouth Tax Office relating to the way in which he and Mrs Bond were taxed. Without objection from Lord Meston, who appeared for the Secretary of State, Mr McMeechan has produced a letter addressed to him from the Portsmouth Inland Revenue Office in the following terms:

"I can confirm that no special arrangements were made regarding the status of employees with Noel Employment Agency.

The Department of Employment are incorrect in stating you were self-employed, as when working for an agency, Section 134 Income and Corporation Taxes Act applies. This states, the services rendered by the worker are, for all the purposes of the Income Taxes Act, treated as if they were duties of an employment held by the worker. The remuneration receivable is treated as emolument and is, therefore, chargeable to tax under Schedule E. Accordingly, all Schedule E rules apply and PAYE must be operated by the payer."

Mr McMeechan's contention was that, if he was treated as an employed person for the purposes of paying tax to the Inland Revenue, he ought, in the interests of fairness and consistency, to be treated as an employee by another emanation of the Crown, the Secretary of State for Employment, to the purposes of receiving benefits paid out of a fund financed by revenue collected.

The Secretary of State's Submissions

We are grateful to Lord Meston for the clear and fair way in which he has presented the case for the Secretary of State. His brief submission was that there was no error of law in the decision of the Industrial Tribunal because it has been consistently held that a person whose services are supplied by an employment business does not have a contract of employment with that agency. The arrangement between the worker and the business is in a category of its own, different from both a contract of service and from a contract for services. He referred to the decision of the Divisional Court in Construction Industry Training Board v Labour Force Ltd [1970] 3 All ER 220 at 225C-F for a statement of a general proposition. It should be noted that that case was not concerned with an employment an agency. The question for the Court was the correct construction of a document containing terms and conditions of employment. In his judgment Cooke J stated:

"these contracts were contracts whereby the workmen 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 for services, but a contract sui generis, a different type of contract from either of the familiar two."

He submitted that the decision of this Tribunal in Wickens v Champion Employment [1984] ICR 365 was an illustration of that principle in the particular context of a contract with an employment business. The Tribunal had to determine the status of "temporaries" on the books of the employment business. According to their contract with the employment business the temporaries were under no obligation to accept bookings that were offered by the business and the business had no obligation to provide work for the temporaries. There was no evidence that the temporaries were carrying on business on their own account. The conclusion of the Tribunal was that the contracts between the business and the temporaries did not create a relationship of employment. In the judgment of the Appeal Tribunal Mr Justice Nolan referred to the terms of the written contract which concluded with the words:

"The temporary worker is employed under a contract of services with Champion Employment." (p.371C)

He then stated at page 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."

On that basis the Tribunal found no error of law in the decision of the Industrial Tribunal that there was no relationship of employment between the employment business and the temporaries. That decision was followed by this Tribunal in Ironmonger v. Movefield Ltd [1988] IRLR 461, where there was no written contract with the employment business.

Lord Meston completed his citation of authority with a recent decision of the Employment Appeal Tribunal in Pertemps Group Plc v R Nixon (1 July 1993 - Appeal No EAT/496/91). In that case the Employment Appeal Tribunal reversed the decision of an Industrial Tribunal which held, a preliminary issue, that the Applicant was employed under a contract of employment with an employment business within the meaning of that expression in the Employment Agencies Act 1973. In a carefully reasoned decision,including a detailed examination of the terms of the written contract and of the relevant authorities, the Tribunal concluded that Mr Nixon was not employed under a contract of employment within the 1978 Act. They reversed the Industrial Tribunal decision as being in error of law. Lord Meston naturally relied heavily upon that decision.

By way of comment on Mr McMeechan's submissions he contended that section 134 of the Income and Corporation Taxes Act 1988 could not be relied on as concluding the case in favour of Mr McMeechan. Indeed, the provisions were statutory recognition of the ambiguity that would exist about the status of workers supplied by employment agencies if they were not treated as employees by virtue of that provision. Section 134 is concerned with the position of workers supplied by agencies and provides that, in the particular conditions specified in subsection (1)(a), (b) and (c):

"for all the purposes of the Income Tax Acts, the services which the worker renders or is under an obligation to render to the client under that contract shall be treated as if they were the duties of an office or employment held by the worker, and all remuneration receivable under or in consequence of that contract shall be treated as emoluments of that office or employment and shall be assessable to income tax under Schedule E accordingly."

CONCLUSION

Despite Lord Meston's cogent submissions, we have reached the conclusion that the Tribunal erred in law in concluding that Mr McMeechan was not an employee of Noel Employment Ltd, that the decision of the Industrial Tribunal should be reversed and it should be declared Mr McMeechan was an employee and is therefore entitled to claim payment from the Secretary of State under the 1978 Act. The matter will be remitted to the Industrial Tribunal to determine, in the absence of agreement, the precise amount payable.

