United Kingdom Employment Appeal Tribunal

APPEARANCES

 

 

For the Appellant	MR JAMES WYNNE (of Counsel) Messrs Comptons Solicitors 90-92 Parkway Regents Park London NW1 7AN
For the Respondent	MS LUCY REED (of Counsel) Barnet Law Service (Law Centre) 9 Bell Lane London NW4 2BP

SUMMARY

Contract of Employment: Definition of Employee

Requirement of personal service for contract of employment. Written contractual term allowing for substitute to be sent without restriction. Chairman accepted oral evidence to the contrary (no finding of "sham" or variation). Impermissible finding. See Tanton; Stevedoring v Fuller (CA). Appeal allowed.


 


HIS HONOUR JUDGE CLARK

1. 1.                  This is an appeal by Real Time Civil Engineering Ltd, the Respondent, against a judgment of a Chairman, Mr R Postle, sitting alone on 8 July 2005 at a pre-hearing review, held to determine whether or not the Claimant, Mr Callaghan, was an employee of the Respondent as defined in s230(i) of the Employment Rights Act 1996 for the purposes of bringing claims of unfair dismissal and breach of contract. That judgment with reasons was promulgated on 28 July 2005.

The Facts

2. 2.                  The Claimant commenced working for the Respondent in 1992. Following a break in service, he rejoined the Respondent in late 1999 and continued working until 18 December 2004. He drove a light goods vehicle lorry, making and collecting deliveries across London and the Home Counties. The vehicle was owned and insured by the Respondent. He took day to day instructions from the Respondent's management, including a Mr McGrath and was expected to work until his deliveries were completed. His core hours of work were 7.30 am to 5.30 pm, presumably Monday to Friday and he was expected to work on Saturdays.
3. 3.                  On 7 August 2003, he signed a document headed "Construction Industry and Allied Trades Self-Employed Contract for Services". The material provision for present purposes is Clause 7 which reads:

"The Sub Contractor [the Claimant] may, at his absolute discretion, send a substitute or delegate to perform the Works. This right to send a substitute or delegate is unfettered and unlimited and agreement of the Contractor is not required in any circumstances, nor does notice of sending a substitute or delegate need to be given to the Contractor".

That document was also signed by Mr Keane, a director and company secretary of the Respondent, on 5 March 2003.

4. 4.                  The Chairman found (reasons paragraph 3.5) that the Claimant was not allowed to send someone in this place should he be unable to attend the Respondents; a fact which was confirmed by the Respondents own witness, Mrs Keane, who said that she was not aware of the Claimant sending someone in his place to carry out his duties and furthermore, Mr McGrath, gave the Claimant his instructions. That finding is repeated at paragraph 6.9 where the Chairman said that he, the Claimant, clearly could not send a substitute in his place on Mrs Keane's own evidence.

The Tribunal Judgment

5. 5.                  Central to the Respondent's case, advanced by Mr Wynne below, was that the written contract contained no obligation of personal service. Reliance was placed on the unfettered absolute discretion granted to the Claimant by Clause 7 to substitute another person to perform the work. Reference was made to my judgment in Staffordshire Sentinel Newspapers Ltd v Potter [2004] IRLR 752. For the Claimant, Miss Williamson, then appearing on his behalf, submitted that it was necessary to look at the reality of the case and all the factors. She sought to distinguish the Potter case on the basis that there, there was a substantive provision to substitute; whereas here, the Claimant did not provide the substitute and one should look at Mrs Keane's evidence in that if the Claimant was not there, someone from the yard would drive the lorry. I take that summary from paragraph 4.2 of the Chairman's reasons.
6. 6.                  The Chairman considered a number of tests for determining whether or not the Claimant was employed under a contract of service, adopting (it seems to me) the approach advanced by Miss Williamson. They were described variously as the integration or organisational test; the economic reality test and the multiple test. Having examined the factual way in which the relationship worked in practice, he concluded at paragraph 6.8:

"In this case, having regard to the reality of the situation what occurred, how it occurred, one comes to the conclusion that although the parties signed a contract for services the reality is that it was a contract of employment."

The Appeal

7. 7.                  Mr Wynne submits that an obligation of personal service is a minimum requirement of a contract of service: see Ready Mixed Concrete (South East Ltd) v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515 per McKenna J and Express & Echo Publications v Tanton (1999) IRLR 367, para 31 (per Peter Gibson LJ). Miss Reed, on behalf of Mr Callaghan, does not challenge that proposition.
8. 8.                  Mr Wynne continues that in the absence of a finding that the written contractual term, Clause 7, had either been varied or was found to be a sham, that provision determines the matter in favour of the Respondent's contention that the irreducible minimum requirement of personal service was not present in this contract. Accordingly, it could not be a contract of service grounding the Tribunal's jurisdiction to hear the Claimant's complaints. He refers to Tanton (at paragraph 25) followed in Potter (paragraph 16).
9. 9.                  As to the Chairman's finding that the Claimant was not allowed to send someone in his place, thus negating the clear meaning and effect of Clause 7 (which, I note, is not referred to directly anywhere the Chairman's Reasons), that was a finding unsupported by evidence and thus a perverse finding in the sense explained by Lord Donaldson MR in Piggott v Jackson [1991] IRLR 309 paragraph 17. The evidence of Mrs Keane, as recorded by the Chairman at paragraph 3.5 of his Reasons, went no further than saying that she was not aware of the Claimant sending someone in his place. She did not say that he was prohibited from doing so. I am told that was the effect of the Claimant's evidence and it must follow that the Chairman has accepted the Claimant's oral evidence in preference to the clear term of the written agreement signed by both parties. Mr Wynne submits that the Chairman's finding (paragraph 6.9) that the Claimant clearly could not send a substitute in his place was (a) wholly contrary to the express contractual term (clause 7) and (b) not in fact supported by Mrs Keane's evidence relied on by the Chairman. In these circumstances, he submits that the Chairman's conclusion flew in the face of well-established authority and was an impermissible approach adopting, as he did, the reality test espoused by Ms Williamson.
10. 10.              Ms Reed supports the Chairman's conclusions. She submits that he did, in effect, find that Clause 7 of the contract was a sham. Alternatively, he was entitled to look further than the written term at the surrounding factual matrix, applying the House of Lords' approach in Carmichael v National Power plc [2000] IRLR 43.

