United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR M BODDINGTON (Solicitor) Accountax Consulting Trinity House Opal Drive Fox Milne Milton Keynes MK15 0DF
For the Respondent	MR ANDREW HOGARTH (One of Her Majesty's Counsel) Instructed by: Messrs O H Parsons & Partners Third Floor Sovereign House 212-225 Shaftsbury Avenue London WC2H 8PR

SUMMARY

Working Time Regulations: Worker; Holiday Pay


 


HIS HONOUR JUDGE CLARK

1. The parties before the Bedford Employment Tribunal were Mr Cochrane, Claimant and A D Bly Construction Ltd, Respondents. We shall so describe them.
2. The appeal before us, brought by the Respondent, against the judgment of that Tribunal sitting on 29 October 2004 and promulgated with reasons on 7 December 2004 raises two issues:

(1) Whether the Claimant was a worker within the meaning of Regulation 2(1) of the Working Time Regulations 1998 ("the Worker point") and

(2) If so, what is his entitlement to holiday pay from the Respondent in accordance with the Court of Appeal decision in CIR v Ainsworth [2005] ICR 1149 ("the Ainsworth point").

3. Argument on the Ainsworth point has been stayed, pending the House of Lords determination in that case. However, both parties wish to proceed on the Worker point. That is the sole issue before us today, although the Ainsworth point becomes moot if the appeal succeeds on the Worker point to the extent that we find that the Claimant was not a worker within the meaning of Regulation 2(1) WTR.

Factual Background

4. The Tribunal made the following material findings of fact: the Respondent operates in the construction industry. The Claimant is a labourer. At the relevant time the Respondent employed some 225 construction workers and 30 administrative staff. In addition, they engaged about 220 self-employed sub-contractors. That number varied according to the work requirements and sub-contractor availability.
5. The Claimant commenced work with the Respondent in 2001. He was engaged on a self-employed basis. He was not offered employment and the Tribunal's finding that he was not an employee of the Respondent is not challenged by the Claimant in this appeal.
6. Tax was deducted from his remuneration by the Respondent under the CIS 4 scheme. He was paid at a daily rate of £75, later rising to £82.50.
7. Prior to December 2003, the parties had not entered into a written contract. On 11 December, the Claimant signed a contract which contained the following material terms:

"7. The Sub Contractor may send a substitute at his absolute discretion but such substitute may be rejected by AD BLY Construction if AD BLY Construction is reasonably satisfied that the substitute does not possess the necessary skills, qualifications and experience required.

18. The Sub Contractor will not be entitled to receive holiday pay or Bank Holiday pay or special absence pay in any circumstances.

21. The contract for services can be immediately terminated by either party for whatever reason and no notice is required to be given. The Sub Contractor is not entitled to partake in any grievance procedure offered by AD BLY Construction.

23. AD BLY Construction is not obliged to offer contract or Works to the Sub Contractor nor is the Sub Contractor obliged to accept such contracts or Works if offered. The Sub Contractor is not obliged to make his services available. Specifically both parties accept that they do not wish to create or imply any mutuality of obligations whatsoever, at any time, either during or in between any individual Contract for Services".

30. The Sub Contractor is free to undertake other Contracts for Services for other parties at any time, before, after, or concurrently with this Contract for Services.

31. AD BLY Construction acknowledges and agrees that he does not have first call on the services of the Sub Contractor and cannot require the Sub Contractor to give him, AD BLY Construction any priority over another contractor.

32. The Sub Contractor may advertise his services in any way he sees fit and AD BLY Construction shall not raise any objection.

33. The Sub Contractor may sign write his own vehicle and equipment with his own business name in any way he sees fit and AD BLY Construction shall not raise any objection.

34. The Sub Contractor may use his own business name and AD BLY Construction will not object.

35. The Sub Contractor agrees that as an independent person in business on his own account is responsible for his own tax and national insurance".

8. The Tribunal made the following express findings:

(1) The contract provided that the Claimant could refuse work when offered (see Clause 23). In fact, he never did. He always accepted the work offered (Reasons paragraph 4.8).

(2) The Claimant appears to have not worked a full week on many occasions but, at the same time, appears to have worked a full week on many other occasions. The Claimant appears to have had more odd days off than might have been expected of an employee. (Reasons paragraph 4.9).

(3) While the Claimant worked exclusively for the Respondent, he did not always work a full week. This may have been for a variety of reasons but suggests that there was, on both sides, acknowledgement of the fact that the Claimant was not obliged to work and the Respondent was not obliged to offer work to the Claimant (Reasons paragraph 7(iv).

