United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Applicant	MR ANDREW HOGARTH QC (of Counsel) Instructed by: Messrs O H Parsons & Sons Solicitors 3rd Floor Sovereign House 212/224 Shaftsbury Avenue London WC2H 8PR
For the Respondent	MISS MULHOLLAND (of Counsel) Instructed by: Messrs Field & Cunningham & Co Solicitors St John Court 70 Quay Street Manchester M3 3EJ


 


HIS HONOUR JUDGE PETER CLARK

1. This is an appeal by John Cavil, the Applicant before the Sheffield Employment Tribunal against that Tribunal's reserved decision, promulgated with Extended Reasons on 31 December 2002, dismissing his claim for arrears of holiday pay brought against the Respondent, Barratt Homes Ltd, under Regulation 14 of the Working Time Regulations 1998, ("WTR") on the grounds that he was not a "worker", within the definition contained in Regulation 2 of the WTR and thus not entitled to holiday pay in accordance with those Regulations.

Background Facts

2. The Applicant is a joiner by trade. On 29 October 2001 the Respondent engaged his services under a labour-only sub-contract to work at their Middlewood site near Sheffield. He held a CIS 4 card entitling the Respondent to deduct tax at source. Thereafter he worked on various sites in that area for the Respondent. He finished work on about 28 February 2002. His last site had been at Swinton. He was offered further work by the Respondent at their Bawtrey site but never turned up there. He presented his claim for holiday pay to the Employment Tribunal on 29 May 2002.

Contractual Terms

3. It is now common ground before us, the Applicant having withdrawn Ground A of his grounds of appeal contained in a Notice dated 10 February 2003, that the express terms of the contract between these parties are contained in the Respondent's written terms headed "General Conditions of Engagement Labour Only Sub-Contractors." ("the Contract").
4. The Employment Tribunal, in paragraph 7 of their reasons, referred to the following provisions in the contract which they deemed to be relevant; clauses 1.3; 2.1, 2.3 and 2.4. We should set out clause 1.3 so far as it is material:

1.3 "The "sub-Contractor" the person or persons, firm or company or any person who the Sub-Contractor at his discretion may procure to carry out or assist in carrying out the job, provided that the Sub-Contractor remains liable for the correct and proper performance of the job engaged from time to time as contractor by the Company to perform specific works which shall include the supply of materials…"

In addition, by clause 3:

"There are no fixed hours of work."

5. The Tribunal found that throughout his engagement he was kept busy with work. The sites were open from 8.00 a.m. to 5.00 p.m. and for health and safety reasons nobody was permitted to work outside of those hours. The Applicant could arrive later and leave early if he so wished. He was paid for the job; either a fixed number of hours would be allocated at a set hourly rate; alternatively there was a set payment for the job, e.g. fixing garage doors, £22.50.
6. The Applicant was expected to inform the Respondent if he would be on holiday or if he was away sick but was not required to book holidays in advance. He had submitted a holiday request form, but as a matter of courtesy rather than obligation.
7. At paragraph 13 of their reasons, the Employment Tribunal found

13 "The Respondent had a provision in the contract for the worker to send a substitute at the sub-contractor's discretion. In practice this rarely happened. Mr Firth recalled two examples of the substitution in that the sub-contractor had provided additional labour to get the job done. In those circumstances, it was still the sub-contractor who got paid and it was the sub-contractor's obligation to pay the individuals he had engaged. If a substitute was to be provided the Respondent would expect the sub-contractor to ring the Site Manager to let him know what was going to happen. In Mr Firth's opinion he was likely to want to know whether the substitute was "up to the job" but no specific prior approval for substitution was required."

Mr Firth was the Respondent's Contracts Manager, called to give evidence before the Tribunal.

