United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR MICHAEL SUPPERSTONE QC (of Counsel) Instructed by: Messrs Morrish & Co Solicitors First Floor Oxford House Oxford Row Leeds LS1 3BE
For the Respondent	MS HELEN MOUNTFIELD (of Counsel) Instructed by: EFF Legal Services Broadway House Tothill Street London SW1H 9NQ

SUMMARY

Unfair Dismissal / Contract of Employment

Employment Tribunal found homeworkers' relationship with employer was regulated by a written contract which expressly excluded mutuality of obligations. If it was wrong, and required a wider view, Employment Tribunal made proper findings and there was insufficient control by the employer. No errors of law.


 


HIS HONOUR JUDGE McMULLEN QC

1. Homeworkers and outworkers have been an important but hidden part of the British economy from long before the centralisation of production in the Industrial Revolution. It has traditionally provided a means for women to be economically active while caring for their families, often involving family members in the work. This case is about how they are classified for the purposes of certain aspects of employment protection under the Employment Rights Act 1996, Section 230. The Judgment represents the view of all three members, who pre-read the relevant papers. We refer to the parties as Applicants and Respondent.

Introduction

2. It is an appeal by the Applicants in those proceedings against a Decision of an Employment Tribunal sitting at Southampton, Chairman Mr R Peters (Regional Chairman) registered with Extended Reasons on 5 December 2003. The Applicants were all bar one represented by a solicitor there and today they have the advantage to be represented by Mr Michael Supperstone QC. The Respondent was represented there by an officer of the EEF and today by Miss Helen Mountfield, of Counsel. We say at once, since she has inherited the skeleton argument of other counsel at very short notice, that her arguments have been persuasive.
3. The Applicants make claims which we will treat generically, hoping that we can be forgiven if we gloss over any individual differences between the Applicants' cases and their relevant background, for the purposes of this case. Thus in broad terms between them they are making claims for unfair dismissal and redundancy pay. To make those claims it is necessary to come within the definition of employee in Section 230. The Respondent contended the Applicants did not do so.
4. The essential issue at the Preliminary Hearing of these Originating Applications was to determine that point. The Tribunal decided that the Applicants were not employees, and as a consequence those two claims were dismissed. Directions were given for other complaints to be made; we do not know the outcome of them.
5. The Applicants appealed. Directions sending this appeal to a full hearing were given in chambers by Rimer J.

The Legislation

6. The relevant provision of the legislation is Section 230 of the Employment Rights Act 1996, which provides as follows:

"230 Employees, workers etc

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

7. The Employment Tribunal directed itself by reference to that section and to what we hold to be the principal relevant authorities, and which are set out in its Extended Reasons in paragraphs 8, 9 and 11.

The Facts

8. We have to look at an earlier Decision of an Employment Tribunal, differently constituted, sitting at Southampton for a clear exposition of the work done by the Applicants. This case arose out of a complaint by the Inland Revenue, the authority for the enforcement of the national minimum wage, that the Respondent was in breach of its obligations. The following findings of fact were made, dismissing the Respondent's appeal against the relevant order:

"2. The Respondent company manufactures a wide range of moulded rubber products commonly used in a broad range of industries, including automotive, oil, gas, electronic and pharmaceutical industries. It is a feature of the manufacturing process that when rubber mouldings are produced a small quantity of waste rubber remains attached to the moulded product. This waste material, known as flashing, needs to be trimmed from the product by hand before the finished product can be delivered to the customer. Depending on the nature of the item, some flashing can be removed quickly without tools. In other cases it is necessary to use scissors or a blade to remove the flashing. The Respondent company is capable of producing over 10,000 different rubber products, although any of these have not been produced for a number of years.

3. For many years the company has used homeworkers to undertake trimming work. They work from home and are not employees. They do not receive a regular fixed salary and are paid according to the amount of work undertaken. Rubber mouldings which require trimming are put into sacks and are delivered by the company's van to the homeworkers at their home addresses. The company uses different coloured sacks to indicate the urgency with which the product needs to be trimmed: A red sack needs to be returned within 24 hours, a yellow sack at the same time as the next delivery, usually within 48 hours, and a brown sack .indicates that the product should be trimmed within a reasonable time."

9. That Decision was registered with Extended Reasons on 12 November 2002. Shortly after that, on 17 January 2003 the Respondent wrote to the employees indicating that it was necessary to put into place new working practices. A number of changes was set out, in what the Respondent described as a revised agreement which included a new contract and a new weekly fair-estimate agreement. These agreements are a part of the regime under the National Minimum Wage Act 1998. By that letter new contractual conditions were brought into effect and with them, terms of contract for homework were promulgated which, again adopting our generic approach, were signed by the relevant employees on or about that date.
10. The principal terms of the agreement are as follows:

2. Basis of agreement

…

(b) As workloads within the Company can vary, the Company cannot guarantee that Work shall always be available for the Homeworker . For any Pay Reference Period the Company shall be under no obligation to offer Work to the Homeworker and the Homeworker shall be under no obligation to accept Work from the Company.

