United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR TARAKNATH UPALI COORAY (of Counsel) Instructed by: Messrs Tarlo Lyons Solicitors Watchmaker Court 33 St John's Lane LONDON EC1M 4DB
For the First Respondent	MR OLIVER SEGAL (of Counsel) Instructed by: Messrs Walker Smith & Way Solicitors 26 Nicholas Street CHESTER CH1 2PQ
For the Second Respondent	MR SIMON GORTON (of Counsel) Instructed by: JST Lawyers Colonial Chambers 3-11 Temple Street LIVERPOOL Merseyside L2 5RH

SUMMARY

CONTRACT OF EMPLOYMENT – Definition of employee

Employment tribunal concluded in the particular circumstances of the case that an agency supplying workers to a third party had entered into contracts of employment with those workers. The EAT held that this was a conclusion the Chairman was entitled to reach. Whilst it will no doubt be an exceptional case where such a finding can properly be made, the fact that it is the end user and not the agency which exercises control over the actual operation of the work does not, as a matter of law, prevent a contract of employment arising between the agency and the employee. Various grounds of challenge considered and rejected.


 


THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)

1. The appellant in this case is an employment agency ("the agency") which provides staff principally for food processing factories and hotels. Most of those registered on their books are Polish nationals. This appeal concerns the employment status of staff who were provided to the second respondent, a company which produces food products, Welsh Country Foods Ltd. and which is a member of the Grampian group of companies. I will hereafter refer to the staff as the claimants, as they were below, although they are the respondents to this appeal.
2. The claimants have all contended that they had been dismissed for proposed trade union membership or activities contrary to s152 of the Trade Union and Labour Relations (Consolidation) Act 1992; that they had been denied notice pay in breach of contract; and that there has been certain unlawful deduction from wages. For the last of these claims it is sufficient that they are workers within the relevant statutory definition; for the other two they need to be employees. (However, they may have a claim, even if they are workers but not employees, for their dismissal for union membership or activities pursuant to s146 of the 1992 Act, although that has not currently been pleaded.)
3. As a preliminary issue, the question arose as to whether they were employees or workers or neither and, if so, with the agency or with the Welsh Country Foods Ltd. Mr Cooray, who appeared for the agency below and does so again here, told me that in fact the Tribunal below concentrated on whether the claimants were employees and there was no real focus on whether they were workers independently of their employee status. Perhaps this was because the Chairman having found that they were employees of the agency; it follows that they must also be workers within the statutory definition. It is alleged that the Tribunal erred in law in reaching the conclusion that they were either workers or employees. Welsh Country Foods was named as a respondent to the appeal, but no one is now challenging the Tribunal's conclusion that it was not the employer of these claimants.
4. Both counsel before me said that they were expecting in this appeal only to argue the question whether the Chairman was right to find that the claimants had the status of employees. Neither had anticipated that they should address the alternative possibility that they might be workers but not employees. However, that is clearly an important issue to be resolved in this litigation, and the logic of the arguments they advanced dealt with both issues. I am satisfied that I am able to reach conclusions on them both.

The material facts

5. The background can be briefly summarised. The claimants are Polish nationals with, for the most part, limited English. The agency provides staff to work principally in hotels but also in food processing factories. The claimants arranged for the agency to place them in work when they were still in Poland. They came to the United Kingdom at the end of April where they were accommodated by the agency in a hostel where other Poles were already living.
6. They signed contracts with the agency on 2 May 2007 and started work with Welsh Country Foods on 6 May. Money was deducted for accommodation and cleaning charges. This amounted to some £56.40 per week. Ms Bachorska, one of the claimants who gave evidence to the Tribunal, alleged, and the Tribunal appear to have accepted, that she was refused time off work when she requested it. The claimants sought to join the Transport & General Workers' Union they allege that they were discouraged from doing so and were subsequently dismissed.
7. The contract which they entered with the agency is entitled "Self employed sub-contractor's Contract for Services." It purports to be the "entire agreement between the parties" which can only be varied in writing, signed by both parties. The material terms relevant to this appeal are as follows:

"Duration.

This contract shall run from [date] until termination [the term]by either party giving two weeks notice but if the subcontractor breach or persistently fail to fulfil this agreement, Consistent may terminate it forthwith. ….

Obligations.

The subcontractor shall provide services on an ad hoc casual basis from the date as required by Consistent. While Consistent will try to give the sub-contractor as much notice as possible when offering work, there is no obligation upon Consistent to provide such work nor upon the sub-contractor to accept any work so offered and Consistent may use the services of the sub-contractor only when mutually agreed with no obligation by the party other than to honour a specific pre-agreed period of engagement. The sub-contractor is not an employee of Consistent and is not entitled to any fringe benefits such as sick pay, holiday pay or pension rights.

