United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR R BRADLEY (of Counsel) Instructed by: Marsdens Solicitors 43 St Thomas's Road Chorley Lancashire PR7 1JE
For the Respondent	MR C PRIOR (Solicitor) Brabners Chaffe Street Solicitors 1 Dale Street Liverpool Merseyside L2 2ET


 


SUMMARY

Jurisdictional Points – Worker, employee or neither

Contract of Employment – Whether established

On the question whether the Appellant was employed under a contract of employment, the reasons of the Tribunal did not adequately evaluate and address the second and third aspects of the test in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497.


 


HIS HONOUR JUDGE RICHARDSON

1. This is an appeal against a judgment of the Employment Tribunal sitting in Manchester by Chairman alone. Mrs Millar had brought claims of unfair dismissal, sex discrimination and failure to pay holiday pay against UPVC Designs Ltd, hereafter "the Company", and its sales director, Mr Latimer. At a pre-hearing review the Chairman determined that Mrs Millar was, at the material time, an employee of the Company within the meaning set out in section 230 of the Employment Rights Act 1996. Against that judgment the Company appeals.
2. Within the compass of the appeal there is a second matter before me today, which arises in the following way. When the notice of appeal was considered on paper, the judge who sifted it ordered the Chairman to answer a question pursuant to a practice adopted by many appellate courts, including the Employment Appeal Tribunal (see Burns v Consignia Plc [2004] ICR 1103, Barke v SEETEC Business Technology Centre Ltd [2005] IRLR 633 and paragraph 9.5 of the current EAT Practice Direction). The question for the Tribunal Chairman was: what were the reasons for concluding that Mrs Millar was employed under a contract of employment, other than that there was mutuality of obligation? The order required the Chairman, if practicable, to answer within 28 days; but also gave to the parties leave to apply to vary or discharge the order within 14 days. The Company applied to vary or discharge the order within the 14 day limit but the Chairman had already replied by the time it did so. In these circumstances, the application to vary or discharge was ordered to be heard with the full appeal.

The Background Facts

3. Mrs Millar was engaged by the Company in April 2003 as a sales consultant. She worked in that capacity until 26 September 2003. She was paid throughout on a commission only basis and was responsible for her own tax and national insurance. She was obliged to use her own car and meet her own expenses. She understood that the Company regarded her as self-employed. There were several sales consultants engaged on a similar basis. There was, however, one long-serving sales consultant who was salaried.
4. Mrs Millar was based at a garden centre. The system of work was as follows. The Company had a range of conservatory and other products at the garden centre. A desk manager would be there. Sales consultants would, from time to time, attend. The Company also advertised its products. If a customer showed interest, either on a personal visit or by telephoning, the desk manager would make an appointment with them for a sales consultant to visit them at their home. The sales consultant would follow up the lead, demonstrate the product from samples and seek to gain an order. As a general rule, these leads were offered to sales consultants by the desk manager; although when work fell off a rota was established to ensure that sales consultants were treated fairly.
5. A sales consultant had the right to refuse a lead when it was offered and some did so, particularly if it involved a lot of travel and a low value order. Mrs Millar did, from time to time, refuse leads. There was, the Chairman found, an understanding that the Company would offer to its sales consultants those leads which it had and an obligation on a sales consultant, once he or she had accepted a lead, to follow it up. Given the nature of her work, although the garden centre was her base, Mrs Millar did not spend a great deal of time there. A lot of her time was spent in the evenings, either following up leads or doing the resultant paperwork. There were busy times when the Company wanted sales consultants to be at the garden centre but, if I have understood the Tribunal's finding correctly, there was no compulsion on them to be there. Mrs Millar worked practically full time but not at set hours or locations.
6. I have said that Mrs Millar was paid commission only. She could, if she wished, negotiate with a customer within the limits of her commission; foregoing some of her commission to close a deal. Otherwise only the Company could choose to reduce its prices. She was responsible for her own car, her own running expenses for the car and even what were termed on her Inland Revenue tax return as client gifts. The Company paid none of these. It provided, however, visiting cards, literature, samples and the use of a digital camera.