(c) The particular products on which the Company can offer Work shall vary according to the demand for those products and the Work shall vary from product to product.

(d) For Health and Safety reasons the Homeworker must personally carry out any work that involves the use of the Company's tools. Any other Work may be carried out by such persons as the Homeworker may determine.

(e) While the Homeworker has Work in progress the terms and conditions of this agreement shall apply.

11. Although a number of Applicants may have had their relationship with the Respondent changed or terminated by that date, it is common ground for the appeal that this is the document which is for construction. Indeed, as the Employment Tribunal pointed out, this is the last in a sequence of four such documents which are in substance no different. With the agreement of Counsel, we will work on the basis that these are the terms applicable for homework of relevant Applicants, but it will be necessary to note the terms of the earliest. The first version included the following, added to the end of the citation taken from (e):

"The homeworker shall have the capacity of an independent contractor".

12. That first version arose in 2000, and was preceded by a letter on 2 June 1999 in which the following appears:

"Together with the Company's Solicitors and Accountants, we have reviewed the basis upon which you work and we are advised that it is not appropriate o classify you as an employee. There are several factors that indicate this, but the principal reason is because the Company does not require you to personally to undertake the work yourself, although you will still be responsible for all the work we give you. Where there is no requirement for workers to personally do the work(as in this case) there cannot be a Contract of Employment.

In order to regularise matters, the Company will require all of its home-workers to enter into a Contract with the Company, to confirm the basis under which work is undertaken. I enclose a draft of the proposed Contract, and I would invite you to call me over the next two weeks, with any concerns or queries that you may have. Subject to any points made over the next two weeks, it is expected that the Contract will be issued for signature at that time. All work that you undertake for the Company will then be governed by that Contract."

13. Plainly the homeworkers were concerned about that matter, and so in due course on 16 June 1999 the Respondent wrote as follows:

"Firstly may I take the opportunity of apologising for any misunderstanding that we did not appreciate the work you have done for us during you time with Industrial Rubber plc. When we issued the form of contract recently, we had been advised that in order not lo leave the Company in a compromising position in relation to the nation minimum wage, we would need to go down the route of issuing self employed contracts.

However, with so many unknown quantities having come to light recently, some of which we should have foreseen and some of which were unknown, together with visits to the company by several trimmers, it seems that the majority of you are quite happy with the current working methods and payments. However it has become clear that the thought of having to go self employed is just not acceptable to the majority of you. Therefore we have revisited the situation and have decided that by giving out a mix of products, and by revising the trimming rates for some products, typically Numatic and ferrules, it will give you the opportunity to earn above the minimum wage requirement, providing you have the adequate skills and have been trained sufficiently."

14. Whatever may have been the impact of that letter on the homeworkers, the first of the versions of the Statement of Terms included a plain representation that the relevant workers were self-employed. However, in the three subsequent versions signed by the worker and by the Respondent, those words do not occur.
15. The Respondent employed 134 employees from its own premises, and some 60 or so homeworkers, of whom the present Applicants form a part. The Tribunal made the following findings:

"7. Having heard the evidence of the witnesses and having looked at the documents introduced into evidence, the Tribunal finds the following facts:-

(i) The Applicants all worked at home for the Respondent. They commenced working at different times. In some cases the Applicants had worked for the Respondent for over ten years.

…

(iv) The Applicants had work delivered to them twice a week and any work that was done was collected. The Applicants had no choice in the work given to them – they were given what was available. They were required to do their work in accordance with the written Trimming Instructions.

(v) The Applicants were paid for the work done. If they did no work, they were not paid. They were paid weekly and they received wage slips. There were periods when there was no work for the Applicants.

(vi) Income tax and national insurance contributions were deducted at source by the Respondent.

(vii) If the Applicants were going on holiday, they had to book their holidays in advance by completing a "Homeworkers Holiday Form". They were paid holiday pay.

(viii) The Applicants also received sick pay and maternity pay, if appropriate.

(ix) The Respondent provided the tools for the work to be done.

(x) In some cases, the income from the Respondent was the sole income of the Applicants."

16. In addition, the Tribunal considered the agreement from which we have cited, and made the following judgment:

"14. The Tribunal finds that the parties were in a contractual relationship and that such relationship was recorded in the signed agreements….