Substitution

"Where the sub-contractor has agreed to provide service to Consistent he shall perform the services himself or if he cannot he shall inform Consistent and shall ensure that the services are performed by the personnel whom the sub-contractor warrants and undertakes will be competent, suitable and sufficiently experienced."

"Personnel" is defined as "the sub-contractor's servants or agents."

"Circumvention.

"…The subcontractor may provide services to any other person if, in Consistent's reasonable opinion, there is no conflict with or circumvention of the subcontractor's ability to provide services for Consistent or to Clients."

8. In practice the agency provides accommodation for the staff, although it is not legally obliged to do so. It also provides transport. Various clauses in the agreement are concerned with the deductions which may be made for these and other services, such as translation and accountancy; and also with the obligations of the staff with respect to the lodgings, such as the payment of deposits and the standards of behaviour expected.
9. There was a separate document headed "Being Self-Employed - what it means" (the "self employed" document.) Mr Cooray submits that it was given to the claimants at the same time as the contract. It is dated the same day and was apparently also signed by the claimants. The Tribunal stated that it was given to staff after they had signed the contract, and I am bound by that finding. In any event, it states in terms that it is the employer's explanation of what self employed status means. In various respects this document differs from the contract but it is plainly not a contractual document and cannot be interpreted so as to amend the contract proper. At best, if the parties act in accordance with its terms, that practice might be some evidence of what the parties intended the contract itself to mean: see Carmichael v National Power plc [2000] IRLR 43 at para 34-35 per Lord Hoffmann.
10. Finally the Tribunal referred to document which sets out the contractual relationship between the agency and the client (which I take to be Grampian) in relation to the latter's hotel business. As the Chairman noted, the particular contract produced before him was entered into after these claimants were dismissed, and it did not specifically apply to the food processing activity. However, he took it to represent the contract in existence at the time; no separate contract relating to food processing was adduced before him. Relevant provisions identified by the Chairman were as follows (paras 3.4-3.5):

"The respondents have an agreement together. It is at page 158 to 163 of the bundle (AR1). It is dated 12 September 2005. Thus the document before me was not operative at the time relevant to this case. But I did not hear that when it was made, there was any wish or need materially to alter any term of the existing relationship between the two. The agreement provides that the first respondents provide staff to the second respondents, and the latter pay the former for such service. In particular I took note of this provision (at paragraph 1 on page 159):-

"You [the second respondents] will be expected to provide a minimum of 48 hours work a week for each of our staff. Experience shows that they resign if you do not".

And paragraph 6 reads:-

"All staff introduced by us shall remain employed by us and may not work at your hotel through any other medium (e.g. self-employed, employed directly or employed through another agency)".

3.5 In paragraph 14 at page 160, the expectation of 48 hours' employment has hardened into an obligation (under "The Client's Obligations"):-

"The client shall provide a minimum of 48 hours' work per full week (or pro rata) for each of the staff".

Further, at paragraph 26 on page 161, it is provided that:-

"The client shall be responsible for providing to the staff day-to-day instructions relating to the services required …"

11. Mr Cooray says that it was unjust for the Tribunal to identify these clauses because of uncontradicted evidence that it had been made clear by Welsh Country Foods that they would not guarantee 48 hours a week and were willing only to recruit staff as and when required. As I understand it, Mr Segal was not in a position to accept that this was necessarily so because he did not represent the claimants below. In any event the contract demonstrates the kind of arrangement which the agency will typically seek when placing staff and it was not suggested that these staff were different from normal.

The law

12. The relevant legislation applying to most of these claims is the Employment Rights Act 1996. The definition of 'worker', 'employee' and "employer" is found in s 230:

"(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 of apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

(3) In this Act "worker" (except in the phrases "shop worker" and "betting 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 express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;

and any reference to a worker's contract shall be construed accordingly.

(4) In this Act "employer", in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed."

13. It follows from these definitions that whilst all employees are workers, not all workers are employees. The concept of employee is narrower, although both concepts require that there must be some obligation to perform services personally. The absence of any such obligation will mean that the status is not that of worker or employee. (In this judgment although I sometimes contrast employees and workers, it must be remembered that employees are a particular sub-category of workers).