8. At paragraph 17, having earlier considered the cases of Express & Echo Publications Ltd v Tanton [1999] IRLR 367 (CA) and McFarlane v Glasgow City Council [2001] IRLR 7 (EAT). (Lindsay (P)). on the requirement for mutual obligations in a contract of service, they say:

17 "In the Applicant's case, the express provision in the contract (quoted above at paragraph 7) prior approval is not needed and the sub-contractor would be paid directly themselves for any work. Although the situation was not as extreme as Tanton, on the face of it, it would have been possible for the Applicant to substitute someone else for the entirety of the work undertaken."

9. Omitted from the Employment Tribunal's written reasons is any reference to clause 12 of the contract which provides:

12 "ASSIGNMENT

12.1 The sub-Contractor may, subject to receiving the prior written consent of the Company, assign a contract/job or sub-let the execution thereof (but not part thereof)."

Worker

10. The relevant definition of "worker", contained in Regulation 2 of the Working Time Regulations 1998 is as follows:

""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."

It is common ground that Mr Cavil was not employed by the Respondent under a contract of employment; the issue is whether he falls within the extended definition under (b).

11. As to that definition, it was considered by the EAT in Byrne Brothers (Formwork) Ltd v Baird [2002] IRLR 96 (Mr Recorder Underhill QC) and in Barlow and Nelson v P E Jones Contractors Ltd (EAT/1086/00). 4 March 2002. Unreported. Mr Recorder Langstaff QC. Those cases were cited to a division on which I sat in a recent building sub-contractor case, Redrow Homes v Wright; Roberts (EAT/337/02; 1232/02). Unreported. 20 May 2003. In Redrow I set out the domestic legislative history of the definition at paragraphs 17-18 and pointed out (paragraph 16) that the relevant EC Directive, 93/104, which WTR were passed to implement contained no definition of "worker", although in the earlier Directive 89/391 Article 3 (a) defined "worker" as "any person employed by an employer".

Employment Tribunal Decision

12. In the present case the Sheffield Tribunal, directing themselves in accordance with the judgment in Byrne Brothers, asked themselves three questions in order to determine whether this Applicant was a "worker" within the meaning of the extended definition contained in Regulation 2 WTR:

(i) Did the Applicant provide personal services?

(ii) Was there mutuality of obligation?

(iii) Did he come within the definition of an individual whose status was that of a business undertaking? (Extended reasons paragraph 14).

13. It was conceded by the Respondent below that the Applicant did not fall within the excluded category under (iii) and the Tribunal so found (Reasons paragraph 23). However, the Tribunal resolved the first two questions in favour of the Respondent; the Applicant did not provide personal services, nor was there any mutuality of obligation under the contract. In these circumstances they held that he was not a "worker" for the purposes of WTR.

The Appeal

14. In this appeal Mr Andrew Hogarth QC challenges both those findings adverse to the Applicant. It is convenient to consider each in turn.

Personal Services

15. The question here under WTR is whether the Applicant worked under a contract whereby he undertook to do or perform personally any work or services for the Respondent.
16. The critical findings by the Tribunal on this part of the case were that there was a provision in the contract for the Applicant (described as 'the worker') to send a substitute at his discretion. In practice this rarely happened Mr Firth, the Respondent's Contracts Manager, recalled two examples of substitution (not, we are told, involving the Applicant but other sub-contractors). Mr Firth would expect to be informed of such substitution; his approval was not required but he would want to know whether the substitute was "up to the job". (Reasons paragraph 13).
17. At paragraph 17 the Tribunal find that, in the Applicant's case, under the express provision in the contract quoted in paragraph 7 (it is common ground that must be a reference to clause 1.3 of the contract) prior approval for sending a substitute was not needed and the sub-contractor would be paid directly themselves for any work.
18. The Tribunal considered whether what happened in practice 'displaced' the express contractual ability to substitute. They found that it did not. They noted that in Byrne Brothers it was material that the express approval of the Respondent was required before a substitute could be used (cf. Tanton). In these circumstances they concluded that there was no requirement under the contract for the Applicant's services to be provided personally. On this ground alone he was not a "worker".
19. Mr Hogarth submits that such a finding was flawed in law on 3 grounds:

(i) Factually, the evidence from Mr Firth as to the limited occasions when substitutes were used related to the sub-contractors other than the Applicant. The question here is what is the relevant term of the Applicant's contract?