The reasons for our conclusion are briefly these:-

(1) The Industrial Tribunal adopted the wrong approach to the determination of the question for decision. Mr McMeechan's relationship with Noel Employment Limited was governed by printed conditions of service. Where the relevant contract is, as here, wholly contained in a document(s), the question whether the contract is one of employment is a question of law to be determined upon the true construction of the document in its factual matrix.

(2) Instead of focusing on an analysis and construction of the terms and conditions of the contract the Tribunal found in favour of the Secretary of State on the basis of the decision in Wickens v Champion Employment where the terms of the written contract were significantly different from the terms and conditions in this contract. It seems to have been assumed by the Tribunal, as it has been by some commentators, that the relevant authorities have laid down a general proposition of law that a worker whose services are supplied by an employment business or employment business to a third party client on a temporary basis does not have a contract of employment with the employment business or employment business (or with the business's client). The cases do not establish that as a proposition of law. The furthest they go is to state the general legal principles applicable to the question whether a contract of employment exists and then proceed to decide the individual case on the basis of the actual terms and conditions. That was the approach of the EAT in Wickens case and in the recent similar case of Pertemps Group Ltd v Nixon. It is necessary to consider all the terms and conditions of the contract rather than follow the result of earlier judicial decisions on different contracts.

(3) There are some indications in Mr McMeechan's conditions of service with Noel Employment Limited that he was not an employee. It is provided in paragraph 1 that:

"You will provide your services to the Contractor [Noel Employment Ltd] as a self employed worker and not under a contract of service."

The contract thus contemplates that services are provided by Mr McMeechan to Noel Employment Ltd. A statement that he supplies them as a self employed worker is not conclusive of his status, since it has been said many times that whether someone is an employee is a matter of analysing all the rights and obligations created by the contract. The question is not determined by the label which the parties themselves put on the relationship. In this case it was not correct to describe Mr McMeechan as "self employed" in the sense of being in business on his own account.

Another indication that Mr McMeechan was not employed by Noel Employment Limited is that it was expressly provided in Paragraph 3 that Noel Employment would offer him the opportunity to work on a self employed basis where there is a suitable assignment with a client, but reserves the right to offer each assignment to such temporary worker as it may elect in cases where the assignment is suitable for one of several temporaries. Paragraph 5 indicates that he was not employed, since it provides that Mr McMeechan is under no obligation to accept any offer made under Paragraph 3, though it goes on to provide that:

"if you do so you are required to fulfil the normal common law duties which an employee would owe to an employer as far as they are applicable. In addition, you will at all times when services are to be performed for a client comply with the following conditions:..."

There are set out a series of duties similar to those in a contract of employment (eg. fidelity, confidentiality, obedience to instructions). The conditions provide that he does not have to serve any particular number of hours in a day or a week and that he is not entitled to payment from Noel Employment for holidays or absence due to sickness or injury and is not entitled to pension rights. In paragraph 9 it is acknowledged that there may be periods between assignments when no work is available.

(4) There are, however, other terms or conditions which indicate a contract of employment. In paragraph 4 Noel Employment Limited agree to pay him weekly wages calculated at a specified hourly pay rate, subject to statutory deductions for National Insurance and PAYE.

More important are provisions which, in our view, tip the balance in favour of a contract of employment in this case. We refer first to a provision under the heading Notes to Temporary which lays down an obligation for submission of weekly time sheets and then goes on to say:

"If you are an excellent Temporary this client will continue using Noel thus giving both you and us a secure future. Obviously, any Temporary not using proper conduct will be instantly dismissed. Help us to help you!"

It is provided in paragraph 10 as follows:

"The Contractor may instruct you to end an assignment with a client at any time on summary notice to that effect, without specifying any reasons."

Paragraph 11 provides:

"Following a decision by the Contractor that your services are no longer required on a self employed basis you shall have the right to request a review of the decision by the relevant Branch Manager."

There is also set out a grievance procedure which may be followed.

(5) On the totality of the conditions of service we have come to the conclusion that, though they are described as relating to "Temporary Self Employed Workers", they do in fact create an employment relationship between Noel Employment Limited and persons in the position of Mr McMeechan, who render under a series of contracts with Noel Employment, services to Noel Employment in return for weekly payments by Noel Employment, subject to deductions relevant to an employee, and who are liable to be dismissed summarily by them. Ultimate control is exercisable by Noel Employment Ltd over the services provided and the payments made.

For those reasons the appeal is allowed and the matter will be remitted to the Industrial Tribunal to determine, in the absence of agreement, the amount due from the Secretary of State to Mr McMeechan.