The Tribunal's conclusion

14. The Tribunal noted that the terms of the contract between the agency and the workers purported to identify them as individuals employed under a contract for services. The Chairman considered whether or not that statement was accurate. He observed that if rights normally afforded to workers were to be removed from them then the contractual provision must be clear and unambiguous.
15. In this case he considered that there was sufficient personal obligation to create the relationship of worker and indeed employee. The employee was not obliged to work if he could not but otherwise, once he had at least accepted a particular engagement, he did have that obligation. When he was able to work he was obliged to do so.
16. He noted that the agency told the claimants what to do and where to go and they provided transport for those purposes. Furthermore, the contract between the agency and the end user purported to represent that the agency was the employer of the relevant staff. It provided that at least for the first three months:

"Any staff introduced by us shall remain employed by us and may not work at your hotel through any other medium, e.g. self-employed."

17. The Chairman observed that the agency could not claim the advantage of being employers in their relations with the end users and yet seek to contend that the staff were self employed in their relations with them. Similarly, he put weight on the fact that there was an obligation on the clients to provide 48 hours a week and inferred from this that there must be an implied obligation on the agency to provide work to the claimants.
18. The Chairman concluded that in practice there was significant control over the claimants' working lives; that the purported denial of their employee status was ineffective as a matter of law; and that the written terms did not truly reflect the relationship between the parties. He summarised the position thus (para 5.10):

"There were parts of the written contract that indeed set out the actual terms under which the claimants worker – those, for instance, as to wages or, indeed, the obligation to work. But I noted the frequency with which the first respondents in the documents sought to emphasize the absence of rights – holiday pay, fringe benefits, the right to complain of unfair dismissal. These were their real concern. They in practice retained a firm measure of effective control over the claimants' working lives. They told them when and where they had to work, they might deny them days off, they provided them with transport and accommodation (taken away, as it proved, without notice). They ensured further economy in the claimants' employment by charging them for domestic services that were not provided. Here were seekers after work who could not adequately speak English, newly arrived here, for whom any purported freedom to work or not work, to work for more than one employer, were unreal. They were discouraged from union membership. The first respondents wanted to constrain them so as to retain them as compliant people through whom they could meet the demands of their clients. But they did not want people with expensive and troublesome rights. The provisions as to the right not to accept work or to work for other employers were a sham inserted into the documents to give the appearance of relieving the first respondents from the burdens of being employers, not seriously to reflect the actual relationship between the parties. The respondents, in effect, wanted employees, but did not want to pay the necessary price."

The grounds of appeal

19. There are a whole series of grounds directed both to the general approach of the Chairman and to his specific findings. As to the former, Mr Cooray makes three general complaints about the decision.
20. First, he has suggested that the self-employed document was not given sufficient weight. For reasons I have given, it is in my view clear that this is not a contractual document and could not "trump" inconsistent words in the contract itself.
21. Second, he complains that there are certain findings of fact which flew in the face of the evidence. In particular he identified a number of areas where he said it had become plain that Ms Bachorska was not telling the truth, and others where evidence was given for the first time before the Tribunal of matters which one could reasonably expect to have been mentioned earlier, if true. Yet on certain matters - and in particular the disputed fact that she had been refused time off when she had asked for it - she had been believed in the face of these striking defects in her evidence.
22. A third and related complaint was that if the Tribunal was going to accept her evidence in preference to that given by the respondent, the Chairman should at the very least have given reasons why he had reached that conclusion. Mr Cooray relied upon the following observations of Henry LJ in Flannery v Halifax Estate Agencies [2001] WLR 377, cited with approval by the then Master of the Rolls, Lord Phillips, in English v Emery Reimbold & Strick Ltd. [2002] ESCA Civ 605; [2003] IRLR 710, para 6:

"(3) The extent of the duty, or rather the reach of what is required to fulfil n the subject-matter. Where there is a straightforward factual dispute whose resolution depends simply on which witness is telling the truth about events which he claims to recall, it is likely to be enough for the judge (having, no doubt summarised the evidence) to indicate simply that he believes X rather than Y; indeed, there may be nothing else to say. But where the dispute involves something in the nature of an intellectual exchange, with reasons and analysis advanced on either side, the judge must enter into the issues canvassed before him and explain why he prefers one case over the other. This is likely to apply particularly in litigation where, as here, there is disputed expert evidence, but it is not necessarily limited to such cases.

(4) This is not to suggest that there is one rule for cases concerning the witnesses truthfulness or recall of events, and another for cases where the issue depends on reasoning or analysis (with experts or otherwise). The rule is the same: the judge must explain why he has reached his decision. The question is always, what is required of the judge to do so; and that will differ from case to case. Transparency should be the watchword."