The Chairman's Reasons

7. The Chairman's reasons contained a number of paragraphs setting out the facts he found, which I have already sought to summarise. He commented on the provision by Mrs Millar of "client gifts" which he said would be "extraordinary if not inconceivable" for an employee. He continued:

"13. There is an issue of control. The respondent, in practice, throughout the period of this contract, did not seek to exercise any control over what leads the claimant rejected, what hours she worked and how she went about the sales job – presumably with the proviso that she must do so lawfully. Over the course of the years the arrangement had become established, not only for the claimant but the other sales consultants, that the respondent would provide leads when it had them to provide, the claimant would in general undertake those offered to her and the respondent would reward her success by paying commission. This was not only the minimum in the contract between the two, which was oral and not in writing and partly implied, but it was very near the maximum of the contract. Both parties, for the working of the contract, relied upon the mutual benefit which they would derive from it.

"14. There was incentive to the claimant to do the work offered to her and thereby earn commission – or at least thereby to have a prospect of earning commission – and there was incentive upon the respondent to provide leads to a trained sales consultant and it had trained the claimant. If there were insufficient leads to satisfy the claimant and provide sufficient incentive for her she would complain. She and others did so at one point when business was very low and the respondent made adjustments, such as the rota for allocating work, which Mr Latimer started to operate. There was an understanding that the respondent would provide what work it could to the claimant and to the sales consultants."

8. The issues which the Chairman had to determine were whether Mrs Millar was (1) an employee, in which case she would be entitled to claim unfair dismissal, (2) a "worker", in which case she would be able to claim holiday pay, and (3) an employee under the wider definition in section 82 of the Sex Discrimination Act 1975, in which case she would be able to claim sex discrimination in the Tribunal. Today it is conceded on the part of the Company that Mrs Millar was a "worker" for the purpose of a holiday pay claim and an employee within the wider definition in section 82 of the Sex Discrimination Act, but the question whether she was an employee for the purpose of unfair dismissal is still very much in issue.
9. After referring to these issues and to the statutory provisions, the Chairman summarised the submissions of Mr Bradley for the Company and Mr Prior for Mrs Millar. He said that he had been referred in particular to Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 and to Cotswold Developments Construction Ltd v Williams [2006] IRLR 181. His conclusions were expressed as follows:

"21. For the claimant, Mr Prior has contained his submissions in a written argument, for which I am obliged. I annex it to these Reasons and I do not rehearse it in them. I have studied them carefully and in particular have read carefully the judgment of the EAT in Cotswold Developments. It is interesting indeed, in that last authority, to read the words of Langstaffe J as they appear in paragraphs 53 onwards and he emphasises the need to focus upon the mutual obligations which may exist between the parties. The biggest threat, if not the only threat to this suggestion of mutuality of obligation in this case, is the right of the claimant to refuse work and the right of the employer not to offer it. Langstaffe J says, in paragraph 55:

'That it is that it does not deprive an overriding contract of such mutual obligations that the employee has the right to refuse work. Nor does it do so where the employer may exercise a choice to withhold work. The focus must be upon whether or not there is some obligation upon an individual to work and some obligation upon the other party to provide or pay for it. Stephenson LJ in Nethermere put it as 'an irreducible minimum of obligation.'

"22. As I have already said, that was the minimum which applied here. This was an ongoing relationship of some three years' duration between the parties in which it functioned to their mutual benefit and by their mutual agreement on the minimum basis that the respondent would provide to the claimant what leads it could to enable here to make sales and earn commission, the claimant would follow up such of those leads as she reasonably could and the respondent would pay her for her success. Taking into account the principles which are established and reiterated by Langstaffe J in Cotswold Developments, I conclude – though not, I must confess, without some difficulty – that this arrangement between the parties was one which satisfies the definition of employment in Section 230 of the Employment Rights Act 1996. It follows from that that the claimant's claims of unfair dismissal, breach of Part II Employment Rights Act 1996 and sex discrimination shall proceed. Case Management Orders in respect of them will be sent to the parties in standard written form."

The Chairman's Answer

10. I have already explained that the Chairman was asked what were the reasons for concluding that Mrs Millar was employed under a contract of employment, other than that there was mutuality of obligation. His reply was as follows:

"The Chairman apologies if the whole of his reasoning was not apparent from the Judgment and its Reasons. The reasons for his finding were, put fairly briefly, as follows:

1. As the reasons do make clear, there was a mutuality of obligation.

2. Further than that and transcending the face of the contractual documents, there had grown between the parties a commercial interdependence which had the flavour of an employment relationship rather than one of independent contractor.