(ii) Clause 1 of the contract is a definition section. It did not confer rights and obligations on the parties.

(iii) In concentrating on clause 1.3 the Tribunal overlooked the relevant provision of the contract, clause 12.

20. We shall take the last point first. Miss Mulholland, who appeared below (the Applicant was then represented by an official of his trade union, Mr Morris), tells us that no reference to clause 12 was made by either party during the hearing. In these circumstances it is perhaps unsurprising that the Tribunal do not refer to clause 12 in their decision and reasons. However, Miss Mulholland accepts, we think correctly, that on appeal Mr Hogarth is not precluded from relying on that contractual provision. It is not a "new point" in the sense discussed in the cases, see Kumchyk v Derby City Council [1978] ICR 1116, considered and approved by the Court of Appeal in Jones v Governing Body Of Burdett Coutts School [1998] IRLR 521 and Glennie v Independent Magazines (UK) Ltd [1999] IRLR 719. The Tribunal were required to construe the contract as a whole; that includes clause 12, the express term as to assignment.
21. Further, although it will be permissible in certain circumstances to look at the actings of the parties in order to construe the terms of the contract, where the intention of the parties is to be objectively ascertained partly from documents and partly from oral exchanges and/or conduct, see Carmichael v National Power [2000] IRLR 43, where the intentions of the parties fall to be ascertained from the words of the document containing the agreement made between them, see Davies v Presbyterian Church of Wales [1986] IRLR 194, we are as well placed to construe the meaning of the written words of the contract as the fact-finding Tribunal below.
22. We accept Mr Hogarth's principal submissions, not challenged by Miss Mulholland, that the party's rights and obligations in the matter of providing a substitute for the Applicant to perform the work are to be found in clauses 1.3 and 12 read together. We do not decide the point on the footing that the definition clause cannot in any circumstances regulate the operation of the work; rather that in combination the words of clauses 1.3 and 12 provide the true answer.
23. Clause 1.3 describes the categories of persons (which by clause 1.8 includes any individual, corporation, business, partnership, etc) who are termed sub-contractor for the purposes of the remainder of the contract where that expression appears. That classification includes any person who the sub-contractor (here, the Applicant) at his discretion may procure to carry out (or assist) in carrying out the job, provided that the [Applicant] remains liable for the correct and proper performance of the job. "Job", by clause 1.4, means, depending on the context, the specific item, fix or section or work communicated by the Respondent to the Applicant at or prior to the commencement of the job.
24. Pausing there, it can easily be seen why the Tribunal, concentrating only on the words of clause 1.3, concluded that prior approval by the Respondent was not required before the Applicant delegated the work to another. It was at his discretion, without limit to the exercise of that discretion.
25. However, the matter of assignment is specifically dealt with at clause 12 and in our judgment clause 1.3 must be read subject to the limitations contained in clause 12.1. Under that provision the Applicant may (a) assign a contract/job or (b) sub-let the execution thereof, subject to the prior written consent of the Respondent. Miss Mulholland accepts that providing a substitute when the Applicant is absent falls within the latter provision; sub-letting the execution of the job, and that prior written consent of the Respondent is required before doing so. That suggests a requirement for personal service by the Applicant. However, she submits that the words in brackets; '(but not part thereof)' mean that where the Applicant, for example is set a job which will take five days, if he brings in a substitute for two of those days only then no consent from the Respondent is required. Mr Hogarth urges a quite different construction; he submits that the words '(but not part thereof)' apply to the contract/job, not the consent. Thus, the Applicant may sub-let the execution of the whole job, as earlier defined, with prior written consent; he cannot, under clause 12.1, sub-let the execution of part of the job at all.
26. We prefer the construction advanced by Mr Hogarth. In these circumstances we have concluded that, contrary to the critical finding of the Tribunal based only on clause 1.3, that upon a proper construction the contract read as a whole prohibits 'substitution' without prior consent and in one respect at all. The position is therefore akin to that on the facts of Byrne Brothers: see clause 13 of the contract in that case, set out at paragraph 4 of the judgment of Mr Recorder Underhill QC. Like the EAT in that case (paragraph 15) we therefore distinguish Tanton on its facts and follow the EAT decision in McFarlane v Glasgow City Council [2001] IRLR 7 in concluding that the power which the Applicant has under the contract to appoint a substitute is qualified and exceptional.
27. Finally, if and insofar as it may be relevant to look at the conduct of the parties, we note that, on the evidence, the Applicant never employed a substitute during the four months of his engagement with the Respondent. That other sub-contractors, on limited occasions, did so is, as Mr Hogarth submits, nothing to the point.
28. It follows that we are satisfied that the contract here imposed an obligation on the Applicant to do or perform the work personally.