23. Lord Phillips MR later said this (para 19):

"It follows that, if the appellate process is to work satisfactorily, the judgment must enable the appellate court to understand why the judge reached his decision. This does not mean that every factor which weighed with the judge in his appraisal of the evidence has to be identified and explained. But the issues the resolution of which were vital to the judge's conclusion should be identified and the manner in which he resolved them explained. It is not possible to provide a template for this process. It need not involve a lengthy judgment. It does require the judge to identify and record those matters which were critical to his decision. If the critical issue was one of fact, it may be enough to say that one witness was preferred to another because the one manifestly had a clearer recollection of the material facts or the other gave answers which demonstrated that his recollection could not be relied upon."

24. As to these grounds of appeal, Mr Segal submitted that the assessment of witnesses is classically the task of the tribunal; it may prefer one witness to another, or find a witness accurate in certain respects but unreliable in another. Provided there is some evidence which the tribunal accepts which is capable of sustaining the tribunal's conclusion, and it is not disputed that there was here, then the EAT cannot interfere.
25. I accept that particular submission, which is well grounded in the jurisprudence of this Tribunal. If there is evidence to sustain a finding of the employment tribunal, that is enough. It is not for this Tribunal to assess the weight of evidence.
26. I do, however, have some concerns about the failure by the Chairman to indicate why he was preferring Ms Bachorska's evidence over that given by witnesses for the agency. Indeed, it is not clear from the decision that the evidence he accepted was disputed at all. It would have been desirable if at least a brief indication had been given as to why he had assessed the evidence in that way, but there is no explanation.
27. However, in my judgment this failure does not begin to warrant a fresh hearing, as Mr Cooray submits. First, the findings based on the conflict of evidence were only part of the material relied upon by the Chairman in reaching his decision, and not in my judgment a particularly important part; unlike the issues in the Emery case, it was not the crucial issue in dispute between the parties. Second, the finding itself on this point is clear; the Chairman plainly did accept Ms Bachorska's evidence on this point. Third, reading the judgment as a whole, it is clear why the Chairman reached the decision he did, which is what Lord Phillips indicates is the essential requirement, even if it not obvious why he preferred Ms Bachorska's evidence on one particular issue. The essential obligation to provide a reasoned judgment has in my view been complied with.
28. The other grounds of appeal are directed to particular findings of the Chairman. However, the implications of these findings were not fully explored before me. Some are material to the question whether there the status of worker at all; others are primarily directed to the issue whether that status would continued in periods when no work was provided; and the issue of control in particular is central to the question whether the claimants had the status of employees working under contracts of employment. In my opinion the analysis of the grounds raised in this appeal is assisted by identifying their relevance to the following three questions:

(1) Are the claimants obliged personally to perform any work or services at all for the agency? If there is no obligation of that nature, the claimants neither fall into the category of worker or employee.

(2) Are there mutual obligations establishing an overall umbrella contract even when the claimants are not performing a particular engagement? This may be relevant if the contract was held to be terminated outside a pre-agreed period of engagement.

(3) Is there sufficient control exercised by the agency to entitle the Chairman to conclude that the status was that of an employee?

I will deal with the various grounds of appeal as they relate to each of these issues.

Is there a duty of personal service?