3. The claimant was not able to use a substitute, she was not in business on her own account, and she was not able to trade with anyone else.

4. The claimant was dependent upon the respondent for the supply of work dependent exclusively upon the respondent for the supply of work and was, in reality, obliged to perform it when given it.

5. In practical terms, there was an obligation on the Company to provide work.

6. The fact that remuneration was on a commission-only basis did not so dominate the relationship as to keep the parties sufficiently at arms length for it to be a contract for services.

7. While there was flexibility as to times of work and a degree of choice as to "contract leads" to be accepted by the claimant, this was in reality a flexibility that suited both parties for the performance of the contract and did not significantly dilute the mutuality of their obligations.

8. As was submitted, in closing, on behalf of the claimant, the test was what the relationship had grown to be over a period of time.

This was not an easy case to resolve. It was a borderline one but on balance I concluded that the overriding flavour of the relationship was one that was characteristic of an employment relationship rather than of a contract for services."

The Statutory Provisions

11. Section 230(1) and (2) provide:

"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.

(2) In this Act "contract of employment" means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing."

Submissions

12. On behalf of the Company, Mr Bradley submits that the Chairman's original reasons began and ended with a consideration of whether there were mutual obligations. This, he submits, is a patent error. To find that there was mutuality of obligations meant no more than that there was a contract of some kind. The Chairman should then have considered the nature of the contract to identify whether it was, in reality, a contract of service.
13. Mr Bradley further submits that even if it were appropriate to look at the Chairman's answer, it did not cure the deficiencies in the earlier decision or reason adequately from the findings of fact that had been made. Further, he argues that the Tribunal has still not correctly applied the principles of law pursuant to Ready Mixed Concrete and Cotswold Developments, and that some of the further reasons which the Chairman has given do not square with the original findings of fact. He refers, in particular, to paragraphs 3 and 4 of the further reasons as being difficult to square with the original decision.
14. In addition, Mr Bradley submits that the order requiring the Chairman to give those reasons should be set aside. He submits that this was not an appropriate case for use of the Burns-Barke procedure. For this procedure to be apposite, he submits that the ground of appeal must be a lack of reasons, see English v Emery Reinbold & Strick Ltd [2002] 1 WLR 2409 at paragraph 25. He submits that his notice of appeal contained no such grounds and that even if the grounds of appeal related to lack of reasons the procedure would not be apposite because there was a real risk that supplemental reasons would be a reconstruction of proper reasons rather than the unexpressed actual reasons for the decision.
15. Moreover, he submits that even if in principle the case was appropriate for use of the Burns-Barke procedure, the Appeal Tribunal did not operate it correctly in this case. He submits that it was inappropriate for the Chairman to be asked to answer the question before the 14 days allowed for the application to vary or discharge the order had expired. He submits that the question was effectively a leading question, signalling to the Chairman that there must be some further reasons for his decision when he may have had no further reason.
16. On behalf of Mrs Millar, Mr Prior submits that the original decision was correct. He says that the Chairman can be seen to have applied the correct test, as set out in Costwold Developments at paragraph 61, by first considering the question of mutuality of obligations and then moving on to other relevant factors. He points out that the Chairman was addressed fully by both parties on all aspects of the issue, including control. He refers me to paragraph 60 of his own submissions, which specifically addressed the issue of control, and also to Mr Bradley's submissions as recorded by the Tribunal Chairman in his reasons. He submits that the Tribunal Chairman made adequate findings on the question of control in paragraph 13 of his reasons, which I have already quoted. He argues that there were aspects in which the Company controlled what Mrs Millar did; for example, in the prices she was quoted, the literature she had to use and so forth. He submits that paragraphs 21 and 22 of the Chairman's reasons should not be read as restricted to the question of mutuality of obligation.
17. Mr Prior further submits in any event that the Appeal Tribunal is entitled to look at the additional reasons given by the Chairman. These, he submits, showed that the Chairman's decision was not restricted to the question of mutuality and contained no error of law. He submits that there was no significant conflict between the findings in the original reasons and the additional reasons which were given.
18. On the question of Burns-Barke remission, Mr Prior submits that the procedure was appropriately used. He submits that on analysis the notice of appeal was, in reality, complaining of want of reasons; and further, in any event, he submits that the procedure was not to be applied restrictively but could be applied whenever the reasoning of the Tribunal left out of account an important factor. He relied on the nature of the remissions in both Burns and Barke.