15. The Tribunal is satisfied that there was no mutuality of obligation, as is clearly set out in the contract and was factual. Frequently, homeworkers would state that they would not take work when offered.

16. The Tribunal also finds that there was a lack of control over how and when the work was done. Although work was delivered, it was up to the Applicants to decide when to do it. If they did not do the work, hey did not get paid. The Tribunal considered most other factors, such as deduction of tax at source, payment of sick pay, provisions of payslips etc. not to be of assistance in determining the issue."

The Applicant's case

17. Mr Supperstone submitted on behalf of the Applicants that the Tribunal had erred in law in two principal respects, first in the general approach to dealing with the construction of the relationship, and secondly in the approach to the question of control. It was contended that the Tribunal had given inadequate reasons for the findings which it made, and had made inadequate findings. At one stage it was contended that this case must go back to an Employment Tribunal for it to make those findings. It was also submitted in argument that there was no perversity about this Decision, but it has to be said that Mr Supperstone, at the conclusion of his arguments, said that he was indeed contending that the Decision of the Tribunal relating to the control point was perverse.
18. It was contended that the approach of the Tribunal did not correspond to that required by the Judgment of the House of Lords in Carmichael v National Power Plc [1999] ICR 1226. The Tribunal had failed to pay attention to the submissions made to it, based upon the Judgment of the Court of Appeal in Franks v Reuters Ltd [2003] IRLR 423. Much reliance was placed upon the Judgment of the Court of Appeal in Nethermere (St Neots) Ltd v Taverna and Gardiner [1984] ICR 612, dealing with what might be described as strikingly familiar facts. However Mr Supperstone accepted that in that case there was no paperwork to accompany the deliberations on the contractual relationship between the homeworker and the employer, a position markedly different from our own. It was also contended that the Tribunal had erred when it determined that it was given no assistance from various factors which he urged indicated the existence of control.
19. There was also an exchange of argument relating to the position of the Applicants about their ability to substitute work done by another, but for reasons which we will come to, it is not necessary for us to deal with those arguments.

The Respondent's case

20. On behalf of the Respondent, Miss Mountfield has contended that this case turns upon a construction of Section 230, and that the primary source, indeed the only source, is the agreement. The case does not turn upon the label given to the position of the homeworker, and there cannot be a sustainable argument that the Tribunal failed to give reasons or failed to make findings upon the principal issue which it was examining. Miss Mountfield contented that there had been no criticism of the approach to the construction of the words in the document, but if it were correct to look wider than that agreement, the other indicia set out by the Employment Tribunal pointed ineluctably towards there being a relationship of a contract for services.
21. Reliance was placed on the Judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, and the three conditions, a word she submits was used advisedly by the Judge, required to constitute a contract of employment. The correct approach was that set out in Express and Echo Publications Ltd v Tanton [1999] ICR 693, and in the Judgment of the Court of Appeal in Stevedoring and Haulage Services v Fuller & Others [2001] IRLR 627, both of which answered the question in this case. It was further contended that there was no scope for the introduction of an implied term, at 180 degrees from that which is the substance of an express term in the clauses set out above.
22. Again submissions were made to us about the ability, in this relationship, of the worker to involve others, and we will return as we have said to this point.

The legal principles

23. The legal principles to be applied in this case appear to be found in the following authorities: MacKenna J said in Ready Mixed (above):

"I must now consider what is meant by a contract of service. A contract of service exists if these three conditions are fulfilled: (i) The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service. I need say little about (i) and (ii).

As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job either by one's own hand, or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be: see MR. ATIYAH'S VICARIOUS LIABILITY IN THE LAW OF TORTS (1967), pp.59-61 and the cases cited by him.

As to (ii). Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in dong it, the time when, and the place where it shall be done. All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted:

"What matters is lawful authority to command, so far as there is a scope for it. And there must always be some room for it, if only in incidental or collateral matters.""

24. General principles for the identification of a contract of employment were also set out in Nethermere (above) in the Judgment of Stephenson LJ, and we hold that that case sets out general principles, but it must be recalled that the Judgment itself makes no reference to any documentary material. Stephenson LJ said as follows:

"I cannot see why well founded expectations of continuing homework should not be hardened or refined into enforceable contracts by regular giving and taking of work over a period of a year or more, and why outworkers should not thereby become employees under contracts of service like those doing similar work at the same rate in the factory."

25. From Express and Echo (above), the following principles emerge:

(a) The central question is to determine what the contract required the parties to do.

(b) If there is an express term deciding this matter, it is not relevant to discuss or take evidence upon how the contract was operated between the parties.

