United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR J CRAN Solicitor Advocate Messrs McGrigors Solicitors Johnstone House 52-54 Rose Street Aberdeen AB10 1UD
For the Respondent	MS C P McCROSSAN Solicitor Advocate Quantum Claims Compensation Specialists Ltd 70 Garden Place Queens Cross Aberdeen AB10 1UP


 


SUMMARY

Contract of Employment – whether Claimant Employee – Agency Worker

Claimant worked for the respondents as an agency worker for periods prior to a contract in which they accepted she was their employee. Date of dismissal from that employment was less than a year from commencement. Whether the claimant had been an employee whilst working as an agency worker, so as to have had continuous service of over a year prior to dismissal. Employment Tribunal held that she had. Employment Appeal Tribunal upheld an appeal against that finding.


 


THE HONOURABLE LADY SMITH

INTRODUCTION

1. This case concerns what has become a frequent visitor to the Employment Tribunal, the worker-agency-"end user" contractual arrangement.
2. An Employment Tribunal sitting at Aberdeen, Chairman Mr N Hosie, held that it had jurisdiction to consider the claimant's complaint of unfair dismissal in respect that she had the requisite qualifying service with the respondents. The judgment was registered on 25 August 2006. The respondents have appealed against that judgment. We propose to continue to refer to parties as claimant and respondents.
3. Before the Employment Tribunal and this Tribunal, the claimant was represented by Ms C P McCrossan, Solicitor Advocate. Before the Employment Tribunal the respondents were represented by Mr L Kerr, solicitor and before this Tribunal, by Mr Cran, Solicitor Advocate.

Background Facts

4. The respondents are oil installation engineers. The Claimant was employed by them as a receptionist from 1 July 2005 until 17 March 2006, when she was dismissed. Clearly, if that was the full extent of the period of her employment by the respondents, she does not have the requisite qualifying service for a claim of unfair dismissal, a claim which she seeks to advance.
5. The question that, accordingly, arose for the Tribunal was whether she was employed by the respondents before 1 July 2005. The history of her working at the respondents' premises can be summarised as follows:

November 1991 to March 1994 and June 1998 to December 1999

in about November 1991, the respondents required the services of a part- time receptionist and the claimant was interviewed by the respondents' Peter Cooper

- Mr Cooper told the claimant that they would only be prepared to engage her through an agency, HFA Limited

- HFA was set up by the Wood Group, of which the respondents are a part, and only supplied staff to the Wood Group; there were financial benefits to the Wood Group in accessing staff through these arrangements

- On 12 November 1991, the respondents issued a document entitled "Official Order" to HFA which included the following terms:

"Please supply the services of a part-time Receptionist in accordance with our contract conditions for agency personnel

……………..

1. Name Karen Robertson

2. Job title Part – Time Receptionist

3. Location of work Aberdeen

4. Starting Date 18^th November 1991

5. Rate per hour to agent £4.78

6. Notice Period One Week

7. Personnel Number 4596

8. Special Conditions Hours of Work 09:30 – 14:00

NOTES: Payment terms monthly within 30 days."

- the claimant was issued with a contract by HFA; no copy of it was produced

- the claimant worked as a part time receptionist at the respondents' premises until March 1994 when, by letter dated 25 March 1994, HFA advised her:

"…..due to a downturn in work, our client Foster Wheeler Wood Group Engineering Limited has terminated the contract for your services. I must therefore give you one week's notice, as per your contract with us, with effect from the date of this letter……..",

and she left

- in June 1998, the respondents were again looking for a part-time receptionist, their Brian Elrick interviewed the claimant, advised that they would only engage her through HFA and asked her to start immediately

- on 7 July 1994, the respondents sent a supply request to HFA in similar terms to that which they had sent in November 1991, to which I have already referred

- after the coming into force of the Working Time Regulations, the claimant was issued with and signed a document dated 21 October 1998 and headed:

"TERMS AND CONDITIONS OF ENGAGEMENT OF AGENCY WORKERS"

It refers to a "worker" i.e. the claimant, being engaged by HFA to provide services for one of HFA's clients and as regards the worker's rights specifies working hours, the annual leave entitlement allowed to her by HFA, overtime entitlements, daily, overnight and offshore allowances and travel payments that may be made by HFA. It also provides for worker's obligations vis à vis HFA in respect that there are provisions which require the worker to send them copy time sheets each week, to conduct "their undertaking" so that they and other persons are not exposed to health and safety risks and to avoid any conflict of interest as regards HFA. The "Conflict of Interest" clause (in which "the Company" refers to HFA) provides:

"The worker should note that during the continuance of the contract for services with the Company, individuals shall not, directly or indirectly, be concerned with working for any other business, with which there is potential, however small, for conflict of interest, without the previous written consent of the Company."