My Conclusions

19. A tribunal will not err in law if it keeps in mind the well-known definition of a contract of service offered by McKenna J in the Ready Mixed Concrete case:

"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."

20. McKenna J then made further observations concerning the first two elements of his definition:

"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: see Atiyah's Vicarious Liability in the Law of Torts (1967) pp. 59 to 61 and the cases cited by him.

As to (ii). Control includes he power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing 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 scope for it. And there must always be some room for it, if only in incidental or collateral matters." – Zuijs v. Wirth Brothers Proprietary Ltd.

To find where the right resides one must look first to the express terms of the contract, and if they deal fully with the matter one may look no further. If the contract does not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication."

21. There follows in Ready Mixed Concrete a lengthy discussion of what McKenna J meant when he said that other provisions of the contract must be consistent with the existence of a contract of service. That discussion always repays study but it is not necessary to reproduce it in this judgment.
22. In Cotswold Developments Langstaff J discussed the concept of "mutuality of obligation", a phrase which has come to prominence in authorities since 1984. He explained that the concept could be used in different contexts with different meanings. Firstly, for example, it could be used in the context of deciding whether there was a contract at all. Secondly, it could be used in the specific context of deciding whether a contract was a contract of employment. In the latter context, it referred to what Langstaff J called the "wage work bargain" (see paragraphs 47 to 48 of the judgment).
23. It was in this context that Langstaff J said:

"We are concerned that tribunals generally, ,and this tribunal in particular, may, however, have misunderstood something further which characterises the application of 'mutuality of obligation' in the sense of the wage/work bargain. That is that it does not deprive an overriding contract of such mutual obligations that the employee has the right to refuse work. Nor does it do so where the employer may exercise a choice to withhold work. The focus must be upon whether or not there is some obligation upon an individual to work, and some obligation upon the other party to provide or pay for it. Stevenson LJ in Nethermere put it as '…an irreducible minimum of obligation…'".

24. In paragraph 55 of his judgment, Langstaff J went on to quote from Dillon LJ in Nethermere (St Neots) Ltd v Taverna & Gardiner [1984] IRLR 240 where he said:

"The mere facts that the outworkers could fix their own hours of work, could take holidays and time off when they wished and could vary how many garments they were willing to take on any day or even to take none on a particular day, while undoubtedly factors for the industrial tribunal to consider in deciding whether or not there was a contract of service, do not as a matter of law negative the existence of such a contract."