Discussion

11. 11.              I say at once that my sympathies in this case lie entirely with the Claimant. As the Chairman found, applying all the usual tests, he looks like an employee. In that sense, I can claim some consistency. My sympathies equally lay first, with Mr Tanton and later with Mr Fuller and his colleagues in Stevedoring and Haulage Services Ltd v Fuller [2001] IRLR 627, a case which I have drawn to Counsel's attention. However, sympathy is not enough. On both those occasions, I was corrected by the Court of Appeal. I finally repented in Potter. Fuller is an important case because it was decided by the Court of Appeal after Carmichael in the House of Lords. There, the Claimants were employed by the Respondent as dock workers. They were then made redundant and re-engaged as casual workers under the terms of a written agreement which stated that the Claimants would provide their services on an ad hoc and casual basis with no obligation on the part of the company to provide such work, nor for them to accept any work so offered.
12. 12.              Looking at the facts, the Tribunal concluded that there was to be implied a term providing for an irreducible minimum of obligation on each side. The Claimants were employees of the Respondent under contracts of service. I pause to observe that mutuality of obligations is as much a part of the irreducible minimum for a contract of service as the element of personal service. We upheld that decision on appeal. The Court of Appeal did not, pointing out that the implied term erected by the Tribunal was entirely inconsistent with the express written term. That decision, as I have observed, was reached having considered the House of Lords' speeches in Carmichael.
13. 13.              I regret to say that in the light of higher authority I am again driven (as I was in Potter) to uphold the employer's submission. In all ways found by the Chairman, this appears to be a contract of service. Mr Callaghan worked regularly for the Respondent, driving their lorry for five years. After his break in 1999 he worked regular hours on a work and finish basis and plainly passed the business integration and control tests for a contract of service. But he entered into a written contract which, in my judgment, contrary to Ms Reed's submissions, was not found to be a sham by the Chairman. Mr Wynne has referred me to the Court of Appeal decision in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 where, at page 802, Diplock LJ said this, referring to the concept of a sham:

"…it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create".

Having cited earlier authority, he continues:

"…that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a 'shammer' affect the rights of a party whom he deceived. There is an express finding in this case that the defendants were not parties to the alleged 'sham'. So the contention fails".

14. 14.              In the present case, there is no finding one way or the other expressly as to whether or not this agreement was a sham. However, the agreement is referred to at paragraph 3.6 of the Chairman's reasons without any suggestion that it did not reflect the terms of the agreement then made between the parties. Furthermore, looking at the summary of Ms Williamson's submissions at paragraph 4.2 of the reasons, there is no suggestion that the written contract and, in particular, Clause 7 is a device or a sham or does not properly reflect the intentions of the parties; rather that one had to look at the overall reality of what happened in order to determine whether or not this was a contract of service. The Potter case in which at paragraph 12.1, I refer to the need for a finding of either variation or sham is sought to be distinguished. Nevertheless, that judgment makes clear the test for, in effect, displacing a clear and unequivocal written contractual term. The Chairman has found neither a sham nor a variation.
15. 15.              The finding of fact, as it is characterised by Ms Reed, that the Claimant was not allowed to send a substitute is plainly contrary to the express term (Clause 7 of the agreement) and, in my judgment, simply unsupported by the evidence of Mrs Keane on which the Chairman relied for his finding. Her evidence went no further than to accept that, so far as she was aware, the Claimant had never sent someone in his place to carry out this duties. It is now clear that the question for the Tribunal is not how the contract operated in practice, but what was the intention of the parties. In order to establish what the intention was, it may sometimes be permissible to look at the overall factual matrix, as the House of Lords made clear in the case of Carmichael. However, how the contract operates in practice is no basis for simply displacing an express term in the written agreement.
16. 16.              In these circumstances I have concluded that the Chairman took a wrong approach in this case in looking at the reality of the matter on the grounds as Ms Reed put it. He was bound by higher authority to consider Clause 7 of the written agreement and as to whether it reflected the true contractual position. There is no basis in the Chairman's findings in my judgment for his conclusion that the opposite of what that term expresses was the relevant contractual term. In these circumstances, I shall allow this appeal and on the basis of the material before me, I shall reverse the Chairman's decision and substitute a finding that Mr Callaghan was not employed by the Respondent under a contract of service and consequently, the Tribunal has no jurisdiction to entertain his claims of breach of contract and unfair dismissal.