- those terms and conditions also required the claimant to comply with the client's time recording procedures and to submit time sheets to the client's supervisor

- the claimant's line manager was an employee of the respondents

- the claimant went to her line manager if she had any problems, her holidays had to be approved by him and she advised him if she was sick

- the claimant did not receive sick pay

- the claimant was paid by HFA who deducted income tax and national insurance

December 1999 to July 2005

- in about December 1999 HFA advised the claimant that the respondents had decided to stop using HFA and that she would, accordingly, have to find an "outside agency"

- the claimant ascertained that the respondents would be prepared to use NES International, another employment agency

- the claimant spoke to someone at NES on the telephone and they agreed to "take her on"

- on 3 December 1999, Chris Telford of NES wrote to Bryson Kemp, who was employed by HFA and by the respondents, at the same address, stating:

" We confirm that the following contract staff have been transferred to NES International Ltd and the rates are as follows:"

- the claimant's name was on the list in that letter

- the claimant first met Mr Telford a couple of months later

- the claimant sent her timesheets to NES thereafter

- the terms on which the claimant contracted with NES were as in a document (J129) headed

"TERMS AND CONDITIONS for the supply of services to NES INTERNATIONAL LIMITED (performed by an individual sub- contractor)"

In which NES are referred to as "the Company" and the claimant was referred to as "Sub–Contractor" and included:

"3.1 The Company agrees to endeavour to obtain suitable opportunities for the Sub- Contractor to work in the capacity referred to in the attached contract confirmation letter where there is a suitable Assignment with a Client for the supply of such work……………………the Sub- Contractor is under no obligation to accept any offer of an Assignment made by the Company.

3.2 The Sub- Contractor shall carry out the Services with effect from the Commencement Date using reasonable care and skill and in accordance with the requirements and to the standards reasonably required by the Client.

…………….

3.4 ………………………The Sub- Contractor shall indemnify and hold harmless the Company against any claim , loss , damage , cost , expense, demand or proceeding whatsoever incurred by the Company arising out of or in connection with his provision or failure to provide the Services.

…………………

4. The Sub- Contractor is not obliged to accept any Assignment offered by the Company but if he does so, during every Assignment and afterwards, as appropriate, he shall:-

4.1 not engage in any conduct detrimental to the interests of the Company or the client.

4.2 subject to any rights which the Sub – Contractor may have under the Regulations , be present for the times or the total number of hours during each day and/or week of the period of the performance of the Services as may be agreed with the Company or the Client;

4.3 take such steps as may be reasonably practicable to safeguard the Sub- Contractor's health and safety and the health and safety of any other person who may be affected by the performance of the Services. In particular , the Sub- ~Contractor is prohibited from attending work whilst under the influence of alcohol and/or non-prescription drugs and the Sub- Contractor agrees to take the required period of paid holiday as provided for under the Regulations and any statutory re-enactment or amendment to the Regulations;

4.4 comply with any rules or obligations in force at the premises where the Services are being performed to the extent that they are reasonably applicable;

4.5 co-operate with the Client's staff and accept the direction of any person in the Client's organisation to whom he is required to report and comply with all reasonable and lawful instructions within the scope of the Services required by the Client

…………………..

5.1 At the end of each week of an Assignment ………the Sub- Contractor shall deliver to the Company his timesheet duly completed to indicate the number of hours worked by the Sub-Contractor during the preceding week or such shorter period and signed by an authorised representative of the Client

…………….

6. The Company shall be solely responsible for the payment of all fees due to the Sub- Contractor in respect of performance of the Services

…………………

6.4 Subject to any statutory entitlement under the relevant legislation ……the Sub- Contractor is not entitled to receive payment from the Company or any Client for time not spent on Assignments , whether in respect of rest breaks , holidays , illness or absence for any other reason unless otherwise agreed."

