United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR JAMES BOYD (of Counsel) Instructed by: British Nuclear Fuels Plc Legal Services Risley Warrington Cheshire WA3 6AS
For the Respondent	MR SEAMUS SWEENEY (of Counsel) Instructed by: Messrs H F T Gough & Co Solicitors 38-42 Lowther Street Whitehaven Cumbria CA28 6JT


 


MR RECORDER TIMOTHY BRENNAN QC

1. There is before us an appeal against the decision of an Employment Tribunal sitting in Carlisle on 24 August and 27 September 2001, which was sent to the parties on 8 April 2002. The Chairman was Ms T L Green.
2. The question at issue, on a Preliminary Hearing, was whether the Applicant, Mr Welsh, was an employee of British Nuclear Fuels Plc ("BNFL"). That is the only issue which is before us today. There were claims made by Mr Welsh against two other companies, Brookson Engineering (1850) Ltd ("1850") and Brookson Ltd. The Tribunal decided that he was not an employee of either of those companies and those matters are not before us. The Appellant before us is BNFL only and there is no cross-appeal.
3. The Applicant before the Tribunal (the Respondent before us) is a commissioning technician. He ceased work for BNFL in September 2000 and presented an Originating Application to the Tribunal complaining of unfair dismissal, breach of contract and a failure to give written reasons for the dismissal. For each of those complaints to be made good he would first have to establish that he was an employee of the relevant Respondent, that is that he had entered into or worked under a contract of service: section 230 (1), (2) Employment Rights Act 1996.
4. The history of his engagement to work at the Sellafield site operated by BNFL is a little complicated. In May 1998 the Applicant, who wished to work in Cumbria, contacted Morson International ("Morson") which, apparently through one or more subsidiaries, operated as an employment agency. There was already in existence, and had been for some years, a contract between Morson International and BNFL, under which Morson undertook to provide its own staff to BNFL to work at BNFL sites.
5. The Tribunal made a number of detailed findings of fact at paragraph 9 of its decision:

(a) "The Applicant is an instrument/electrical contractor. In 1998 he was looking for work in the Cumbria area and sent his curriculum vitae to various agencies and employers. One of these was Morson International, an 'employment agency' which had a contract to provide workers on the BNFL…site at Sellafield. Morson International are not a party to these proceedings.

(b) Someone from Morson International telephoned the Applicant and asked him to go to see Harry Wilson on the BNFL site. Harry Wilson was the Group Commissioning Manager on the Third Respondent's Vitrification Line III. He was not classified as a direct employee of the Third Respondent and provided his services through his own Limited Company. His immediate superior was Ray Quirck, a direct employee and the senior project Manager was Mr Jaffray.

(c) The Applicant was interviewed by Harry Wilson and two engineers Dave St. Julien and Chris Meehan. They recommended his being 'taken on'. A BNFL manager had to authorise it before a pro-forma letter was sent. He was taken on to start on 5 May 1998 through the agency (Morson International) who were contracted to supply commissioning technicians for the Project Commissioning team.

(d) The selection process was conducted in line with the BNFL WVP Line 3 Commissioning Notice "Arrangements and Procedure for Recruitment of Hired Staff Commissioning Technicians." This process, which was determined by BNFL is outlined in the witness statement of Mr Wilson at page 49. As part of this, Applicants' CVs were assessed against BNFL job specifications.

(e) At this time the Applicant's wages were paid by Morson International and he received his first wage slip on 12 May 1998. Deductions for PAYE were made…At this time the Applicant's colleagues suggested he take up employment via the second Respondent, Brookson Ltd as it would be beneficial for tax purposes. The Applicant made enquiries and received a letter from [Brookson Ltd] illustrating the benefits of his becoming a member of a Brookson composite company.

(f) The first Respondent [1850] is one of a number of companies set up by the second Respondent. Each company has a maximum of nine employees who are also shareholders. The Applicant and his wife were both shareholders…

(g) The second Respondent provides 'management' services for the first Respondent in respect of employees such as payment of Statutory Sick Pay, holiday pay expenses, processing PAYE and National Insurance and [certain administrative tasks]…

(h) The Applicant was taken on by [1850] on 23 May 1998…There was no contractual relationship between BNFL and either Brookson Ltd or [1850].

…

(k) When the Applicant made the change from being paid by Morson to entering into a new contractual agreement with the first Respondent there was no change to his day to day working practices at BNFL."

We pause there to consider how the Employment Tribunal was to approach its task.

6. The Employment Tribunal recognised, referring in particular to Hewlett Packard Ltd v O'Murphy [2002] IRLR 4, that the initial question was whether there was a contract in place between the Applicant and BNFL. If there was no contract then there could not be a contract of service. Of course, if there was a contract, it would be necessary to go on to consider whether the character of that contract was that of a contract of service.
7. As the Employment Appeal Tribunal in the Hewlett Packard case put it at paragraph 45, referring to the submissions of Counsel for the employers in that case:

45 "In the first place, Miss Rose is right when she submits that in a case of this kind the task of the Tribunal is to ascertain whether there was a contract of any kind between the Applicant and the Respondent. If the Applicant fails to satisfy the Tribunal of that, that is an end of a claim based on [an] assertion that he had entered into or worked under a contract of employment within the meaning of s.230 Employment Rights Act 1996."