(c) If a term is inherently inconsistent with there being a contract of employment it is not a contract of employment.

(d) Where a party is not obliged at all to perform services personally it cannot be a contract of employment.

26. In the Stevedoring case (above), Tuckey LJ giving the Judgment of the court said as follows of counsel's argument:

"[T[he success of all his arguments depended, we think, upon whether the ET's implied terms were consistent with the express terms contained in the documents, or, at least, whether it was a permissible view that there was no inconsistency. He argued that the implied terms refined rather than contradicted the express terms because the latter could be read to mean no more than that on a particular day the appellants were not required to offer and the respondents were not required to accept work, but in the longer term the implied mutual obligations of reasonableness applied. We do not agree. This, as we have already said, flatly contradicts what the documents say."

27. The House of Lords considered the issues in Carmichael (above), and came to the following conclusion, as set out in the speech of the Lord Irvine of Lairg LC:

"In my judgment it would only be appropriate to determine the issue in these cases solely by reference to the documents in March 1989, if it appeared from their own terms and/or what the parties said or did then, or subsequently, that they intended them to constitute and exclusive memorial of their relationship. The industrial tribunal must be taken to have decided that they were not so intended but constituted one, albeit important, relevant source of material from which they were entitled to infer the parties' true intention, along with the other objective inferences which could reasonably be drawn from what the parties said and did in March 1989, and subsequently."

Lord Hoffman also said as follows:

"I agree with my noble and learned friend, Lord Irvine of Lairg L.C. that, even if this was the case, I would prefer the construction adopted by the industrial tribunal to that of the majority in the Court of Appeal. But I think that the Court of Appeal pushed the rule about the construction of documents too far. It applies in cases in which the parties intended all the terms of their contract (apart from any implied by law) to be contained in a document or documents. On the other hand, it does not apply when the intention of the parties, objectively ascertained, has to be gathered partly from documents but also from oral exchanges and conduct. In the latter case, the terms of the contract are a question of fact."

28. It can be seen that the question of employee status has been a vexed issue in employment law over a long period of time, but in our judgment, the most recent visitation is the Judgment of the Court of Appeal in Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358. Mummery LJ, taking an astringent approach to the foregoing and other authorities said as follows:

"49. There is an 'irreducible minimum of mutual obligation necessary for a contract of service', i.e. an obligation to provide work and an obligation to perform it, coupled with the presence of control: see, for example, Carmichael v. National Power plc at pp.45 (per Lord Irvine of Lairg) and 47(Lord Hoffmann); Montgomery v. Johnson Underwood at paragraphs 21, 23, 46 and 47 and the other authorities cited in the judgments in those cases. In deciding whether it has jurisdiction to hear and determine a claim for unfair dismissal the tribunal must decide whether the applicant has a contract with the respondent and, if so, whether it satisfies those requirements. In the absence of a contract, or of a contract having those features, the applicant cannot qualify as an employee, even though it may well seem surprising not to regard the applicant as an employee. A tribunal must, however, resist the temptation to conclude that an individual is an employee simply because he is not a self employed person carrying on a business of his own: Wickens v. Champion Employment [1984] ICR 365 at 371 and Ironmonger v. Movefield Ltd [1988] IRLR 461 at paragraphs 19-21."

29. He then went on to deal with the existence, or not, of an implied term, for the Coourt was there dealing with a triangular relationship involving an employment agency, its client and a worker. Thus he was able to say as follows:

"62. Carmichael v. National Power plc was not an employment agency case and did not deal with the question of an implied contract of service. The reasoning of the speeches is important, however, on two points of principle: first, on the point that, if mutuality of obligation is lacking, as it was held to be in a casual, "as required" arrangement, there could be no contract of service; and, secondly, even where there are documents evidencing the arrangements between the parties, if the documents were not intended to constitute an exclusive record of the agreement, the employment tribunal are entitled, in deciding whether there was a contract of service, to make inferences from what the parties said and did both at the time when the applicant was engaged and subsequently.

63. Franks v. Reuters [2003] IRLR 423, a decision of this court, was an employment agency case. The result in the Employment Tribunal, which heard the applicant's claim against both the employment agency and the end-user, was that the applicant did not have a contract of service with either of them."