- NES deducted income tax and national insurance from the sums paid to the claimant

- the respondents wrote to NES by letter dated 30 March 2001 and advised them in terms which included:

"We are pleased to recognise the personal contribution of those below, to the performance achieved on our client's BP Engineering and Modifications contract during 2000. The part these individuals have played entitled them to a taxable bonus, the details of which are listed below:"

and there then followed a list including the claimant's name and a bonus sum, a request that payment be made in two stages and a request that their personal thanks be passed on to the persons named for their efforts.

- NES charged the respondents an hourly rate that was higher than the rate paid to the claimant. Pay rises were initiated by the respondents who advised of the appropriate charge out rates and rates payable to the claimant

I July 2005 to 17 March 2006

- the respondents advertised for a full time receptionist for a new office

- the claimant made a formal application for that post and was interviewed for it by the respondents' Finance Director

- the claimant received a formal offer of employment for the new post

- the claimant received a formal contract of employment for the post, from the respondents

- as a condition of that contract of employment, the claimant became, for the first time, entitled to pension and sickness benefit payments

- the respondents terminated that contract, which they accepted was a contract of employment, on 17 March 2006.

The Tribunal's Judgment

6. The Tribunal was referred to three authorities, Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358, Cable and Wireless Plc v Muscat [2006] EWCA Civ220, and Franks v Reuters Ltd [2003] IRLR 423 but indicated that it found Dacas and "the guidance therein" to be of most assistance. At paragraph 27, the Chairman states:

"I was aware of what the respondents' solicitor says in his detailed written submission about 'inference by implication only arising if this is necessary in order to give "business reality" or "business efficacy" to a transaction' . He submitted that that situation would only arise 'when other circumstances fail to explain the dealings' and contended that 'it has not been proved that there is any deficit in business reality as all the dealings between the parties are consistent with and explained by the express contracts.' Notwithstanding this submission I still felt that the correct approach was to follow the guidance and principles in Dacas, a Judgment of the Court of Appeal in which the facts and issues are very similar to the present case. Further, Dacas was followed recently by the EAT in Cable and Wireless in which the EAT went as far as to say that it would be a "brave" Employment Tribunal that did not follow Dacas …..".

He adds that he is mindful that determination of a person's status is a question of fact and that he was "particularly mindful" of:

"the irreducible minimum of mutual obligation for a contract of service, i.e. an obligation to provide work and an obligation to perform it coupled with the presence of control."

7. He then found that, on the evidence, the respondents exercised control over the claimant and that there was mutuality of obligation between them. He noted that an express contract of employment had been entered into in July 2005 and that that was a material factor to "weigh in the balance" but added, under reference to Mummery LJ in Dacas that the absence of an express contract did not preclude an implied contract. He concluded:

"For the reasons narrated above, therefore, and having regard, in particular, to the degree of control which the Wood Group had over Ms Robertson for several years, a factor which Mummery LJ considered to be 'crucial', and the mutuality of obligation, I arrived at the view that there was an implied contract between Ms Robertson and the Wood Group prior to the express Contract from 1 July 2005 and that it was a contract of service. In making this finding I consider, as Mummery LJ did in Dacas that it accords with 'practical reality and common sense'."

Relevant Law

8. The issue of law that arises in this case has been much discussed over the last few years. It is essentially a matter of the application of the law of contract. In the Muscat case, it was affirmed that the usual contractual rules regarding the implication of a contract where parties have not entered into express agreement, apply. They are conveniently summarised in The Aramis [1989] I Lloyds Rep 213, in terms which also accord with Scots law. The Aramis was relied on in Muscat. Having referred to a historical survey of authorities on the matter, at page 224 Bingham LJ, said:

"These cases may be said to decide no more than that whether a contract is to be implied is a question of fact and that a contract will only be implied where it is necessary to do so."

……………………….

"Most contracts are, of course, made expressly, whether orally or in writing. But here, on the evidence, nothing was said, nothing was written. So regards must be paid to the conduct of the parties alone. The questions to be answered are ………"

He then poses questions relevant to the particular facts of that case and continues:

"I do not think it is enough for the party seeking the implication of a contract to obtain 'It might' as an answer to these questions, for it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must , surely , be necessary to identify conduct referable to the contract contended for or , at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract."

9. The Court of Appeal in Muscat also said that they took what had been said by Mummery LJ in Dacas as being an express recognition of the principles affirmed in The Aramis bearing in mind, in particular, the following passage in paragraph 16 of Dacas:

"Depending on the evidence in the case, a contract of service may be implied – that is, deduced – as a necessary inference from the conduct of the parties and from the circumstances surrounding the parties and the work done."

