United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR M BODDINGTON Representative Accountax Consulting Wellington House 3 Wellington Place Bletchley Milton Keynes MK3 5NA
For the Respondent	MR ANDREW HOGARTH QC (Of Counsel) Instructed by: Messrs O H Parsons & Sons Solicitors 3rd Floor, Sovereign House London WC2H 8PR


 


JUDGE PETER CLARK

1. This is an appeal by the Respondent before an Employment Tribunal sitting at London (South) under the chairmanship of Professor Rideout against that Tribunal's decision, promulgated with extended reasons on 23 August 2002, upholding the Applicant, Mr O'Brien's complaint brought under the Working Time Regulations 1998 (WTR) that he was entitled to unpaid holiday pay. The issue, for present purposes is whether the contractual relationship, admitted to exist between the parties, rendered him a 'worker' within the extended meaning contained in limb (b) of the definition to be found in regulation 2 WTR. It was common ground that the Applicant was not employed by the Respondent under a contract of employment; the relevant extended meaning reads:

"An individual who has entered into or works under (or, where the employment has ceased, worked under)-

…

(b) any other contract, whether expressed 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;"

The Facts

2. The Employment Tribunal found that the Applicant, an experienced brick-layer, applied on site to work for the Respondent, a labour only sub-contractor. He commenced work in May 2001 on a flat rate of £110 per day.
3. At an early stage the Applicant learned from other workers on site that the Respondent did not pay holiday pay. There was an issue as to whether the Applicant originally signed a written contract. None was produced in evidence. At a later stage the Respondent instructed the site Foreman to present the Applicant with a copy of their standard form contract, which he signed and dated 12 December 2001 (the contract). The Employment Tribunal found (reasons paragraph 16) that the absence of an earlier contract was immaterial, since the contract issued in December was the one which would have been issued earlier and would have governed the earlier situation.
4. The Employment Tribunal set out what they regarded as the relevant terms of the written contract (reasons paragraph 1). They rejected the Applicant's case that the terms of the written contract rendered it a sham, that is a document which did not genuinely reflect the intentions of the parties and their relationship. On the face of it the Applicant had an absolute right to engage a substitute, and that was the reality in fact. Thus there was no obligation on the Applicant under the contract to provide his personal services (clause 7); the parties expressly agreed that there existed no mutuality of obligations (clause 24). Both are prerequisites of a worker's contract under the extended definition in regulation 2 WTR. See Byrne Brothers (Formwork) Ltd v Baird [2002] IRLR 96.
5. It is material also to note, in the light of the Employment Tribunal's reasoning, that on 28 July 2001 the Applicant was selected by the Foreman for the post of charge-hand whereupon his daily rate of pay was increased from £115 to £130. He continued to hold that post, after signing the contract in December, until he finally left the site, in circumstances which do not concern us, on 27 March 2002. He presented his holiday pay claim to the Employment Tribunal on 30 May 2002.

The Employment Tribunal Decision

6. The Employment Tribunal accepted that, on its face, the terms of the contract did not afford the Applicant worker status for the purpose of claiming holiday pay under WTR. That is plainly correct and Mr Hogarth QC for the Applicant does not seek to argue to the contrary.
7. However the Employment Tribunal found that he was a worker within the extended definition in Regulation 2 WTR. How did they arrive at that apparently contradictory finding?
8. The answer is, by relying on what they described as an "implied ancillary contract" (reasons paragraph 21); reclassified by Mr Hogarth as a collateral contract. The basis for implying such a contract, no parol evidence being available to support it expressly, was that as a charge hand the express term, clause 7 of the contract, which allowed the Applicant, at his absolute discretion, to send a substitute, could not be workable in the case of a charge hand, who held junior managerial responsibilities, and that in order to give the contract business efficacy it was necessary to imply an ancillary contract under which the Respondent rendered control over any substitute whom the Applicant may wish to introduce, to ensure that the substitute was trustworthy. That overcame the personal service requirement. We are not convinced that it overcame the requirement for mutuality of obligations, but let that pass.
9. The real problem, in our judgment, is that as a matter of general law the device employed by the Employment Tribunal to overcome the clear express terms of the contract was plain wrong. We say 'overcome' because it is also clear that, on their reading of Byrne Brothers, they understood that case, to say that it is proper to lean in favour of the decision that a particular person was a worker (reasons paragraph 14). We think that is an oversimplification of Byrne Brothers, although we accept that the policy identified at paragraph 17(4) of the EAT judgment in that case said to be behind the exception in the extended definition for business undertakings, favours we think correctly, the individual who claims to be a worker.
10. Returning to the Employment Tribunal's analysis we say that it is wrong as a matter of general law for this reason. Even although the parties may, as here (clause 42), include a "whole agreement" clause in the written contract, that will not exclude extrinsic evidence showing a contract collateral to the written agreement which neither alters (subject to a later agreed variation which does not arise in this case) nor adds to the written agreement but is an independent agreement. It may be that a later oral warranty overrides the expressly agreed written term. What is not permissible, in our judgment, is to imply a collateral agreement, with no evidential basis, the terms of which contradict the express written terms of the contract. In a slightly different, but comparable context, that of contract of service or contract for services (the employee question) I have had the misfortune twice to have had to be corrected by the Court of Appeal; see Express and Echo Publications v Tantun [1999] IRLR 367; Stevedoring v Haulage Services Ltd v Fuller [2001] IRLR 627. In both cases the Court held that we were wrong to uphold Employment Tribunal decisions which proceeded on the basis of the reality of the relationship between the parties, rather than the express terms of the contract, held not to be a sham. It should be noted that the Stevedoring case followed the House of Lords decision in Carmichael v National Power [2000] 43. That, it seems to us, is the error into which this Employment Tribunal fell. The implied collateral or ancillary contract is merely an attempt to rewrite the clear express terms of the contract. Speaking for myself, I should not like to complete my hat-trick by upholding that approach.
11. It follows that we shall allow the appeal and set aside the Employment Tribunal decision, instead declaring that the Applicant is not a worker for the purposes of WTR and not entitled to holiday pay. The Employment Tribunal's money award is also necessarily set aside.
12. Finally, Mr Hogarth sought permission to appeal to the Court of Appeal. He observed that his trade union clients would naturally be concerned at the prospect of 'employers' avoiding the obligation to pay holiday pay to their members by producing carefully drafted contracts which the member has to sign in order to obtain work. We are not without sympathy for that concern but, on the present state of the authorities, we can see no prospect of such an appeal succeeding. Accordingly permission is refused.