Employment Tribunal Judgment

9. Having found that the Claimant was not an employee of the Respondent, the Tribunal went on to find that he was a worker. Their reasoning is contained at paragraph 9 of their reasons as follows:

"9. The tribunal have come to the conclusion that the claimant was a worker within the meaning of the Working Time Regulations 1998. The claimant started working for the respondents in 2001, there was no question that the claimant would do anything other than perform the work of ground worker/labourer personally. The claimant always performed the work personally, the only time that the question of anyone doing the work in the claimant's place arises in the terms of the 11 December 2003 agreement. The tribunal are however satisfied that the agreement between the claimant and the respondent was in fact that the Claimant would personally perform the work he was engaged to do. The tribunal is therefore satisfied that the claimant is a worker within the meaning of the Working Time Regulations 1998."

10. It followed that, by agreement between the parties, the Claimant was entitled to holiday pay in accordance with the provisions of WTR. The quantum of that entitlement is subject to the Ainsworth point.

The Meaning of "Worker"

11. Regulation 2(1) WTR provides, so far as is material, the following definition:

"'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 oral or in writing, whereby the individual undertakes to do or perform any work or services for another party to the contract…"

12. We are not in this case concerned with sub-paragraph (a) of that definition, it being common ground in this appeal that the Claimant was not an employee of the Respondent. Thus, the focus, under sub-paragraph (b), is on whether the Claimant worked under a contract, whether oral or in writing, whereby he undertook to do or perform personally any work or services for the Respondent.
13. That question, in turn, raises a number of issues which fall to be addressed in the light of the body of learning emerging from the authorities; in particular:

(1) The terms of the contract;

(2) Mutuality of obligations;

(3) Personal service.

The Terms of the Contract

14. We accept the submission of Mr Hogarth QC, based on high authority cited to us, including Street v Mountford [1985] AC 809 and A G Securities v Vaughan [1991] 1 AC 417, both decisions of the House of Lords, that in considering the terms of a written agreement made between the parties the Court or Tribunal must look at the overall circumstances in being astute to detect and frustrate sham devices and artificial transactions. Those cases were concerned with attempts to circumvent the protection afforded to tenants under the Rent Acts. However, the principle is equally applicable to employment protection: see Express & Echo v Tanton [1999] ICR 693, 697G, per Peter Gibson LJ. By extension, we think that the same principle applies to workers' contracts. Thus, if an Employment Tribunal finds as fact that the words of a written contract do not truly reflect the intentions of the parties when entering into the contract, they may say so and go on to find that the Claimant is a worker as defined in the Regulations.

Mutuality of Obligation

15. It is at this point in the analysis that the members of this Tribunal part company. Mr Hogarth's submission, which is accepted by Mr Jacques, is that when the Claimant attended for work for which he was paid by the Respondent, he was a worker within the definition contained in sub-paragraph (b). He reasons that proposition in this way.
16. First, he cites a passage from the judgment of Elias J, sitting with members in the EAT, in Stephenson v Delphi Diesel Systems Ltd [2003] ICR 471, paragraphs 10-11 which reads:

"The Relevant Law

10. For the purpose of analysing this decision, it is not necessary to set out an exegesis of the law in this area. It is perhaps sufficient to start with an observation of Longmore LJ in Montgomery v Johnson Underwood Limited [2001] ICR 819, 831, para 46:

'Whatever other developments this branch of the law may have seen over the years, mutuality of obligation and the requirement of control on the part of the potential employer are the irreducible minimum for the existence of a contract of employment: see Nethermere (St Neots) Ltd v Taverna & Gardiner [1984] ICR 612, 623 per Stephenson LJ approved in Carmichael v National Power Plc [1999] ICR 1226, 1230 per Lord Irvine of Lairg LC.'

11. The significance of mutuality is that it determines whether a contract is in existence at all. …"

17. Mr Hogarth alights on the sentence, in paragraph 11, "the significance of mutuality is that it determines whether there is a contract in existence at all". Here, he submits, there plainly is a contract; the document generated for the Respondent and signed by the parties on 11 December 2003 is headed "Construction Industry and Allied Trades Self-Employed Contract for Services". It is plainly a contract; it says so and thus the requirement of mutuality, as defined in that single sentence from the judgment in Stephenson is met.
18. He further relies on the classic test for determining what is a contract of service, as distinct from a contract for services, formulated by McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968 1 QB 497, 515. There it is said, so far as material:

"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… (iii) The other provisions of the contract are consistent with its being a contract of service.

…..