Mutuality of Obligation

29. It is common ground in the present case that the parties entered into a contract. Thus, the question of mutuality of obligation does not go to the first question as to whether or not a contract existed for the purposes of Regulation 2 WTR.
30. It is not a case in which there is any suggestion that any express term of the written contract was a sham, so that the question of mutuality does not arise in this connection. See also Tanton paragraph 17, per Peter Gibson LJ.
31. Nor is it suggested that this was a contract of employment, that is a contract of service in which mutuality of obligation is an irreducible minimum. Tanton, Carmichael and see also Stevedoring & Haulage Services Ltd v Fuller [2001] IRLR 627.
32. In these circumstances what is the relevance of the mutuality of obligation requirement? In Byrne Brothers Mr Recorder Underhill QC addressed this point at paragraph 25 of his judgment, having, at paragraphs 9 (3) and 24, recorded the fact that Mr Andrew Stafford QC, appearing for the Appellant employer, had submitted that a lack of mutuality of obligation went to the issue of personal service.
33. At paragraph 25 the learned Recorder then stated the proposition that mutuality of obligation is a necessary element in a 'limb (b) contract' as well as in a contract of employment, treating it as a distinct and separate requirement from that of personal service.
34. We are not wholly convinced that this is so, but in the absence of full argument we do not propose to depart from what was said in Byrne Brothers.
35. On the facts of the present case we can see no material distinction, as did the Tribunal (reasons paragraphs 15 and 22 (ii)), between the Applicant in Byrne Brothers who was offered complete assignments of significant duration at one site and the Applicant here who was offered a succession of jobs on different sites. It is clear that he was offered a regular supply of jobs and that he did that work until he finally ceased work at the end of February 2002. In our judgment there was no absence of mutuality of obligation, on the primary facts as found by the Tribunal, such as to prevent this contract being a contract for personal service, so as to qualify the Applicant for holiday pay under WTR; he was a "worker" within the extended definition in Regulation 2.

Conclusion

36. It follows, in our judgment, that this appeal succeeds and the decision of the Tribunal is set aside. There will be a declaration that the Applicant is a "worker" entitled to holiday pay under Regulation 14 (2) WTR. As to the amount of the payment in lieu of leave, we leave that to the parties to agree if possible; in the absence of an agreement the issue of quantum must be returned to a fresh Employment Tribunal for determination.
37. Finally, Regulation 35 WTR, the restriction on contracting out provision. Clause 15.1 of the contract states, so far as is material:

"Nor shall anything in these conditions or any contract to which they apply constitute the sub-contractor or any of its servants, agents or employees a "worker" for or of the [Respondent] as defined in Regulation 2 (1) of the Working Time Regulations 1998. For the avoidance of doubt the sub-contractor shall not be entitled to payment of any holiday pay or holiday from the [Respondent]…"

38. Insofar as the Applicant is, as we have found, a "worker", Miss Mulholland rightly concedes, as she did below, that this contractual provision is of no effect, offending as it does Regulation 35. Had we found, as did the Tribunal, that he was not a "worker" within the Regulation 2 definition, then clause 15.1 would not be engaged. It is, accordingly, immaterial to the determination in this case.