25. The Chairman seems to have regarded paragraph 55 of the judgment in Cotswold Developments as critical to his decision on whether there was a contract of employment. In this case the argument that some form of overriding or all-embracing contract existed was overwhelming. The question was the nature of that contract. In this context the second and third questions posed by McKenna J in Ready Mixed Concrete required to be carefully addressed and carefully answered. Contrary to the submission of Mr Prior, I see no sign in paragraphs 21 and 22 that the Chairman has addressed his mind to that task. I appreciate, of course, that he has recited submissions by the parties which embraced the issues, but he has not evaluated them and stated his conclusions. In a case which he plainly regarded as causing him some difficulty, this was an essential task.
26. The question then arises: why did he not undertake that task? It is particularly surprising not to see in paragraph 21 and 22 of the reasons any reference to the second element of McKenna J's definition which relates to the issue of control. Whether the Company had a right to control Mrs Millar's work sufficiently to make it her master was a central question in the case. On the Chairman's findings, the Company could not control her in important respects. It could not require her to follow up a particular lead. It could not require her to work at particular times. It could not require her to come into a garden centre to help at peak periods, if I have understood that finding correctly. It is unclear in what, if any, respects the Chairman considered that the Company had a right to control her work. Although, as Mr Prior pointed out, there is some discussion of this matter in paragraph 13 of the reasons which I have quoted already, there is no evaluation of the question - which the Ready Mixed Concrete case requires to be addressed.
27. I find myself concluding that in his reasons the Chairman overlooked this matter, treating the dictum of Dillon LJ as applying to this point when it addressed a different issue. For these reasons I have no doubt that the Chairman's original reasoning cannot stand. I conclude that he has misunderstood the significance of Cotswold Developments to the extent that he has not addressed his mind to and evaluated matters which he ought to have taken into account.
28. I find it convenient next to leave on one side for a moment the question whether the Chairman should have been asked for further reasons and to consider whether, even taking into account the further reasons, there is an error of law in the decision. To my mind, the additional reasons cannot save the decision for two fundamental reasons.
29. First, the additional reasons do not address and do not answer the question whether the Company had a sufficient right to control the work of Mrs Millar to make it her employer. This is an essential question for a tribunal to consider. It is not, of course, a bright line test, as the judgment of McKenna J itself makes clear; there are some kinds of work where the scope for control is limited. Nevertheless the question of control is one which must be addressed and evaluated. Nothing in the Cotswold Developments case detracts from the importance of this question. Indeed, the last paragraph of the judgment reiterates it. I am still left, even after reading the additional reasons, with the conclusion that the Chairman has reached his decision broadly on grounds of mutuality without properly applying the law on this question.
30. Secondly, although I do not think there are many respects in which the additional reasons sit uneasily with the original findings of fact, the finding in paragraph 4 of the additional reasons, that Mrs Millar was in reality obliged to perform the work when given, either means much less than it at first sight appears to mean or does not sit easily with the finding that she could and did reject leads. It may be that the Chairman meant to say no more than that once Mrs Millar had accepted a lead, she was obliged to follow it up. If that is all he meant, the additional reasoning adds little. If he meant more than that, it is, to my mind, inconsistent with the original findings of fact.
31. For these reasons I consider that the Chairman's decision cannot stand. Whether or not I look at the Chairman's further reasons, I consider that he erred in law.
32. Against that background, I propose to say only a limited amount about the application to set aside the Appeal Tribunal's order dated 16 May 2007. An application to set aside the order is, of course, a rehearing. I am not in any way bound by the original order and I decide the matter as at today's date in the light of the events which have occurred. Since, on the conclusions I have reached, no useful purpose would be served now by revoking or varying the order, I will make no order on the application. I would now not revoke the order or vary it and, since no procedural injustice has accrued to either side on my view of the case, I see no purpose in considering at length whether the order was appropriate when made.
33. In passing, I would comment on one aspect of procedure. The standard form of Burns-Barke order used by the Appeal Tribunal does leave open the possibility that, as here, a Chairman may reply before an application to set aside is made in accordance with the terms of the order. Mr Bradley criticised that feature of the order. While I can see some force in that criticism, the following should also be borne in mind.
34. First, it is important that the Tribunal should, if asked to give further reasons, consider the matter as soon as possible. The present form of order assists in achieving that result. If a form of order were developed which was predicated on the basis that the Tribunal should wait until after a contested application to set aside were determined before replying, it would cause delay where time considerations are important. Second, applications to set aside are rare and it is even rarer for the Chairman to have replied before the application is made. So if the form of order were changed it might introduce into the majority of Burns-Barke orders an element of unnecessary delay for the purpose of catering for a rare case.
35. For these reasons, I do not express any view in this case about the desirability of changing the Appeal Tribunal's standard form of order. If the standard form of order is shown to cause difficulty, whether to change it is best considered through established channels for procedural matters.
36. The final question which I have to consider is whether remission should be to the same Chairman or to a fresh Tribunal or Chairman. The general approach to this question is set out in Sinclair Roche & Temperley v Heard [2004] IRLR 763. In the end, on the particular facts of this case, I have come to the conclusion that the matter should not be remitted to the same Chairman. He has now given reasons twice. It would be very difficult for him now to approach the matter entirely afresh. For these reasons, I think that the question whether Mrs Millar was an employee should be reconsidered afresh.
37. I should, however, make it clear that I am not necessarily concluding that the question should be considered afresh at a separate hearing by means of pre-hearing review by Chairman alone. There are, to my mind, considerations in favour of the question whether there is a contract of employment being considered at the same time as the substantive claims. Now that it is conceded that Mrs Millar is a worker for the purpose of the 1996 Act and an employee for the purpose of the Sex Discrimination Act, it is certain that there will have to be a final hearing. It is not obvious to me that there are great advantages in having a separate hearing on the question whether there is a contract of employment.