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 hands or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be…"

19. In addition, Mr Hogarth draws attention to what was said by Mr Recorder Underhill QC, sitting with members in the EAT, in Byrne Brothers (Formwork) Ltd v Baird [2002] IRLR 96, a case also concerned with the sub-paragraph (b) definition of worker under Regulation 2(1) WTR.
20. At paragraphs 24-26, under the heading "Mutuality of Obligation" the EAT rejected a submission made on behalf of the employer that the written contract in that case gave rise to no mutuality of obligation. At paragraph 25, the EAT accepted that mutuality of obligation is a necessary element in a "limb (b) contract" as well as in a contract of employment. Construing the contract terms, the EAT found that over the entire period with which they were concerned, the Claimants worked continuously. Throughout the period there was a contract under which they were working for Byrne Brothers.
21. Mr Hogarth also relied on the identical definition of worker contained in Section 54(3) of the National Minimum Wage Act 1998 and the definition of worker in Article 3(a) of the Health & Safety Directive (89/391/EEC), namely:

"Any person employed by an employer…"

22. Mr Jacques was of the view that that broad definition encompassed an individual in the position of the present Claimant. He considers that a purposive of interpretation of the directive, and hence WTR is necessary in order to give effect to the purpose of both the Directive and the Regulations, that is, protecting the health and safety of workers by allowing for adequate paid holidays. That aim is fulfilled in his view by construing Regulation 2(1) to include cases in which, under the relevant contract, the individual performs services personally.
23. For completeness, we note that the provisions of Directive 2003/88/EEC (replacing Directive 93/104/EC) are applicable to all sectors of activity within the meaning of Article 2 of Directive 89/391/EEC and that the WTR were passed for the purpose of implementing Directive 93/104/EC.
24. Because we find ourselves in disagreement with our colleague and are unable to accede to the submissions of leading Counsel very experienced in this field, the majority of this EAT must set out fully our reasoning.
25. We agree with Mr Boddington that, as a matter of law, an approach of "if he looks like a worker, he must be one" may lead this Tribunal into error. We also accept his caution that the expression "mutuality of obligation" may itself be an over-simplification when construing "limb (b)" of the definition under Regulation 2(1) WTR.
26. We begin with Stephenson. It should be remembered that the issue in that case was whether the Claimant, supplied by an employment agency, was employed by the company to whom he was supplied under a contract of service. The Employment Tribunal found that he was not; the EAT dismissed his appeal against that finding but on different grounds. The EAT held that there was no mutuality of obligation such as to create any contractual relationship between the Claimant and the company since the company had never intended to enter into a direct contractual relationship with the Claimant, nor could such a relationship be implied from the company's day to day control of the Claimant or that by paying the Claimant, the employment agency was acting as the company's agent.
27. In these circumstances we think it dangerous to extract one sentence from the judgment in Stephenson (paragraph 11), as Mr Hogarth seeks to do, in order to contend that the "mutuality requirement" is satisfied in the present case. We repeat the well-settled law cited by Elias J at paragraph 10 of his judgment: the question is, we think, what mutual obligations are necessary in the context of a "limb (b)" worker?
28. We return to the definition under Regulation 2(1) WTR. Plainly, as Mr Hogarth submits, this Claimant worked under a contract. The question is whether, under that contract ("whereby") the Claimant undertook to do or perform personally any work or services for the Respondent?
29. In answering that question, we derive some assistance from the Court of Appeal decision in Mingeley v Pennock & Ivory t/a Amber Cars [2004] IRLR 373. That was a case concerned with the "extended" definition of employee under S78 of the Race Relations Act 1976. It is in similar terms to the limb (b) definition presently under consideration.
30. Section 78 defines employment as:

"Employment under a contract of service or of apprenticeship or a contract personally to execute any work or labour".