8. The Employment Tribunal therefore went on to consider, as part of its reasoning, whether there was a contract between BNFL and the Applicant, Mr Welsh. At paragraph 38 of their decision their reasoning went as follows:

38 "The Applicant entered into a contract with the third Respondent. This contract arose out of the interview after which the Applicant took up a position. It is not uncommon for contracts and specifically contracts of employment to be formed in this way. The unusual feature in this case is the existence of the other parties at the time (Morson) and the apparent intention of the parties that there should be no direct contractual relationship between the third Respondent and the worker. There was a contract between the third Respondent and Morson."

The third Respondent there was of course BNFL.

39 "There was also clearly some sort of relationship at the time between the Applicant and Morson. He secured the post through Morson, who paid his wages. His first three wage slips were [before the Tribunal]. They show that tax was deducted at source…Although there is no application against Morson it is necessary to consider this relationship."

The Tribunal go on to conclude that the relationship between the Applicant and Morson was not a contract of employment.

40 "The Tribunal hold that a contract did however exist between the Applicant and the third Respondent. The Applicant was interviewed and offered the position by the third Respondent. He accepted this offer. Although he had been effectively short listed by Morson the decision to take him on was made by the third Respondent. The existence of Morson does not preclude a contractual relationship between the Applicant and BNFL…

41 In looking at the question of a contractual relationship between the Applicant and third Respondent the Tribunal clearly had to consider the question of whether there existed the intention to create legal relations.

42 This was a commercial rather than domestic agreement so there is a presumption that the parties intended to create legal relations and make a contract. This may be rebutted. In this case there is little documentation before the Tribunal relating to the inception of the relationship. The agreement between Morson and the third Respondent does specify that the workers supplied should be employees of Morson but contains nothing that relates specifically to the intention to create legal relations between the Applicant and the third Respondent. The Tribunal are not satisfied that the presumption is rebutted."

9. The Tribunal was, as we have already observed, correct to identify the question for its initial consideration as being whether there was a contract between BNFL and the Applicant. They were, in our judgment, clearly wrong in the conclusion to which they came. It is clear that the Applicant was presented to BNFL through Morson (the employment agency). As the Tribunal expressly found at paragraph 38, neither the Applicant nor BNFL, nor for that matter Morson, intended him to have a contractual relationship with BNFL. The agency, not BNFL, paid his remuneration and the agency, not BNFL, deducted tax and national insurance from that remuneration. It is not necessary for us to consider whether this was because he was an employee of the agency (contrary to the Tribunal's view) or whether it was done pursuant to an agency's obligation to deduct PAYE under certain circumstances: see section 134 of the Income and Corporation Taxes Act 1988. In this context everything pointed away from a contractual relationship between BNFL and the Applicant.
10. The critical error which, in our judgement, the Employment Tribunal have made, is to be found in paragraph 42 of their decision where they assert, without citing authority for the proposition, that, since this was a commercial agreement, there is a presumption that the parties intended to create legal relations and make a contract.
11. Mr Sweeney, on behalf of the Applicant Mr Welsh, sensibly did not seek to support this proposition. It is in our judgement not an appropriate approach to seek to determine the question whether there was a contract of service between an individual and another party by reference to presumptions of the existence of a contractual relationship. It is necessary to look at what was said and at what was done at the time.
12. The lack of existence of a contract with BNFL, at the outset or subsequently, entirely explains what happened three weeks after the Applicant commenced work at Sellafield, when he started to perform his services through 1850, a company which, as the Tribunal had found, he and his wife were shareholders.
13. The Tribunal's approach was to say that because he was an employee to start with, having entered into the arrangements which he did with BNFL, what happened subsequently with 1850 could not alter that employment relationship.
14. There was in our judgment no contractual relationship between BNFL and the Applicant to start with. Accordingly, when the Applicant, for good reason of his own (namely the tax advantages then available), chose to start operating through a limited company, there was no need for him to alter any contractual relationship with BNFL because none existed. There was no need to resign from employment with BNFL because there was no employment.
15. The Applicant did not intend to be an employee of BNFL. BNFL did not intend him to be an employee and Morson, when the change from individual status to corporate status was made, was, it appears, content to incorporate into its commercial organisation the existence of 1850.
16. The absence of a contract between BNFL and the Applicant also explains another feature of the case, which is that at the very start of his work at Sellafield the Applicant was not working for BNFL at all, but for another company, Amec International. It would be difficult to explain, and the Tribunal did not embark on that task, why it was that if the Applicant was employed by BNFL he was working for Amec.
17. However, it is entirely consistent with the conclusion that there was no contract with BNFL that the Applicant should be permitted by those in charge at BNFL to come onto site in order to perform work, and to be allocated to a contract which was in fact being performed by Amec. In December 1999 the contract, as the documents before us show, was transferred from Amec to BNFL and the Applicant, working still through 1850, was, along with other individuals, transferred from working on an Amec contract to commence working for BNFL.
18. It is, in our judgement, not necessary to embark, as did the Tribunal, on the lengthy study of the well-known authorities on the difference between a contract of service and a contract for services, because the Applicant did not in fact reach the first stage of establishing the existence of a contract between himself and BNFL or, for that matter, Amec, which could constitute a contract of service.
19. Accordingly, the appeal is to be allowed and the Tribunal's decision, that the Applicant before them was an employee of BNFL, is to be set aside.
20. The parties are agreed that this Tribunal having come to the conclusion that the Employment Tribunal was in error in holding that Mr Welsh was an employee under a contract of employment, there is no further point to be determined by the Employment Tribunal and the three heads of his single application to the Employment Tribunal are dismissed.