10. The reference to implication arising by "necessary inference" is repeated at paragraph 17 of Dacas.
11. It is not disputed that Dacas gave guidance to Tribunals regarding agency cases where it is suggested that the "end–user" was the employer. The approach of the Chairman in the present case requires an examination of the nature and extent of that guidance. The Chairman appears to have considered that the guidance given was to the effect that if control and mutuality of obligation was present then it ought to be concluded that there was a contract of employment even although there was no express contract between the parties to that effect. That, however, is not what Dacas said. Whilst it certainly noted and confirmed that control and mutuality of obligation are essentials in a contract of employment, it did not indicate that wherever those elements are present, a contract of employment is to be found. The guidance given went no further than indicating that in cases where there is the triangular agency–worker–end user arrangement, tribunals should consider the possibility that an implied contract might exist. However, as was commented in Muscat what Dacas did not do was to attempt "to resolve a social problem by creativity". Rather, the normal rules of the law of contract require to be applied and current judicial thinking is to the effect that doing so is not likely to lead to the conclusion that there is a contract of employment between the worker and the end–user. As was commented by Elias P in James v London Borough of Greenwich [2007] IRLR 168 at paragraph 58:

"..it will be a rare case where there will be evidence entitling the tribunal to imply a contract between the worker and the end- user. If any such contract is to be inferred, there must subsequent to the relationship commencing be some words or conduct which entitle the tribunal to conclude that the agency arrangements no longer dictate or adequately reflect how the work is actually being performed, and that the reality of the relationship is only consistent with the implication of the contract. It will be necessary to show that the worker is working not pursuant to the agency arrangements but because of mutual obligations binding worker and end- user which are incompatible with those arrangements."

12. If such arrangements are considered to be unfair whether because they can result in workers being deprived of the protections afforded by law to employment relationships or otherwise, then that is a complaint that Parliament requires to address. The need for Parliament to consider the issues that arise from the use of these tripartite arrangements was commented upon by Elias P in James at paragraph 61:

"We should not leave this case without repeating the observations made by many courts in the past that many agency workers are highly vulnerable and need to be protected from the abuse of economic power by the end users. The common law can only tinker with the problem at the margins. That is not to say that all agency relationships have as their objective to defeat the rights of the workers. There are obvious benefits in flexibility for employers in hiring agency staff, and many employees, particularly those with specialist skills also benefit from the flexibility as well as giving tax and fiscal advantages. A careful analysis of both the problems and the solutions, with legislative protection where necessary, is urgently required."

13. Certain of the comments of HHJ Peter Clark in Cairns v Visteon UK Limited UKEAT/0494/06/JOJ at paragraph 23, are in similar vein:

"…to imply a contract , here of service , by conduct it is necessary to show that the conduct of the parties, the Claimant and the Respondent, is consistent only with their being a contract of service between them."

14. I should not leave my references to the applicable law without observing that although in Dacas, Sedley LJ confidently predicted that had Mrs Dacas caused an injury whilst working at Wandsworth Council's premises and the Council had sought to escape liability for her negligence on the grounds that they were not her employer, their counsel could have looked forward to "a bad day in court", the recent Scottish case of Toms v Royal Mail Group PLC, 2006CSOH 32 was decided in such a way as calls that prediction into question. There, Royal Mail Group PLC were sued in their alleged capacity as employers of a driver who fell asleep whilst driving one of their vans. He had been supplied to Royal Mail by an agency and Lord Glennie was not satisfied that the circumstances were such as should cause him to imply a contract between Royal Mail and the deceased. At paragraph 22, having reviewed authorities including Dacas and Muscat, he said:

"There seems to me to be considerable difficulty in implying any contract between the worker and the client in a case such as this, since there is already, without any such implication, a perfectly intelligible reason why the worker performs services for the client without any such indication."

Royal Mail were, accordingly, assoilzied in what they, no doubt, considered to be not a bad day in court at all.

15. In summary, it seems plain from the authorities that the fact the question of whether there is an implied contract of employment between a worker supplied by an agency and the end-user arises in the context of employment relationships does not mean that the common law of contract should be departed from. That being so, whilst it will be pertinent to consider whether there is an implied contract of employment, it can only be concluded that one exists or existed where it is necessary to do so and such implication will not be appropriate unless the arrangements under which the person is working are only explicable by there being such a contract. If they are explicable by reference to the existing written contracts then there will be no room for any such implication unless of course it can properly be concluded that those contracts were but a sham. It was, however, never suggested that the contracts in the present case were a sham or misrepresentation.