31. We are unable to discern any material difference, for present purposes, between a limb (b) contract whereby the individual undertakes to do or perform personally any work or services for (the Respondent) and Section 78 employment under a contract personally to execute any work or labour.
32. The facts in Mingeley were as removed from the present case as were those in Stephenson. Mr Mingeley worked as a private hire taxi driver. He owned his own vehicle; Amber Cars made available to him a radio and computer system which allocated calls to drivers for which he paid a fee of £75 per week. It was entirely a matter for him what hours he worked or whether he worked at all. If he did work, he kept all fares and was obliged to wear Amber Cars' uniform and to adhere to their scale of charges.
33. An Employment Tribunal found that he was not an employee within Section 78 on two grounds; first that the Claimant was under no obligation to execute any work or labour, applying the Court of Appeal decision in Mirror Group Newspapers v Gunning [1986] IRLR 27; the second ground, the dominant purpose of the contract, is not strictly material to the present case.
34. Mr Hogarth drew our attention to the judgment which I gave in the EAT on appeal from that decision (EAT 1170/02/TM. 9 June 2003. Unreported) and submitted that the question of mutuality of obligations was not considered in the EAT. That is not strictly correct. Paragraphs 30-33 of our judgment set out our reasoning on that part of the Tribunal's decision. We concluded that there must be some mutuality of obligation, "the employer to provide work and the employee to do the work when offered" in order to come within the extended definition of employment in Section 78. The majority see no reason to depart from that "irreducible minimum", not only for the purposes of a contract of service (see Nethermere) and employment under Section 78 RRA, but also for a "limb (b)" worker under Regulation 2(1) WTR.
35. In the Court of Appeal the reasoning of Maurice Kay LJ, with which Buxton and Nourse LJJ agreed, is encapsulated at paragraph 14, where his Lordship said:

"…In my judgment, on the plain words of s.78 and the authority to which I have referred, the Employment Tribunal was correct to conclude that, in order to bring himself within s.78, Mr Mingeley had to establish that his contract with Amber Cars placed him under an obligation 'personally to execute any work or labour'. As the Tribunal found, there was no evidence that he was ever under such an obligation. He was free to work or not to work at his own whim or fancy. His obligation was to pay Amber Cars £75 per week and if he chose to work, then to do so within the requirements of the arrangement. However, the absence from the contract of an obligation to work places him beyond the reach of s78"

36. Returning to Mr Hogarth's submissions, we found no additional assistance in the contract of service test propounded by McKenna J in the Ready Mixed Concrete case; as to Byrne Brothers, we detect no difference in approach to that which we are inclined to take, rather, finding on the facts that the necessary mutuality of obligation existed in that case.
37. Finally, we see no inconsistency between the very general definition of worker under the Directive and the precise formulation in Regulation 2(1) WTR as we have construed it.

Personal Service

38. In Wright v Redrow [2004] 3 AER 98, which depended upon the proper construction of the contractual terms in that "limb (b)" worker case, Pill LJ observed (paragraph 21):

"The 1998 regulations leave parties free to enter contracts and, whether or not the contract includes an obligation to do the work personally, is a matter of construction".

He later added:

"Moreover, it does not necessarily follow from the fact that the work was done personally that there was a contractual obligation to do it personally".

Holman J said (paragraphs 35-36)

"35 …The question remains: did the contracts in fact positively require the applicants to do the work personally? Again, this must be determined in the context of the matrix of fact. I agree with the submission of Mr Stafford [Counsel for the employer] (although he expressed it more politely) that, with respect to them, the reasoning of both tribunals is weak and confused and takes into account inadmissible or irrelevant considerations- in particular by placing weight on the irrelevant consideration that the Applicants did later in fact do the work personally. I agree, too, with his submission that in Wright's case the Tribunal wrongly referred to 'the parties' expectation that it would be' personally performed. The correct consideration is not 'expectation' but intention.

36. But I consider that on a fair overall reading of their respective extended reasons, both tribunal clearly found as a fact that the parties did intend that the applicants must do the work personally".

The Present Case

39. Applying these principles of law to the facts as found by the Employment Tribunal, this Tribunal finds itself divided in the result.
40. The majority have concluded that the Claimant was not a worker on the footing that under the contract, the Respondent was not obliged to offer work and the Claimant was not obliged to do the work if offered. The finding of fact by the Tribunal at paragraph 7(4) of their Reasons that clause 23 of the contract reflected the true position precludes the Claimant from asserting that under the contract, he undertook to do or perform work or services. That, in our judgment, is fatal to his being classified as a "limb (b) worker".
41. Mr Jacques disagrees. Applying the approach advocated by Mr Hogarth, he concludes that, when at work for the Respondent, the Claimant was a worker within the "limb (b) definition".
42. As to personal service, we are all agreed that the Tribunal's finding (Reasons paragraph 9) that the agreement between the parties was, in fact, that the Claimant would personally perform the work he was engaged to do is a finding with which we shall not interfere so far as the personal service element is concerned, following the Court of Appeal approach in Redrow. The Tribunal implicitly found that the qualified right to send a substitute under clause 7 of the contract did not remove the element of personal service; alternatively, it did not truly reflect the agreement between the parties, viewed in the context of the overall factual matrix.

Conclusion

43. It follows that the majority view must prevail. We shall allow this appeal and dismiss the application. Consequently, it is unnecessary, in this case, to consider the Ainsworth point following the House of Lords ruling.