Conclusions

30. With those principles in mind, we have come to the conclusion that the arguments of the Applicants should be rejected and we prefer those of the Respondent. We uphold Miss Mountfield's submissions cited above at paragraphs 20-21 on two of the three points she made. We accept her submission that the irreducible minimum for a contract of employment requires mutuality of obligation and a degree of control consistent with, as MacKenna J was putting it as late as 1968, the position of a "master", but in modern terms the position of an employer supervising an employee.
31. The submission which was made in relation to there being an obligation to provide personal services is one we have had some difficulty in resolving, and have decided not to. This is because the authority upon which both Counsel were invited to make submissions was referred to them, by us, during the course of argument. That is Byrne Brothers (Formwork) Ltd v Baird [2002] ICR 667, in which it was held that it is not fatal to the existence of a contract of employment that there may be an opportunity for a person in that engagement to send a substitute. Indeed that is consistent with the passage in MacKenna J's Judgment allowing substitution on a limited basis.
32. Counsel were given only the lunch adjournment to formulate arguments on this authority which had escaped their otherwise astute attention. It was not the subject of a detailed submission to the Employment Tribunal or of a finding, and thus we would prefer not to express a view upon it. It seems to us that the authorities which Miss Mountfield relied upon revealed three positions. One: where there is unlimited right to substitute at will and without notice, that is consistent only with there being a contract for services. Two: a contract where personal service must be given at all times is a contract of employment. But three: where there are to be opportunities for substitution and delegation there would require to be positive findings of fact made before a judgment could be given on this. Because the Tribunal was not to addressed on this particular issue, no findings emerge as to, for example, the proportion of time which would fall within clause 2 (d), ie how much time was engaged upon the company's tools and how much not. For that, amongst other reasons, we decline to rule upon Miss Mountfield's substitution point.
33. Returning then to mutuality of obligations, in our judgment the correct approach to this relationship is to regard it as regulated by a contract which is reduced into writing. As such, it falls within the example of Carmichael and it is plain that there is a forceful term indicating that there is no mutuality of obligation. Not only is that a term, but the Tribunal heard evidence about the way in which it was operated by the parties. If it were necessary or permissible to go outside of the terms of the contract in this way, the Tribunal's finding in paragraph 15, which we have cited, indicates the evidence upon which that was based. We, as did the Tribunal, take a wider approach lest we be wrong about our primary finding, and that is to consider both the circumstances in which the contract was signed and other indicia.
34. First, the contract was signed in the wake of the Respondent's defeat in its appeal to the Employment Tribunal under the national minimum wage enforcement order. It is true that earlier attempts had been made to affect the relationship between the parties (see the correspondence in 1999), but there can be no doubt that circumstances had changed and the parties entered into this agreement following the 2002 Tribunal case and the change to the working arrangements then in place.
35. Secondly, the other circumstances are important. It cannot be doubted that in 1999 the Respondent sought to institutionalise self-employment in order to follow the advice of its lawyers, but had backed off from doing that in the face of opposition by the homeworkers. Nevertheless, on four occasions the workers signed contracts which, as we have held, are contracts for services. It seems to us that there may have been a more sensitive way of handling the difficult issue of defining the relationship between the homeworkers and the Respondent. Nevertheless a contract was signed.
36. So far as is relevant to its secondary finding, the Tribunal has made clear findings about control. This arrangement had insufficient control. It has enumerated the factors which would give it the basis for that finding. It has not repeated those factors when it came to paragraph 16 in dealing with the issue of control but it is easy for us to see the central features on the issue of control and we cannot say the Tribunal erred. It is not a perverse decision by the Tribunal, looking at the material it had in front of it, for it to have decided that there was insufficient control to generate the relationship of employer and employee. Mr Suppersone, in his oral argument on this subject, has not established the overwhelming case required for perversity: Yeboah v Crofton [2002] IRLR 634 CA
37. Even if all of the factors advanced on behalf of the Applicants by Mr Supperstone were put into the pot, there still remains the very potent clause 2 (b), which defies mutuality. It seems to us therefore, that if that were to be regarded as simply one ingredient, in this mix, it is one which is essential for the determination of there being a contract of employment.
38. The Employment Tribunal has set out clearly the factors which it took into account, the guidance from the legal authorities placed before it by representatives below, and has come to a conclusion which is correct. We would very much like to thank both Counsel for their very careful attention to the submissions and to the efforts they have made on behalf of their clients.
39. As is clear from an event during the course of delivering our Judgment, strong feelings are engendered by the decision making in this case, no doubt by ourselves and by the Employment Tribunal. We have had no difficulty in deciding this issue as a matter of law. We can well understand how ordinary working people would have great difficulty in understanding the distinction between a contract of employment and a contract for services, and indeed the legal authorities to which we have referred indicate that there are many nuances and there are many different views that could be taken, not least by tribunals and courts.
40. This decision was clear-cut, and we see no reason to give permission for the Applicants to go to the Court of Appeal, but we fully understand their disappointment at this result and the way in which the legal conclusion differs from their own perception of their relationship with the Respondent. The appeal is dismissed.