The Appeal

16. In a clear and cogent submission, Mr Cran argued that the Tribunal had erred in law in respect that the Chairman appeared to have proceeded on the basis that Dacas displaced the standard principles regulating the circumstances in which an implied contract can arise. He had thus failed to appreciate that the "necessity" test remained fundamental. He did so under reference to the authorities to which I have already referred and to the cases of Astbury v Gist Ltd UKEAT/0619/06/DA and Craigie v London Borough of Haringey UKEAT/0556/06/JOJ.
17. He added that, in his concentration on the matters of control and mutuality of obligations, the Chairman had treated the case as if it was a "casual worker" case rather than one where the issue was whether or not a worker was employed by the end–user in an agency arrangement. It was misleading for him to have placed so much emphasis on these matters; it was of no assistance unless the conduct of parties in that regard was inconsistent with the express contracts in the case. The Chairman had not, as he should, asked himself whether the situation that existed was explained by the existing contracts. The factors relied on by him were as consistent with those contracts. There were, however, no findings of fact that took the case beyond them. There was nothing more than the arrangements which were consistent with those contracts.
18. In these circumstances, the decision of the tribunal ought to be set aside and a determination that the claimant was not an employee of the respondents substituted.
19. For the claimant, Ms McCrossan did not take issue with the analysis of the law put forward by Mr Cran. James had not, though, been available at the time of the Tribunal's decision. She said that the effect of Dacas was that a Tribunal was entitled to imply a contract of employment between worker and end-user if that was a necessary inference from the facts. She then went through the various facts found regarding the arrangements under which the claimant worked and submitted that the agency relationship did not reflect the reality. The only explanation was, she said, one of a contract of employment existing between the claimant and the respondents. She did not seek to explain in what way those arrangements were not explained by the express contracts that had been entered into. It was open to the Chairman to decide as he had done.

Discussion

20. I am readily persuaded that the Chairman erred in law. He appears to have decided that a contract of employment existed because the respondents had control over the claimant and because there was mutuality of obligation. He seems to have considered, wrongly, that Dacas directed him to conclude that such a contract existed if those elements were present. That is not, however, what Dacas decided, as already discussed.
21. The Chairman has given no consideration to the question of whether or not the arrangements under which the claimant worked were capable of being explained by the existing contracts and, fundamentally, does not appear to have addressed the question of whether it was necessary to imply a contract of employment. If he had considered matters from the point of view of the existing contracts and asked himself whether he needed to go beyond them for an explanation of how it was that the claimant was working in the way that she was working, the answer would have had to be "no". The respondents' control of the claimant had its source in the contractual arrangements between them and the agencies as did the extent to which there was mutuality of obligation between them. Further, quite extensive contractual obligations both in terms of control and mutuality of obligation, subsisted as between the claimant and the agencies. She required, for instance, to submit time sheets to each agency and was obliged to refrain from acting in a manner which could conflict with the agencies' interests. There were numerous respects in which she owed obligations to NES, as is evident from the clauses of her contract with them quoted above. The contractual obligations which she owed to the agencies ceased once she entered into a contract of employment with the respondents in July 2005. The circumstances in which the claimant performed services for the respondents prior thereto were able to be explained in, as Lord Glennie put it in Toms, a "perfectly intelligible" way by reference to the contractual arrangements in place between her and the agencies and between the agencies and the respondents. I do not see that there was any need to imply a contract of service between the respondents and the claimant. In the case of Heatherwood and Hexham Park Hospitals NHS Trust v Kulubowila and ors UKEAT/0633/06 in a succinct statement with which I am in full agreement, HHJ Peter Clark said:

"it is not enough to form the view that because the Claimant looked like an employee of [the Respondent], acted like an employee and was treated like an employee , the business reality is that he was an employee and the ET must therefore imply a contract of employment."

22. It does though rather look as if that is how the Chairman reached the conclusion that he did in the present case yet he was not, on the facts, entitled, in my view, to do so.

Disposal

23. It follows that I will sustain the appeal and substitute for the judgment of the Tribunal a finding that the claimant was not employed by the respondents prior to 1 July 2005 the result of which will be that her claim for unfair dismissal will be dismissed.