29. On any view, it is clear that there is an obligation on the putative worker to "honour a specifically agreed period of engagement" and that there is a contract in place at least during that period. That is what the contract says in terms.
30. The only question then which arises is whether that is a duty which can be delegated in all circumstances so that there is no personal obligation imposed on the worker to do anything at all. If an individual to provide a substitute whenever he or she chooses then that would be inconsistent with him having the status of a worker or an employee: see the observations of Peter Gibson LJ in Express & Echo Publications v Tanton [1999] ICR 693,699-700. In that case the claimant had no such obligation because he could appoint a substitute if "unable or unwilling" to work.
31. However, the fact that there is a limited or occasional right to delegate is not inconsistent with the contract to perform work personally. That would seem self-evident, and relevant authorities supporting that proposition are found in the judgment of the EAT (Recorder Underhill presiding) in Byrne Brothers (Farmwork) Ltd v Baird [2002] IRLR 96, at paras 13-14.
32. Whether there is an unlimited power to delegate depends upon a construction of the substitution clause in the contract There is clear authority that where a person can appoint a substitute only if he is "unable" to do so, that is only a limited power of delegation since if he is able to work, there is a duty to provide the service personally: see McFarlane v Glasgow City Council [2001] IRLR 7 paras 9-11; and James v Redcat (Brands) Ltd [2007] IRLR 299 at para 34.
33. In this case the duty is to honour the pre-agreed period of engagement unless the employee cannot perform that work, in which case he may, on notice to the company, use a competent substitute. Mr Cooray submits that this means that he can appoint a substitute in all circumstances. In effect he equates 'cannot' with 'chooses not to'.
34. I reject that construction. I agree with the Chairman that the effect of this clause is not to entitle the individual to delegate the work merely because he does not want to do it. It applies only where there is some reason why he cannot do it. If he can do it, he must. I have no doubt that this imposes the primary obligation on the individual personally to perform the work.
35. I accept the submission of Mr Cooray that the fact that a substitute must be sufficiently skilled and experienced to do the job would not of itself negate a conclusion that there was an unfettered power to delegate. Plainly a van driver can only delegate to someone who can drive, as in the Tanton case. In so far as the Chairman was suggesting that a reasonable restriction on the person to whom work could be delegated could of itself justify a finding that there was no unfettered power to delegate- and I am not sure that he was- that would be inconsistent with the Tanton decision. But that is not the reason why the power of delegation is limited here.
36. Mr Cooray further submits that in any event the proper analysis of this clause has to be read in the light of the supplementary self employment document to which I have referred. This states "You can refuse to do the work for any reason". I have already indicated why in my view this document does not assist the agency. But even if it could be considered, it would not in my opinion affect the status as a worker when actually working. For reasons which I developed in some detail in James v Redcat paras 75-93, whether or not there is an obligation to work in the periods between placements does not determine the status of the individual in the period when he is at work.
37. Finally, Mr Cooray submits that there was evidence, ignored by the Tribunal, that from time to time workers did cry off and provide a substitute. That is not the finding of the Tribunal Indeed, as I have said, the Chairman accepted the evidence of Ms Bachorska that she was refused time off when she sought it. In any event, the fact - if it be a fact - that the company did not insist on exercising its legal rights does not demonstrate that it could not have done so as a matter of law.
38. It follows that the basic duty personally to perform services is established. There is a power of delegation, but it is limited and not inconsistent with that duty.

Can the contract continue between engagements?

39. A subsidiary issue which arises, and is potentially relevant, is whether the contract terminates when the particular work stint comes to an end. This raises the question whether there is an overriding or umbrella contract operating during the breaks. That in turn depends upon whether there is some mutuality of obligation existing in that period.
40. Mr Segal maintained that strictly this question was immaterial in this case because the evidence was that these claimants had in fact worked continuously whilst they were on the agency's books; there were no gaps in fact in their employment. That may be right, but there is no express finding to that effect in the decision, and in any event that depends upon how the individual "pre-agreed period of engagement" is defined, and I heard no submissions about that. Furthermore, in my opinion the question whether there were obligations operating between the parties in the intervals between work engagements would be of some potential relevance when considering the issue of control.
41. Typically the nature of the mutual obligations giving rise to an overarching contract will be a duty on the employee to do work if offered it, and some duty placed on the employer to offer work, but the precise nature of the obligations may vary from case to case: see the observations of Sir Christopher Slade in Clark v Oxfordshire Health Authority [1998] IRLR 125 para 41.
42. As noted above, the Tribunal's finding was that there were implied obligations; the employees were obliged to perform work offered; and the employers had an implied duty to provide work. The provisions in the contract ostensibly providing otherwise were a sham. Mr Cooray challenges each of these conclusions.

Duty to accept work offered.

43. The Tribunal's principal ground for concluding that there was a basic duty to do work if offered it was based on the first sentence of the "obligations" clause, namely requiring that a claimant "shall provide services" (emphasis added.)
44. Mr Cooray submits that this places too much weight on the word "shall" and involves reading that sentence out of context. He contends that it is clear on a fair reading of the clause as a whole that there is no obligation to accept work offered. This is further supported by the first sentence of the substitution clause which is premised on the claimant having the right to refuse a job.
45. As a pure matter of construction of the contract I would agree with that submission. I accept that the natural reading of the clause is that no obligations to provide work or to accept it if provided, are created. The obligation to work arises only once a period of engagement has been accepted.
46. However, this is still subject to two further considerations. The first is whether the chairman was entitled to find that this arrangement amounts to a sham. I deal with that issue below. The second relates to the nature of the obligation created by the Circumvention clause. This prevents a claimant from providing services to any other person if in the agency's reasonable opinion it would interfere with his or her ability to provide services to them. In my view this clearly means that the agency can prevent him working elsewhere whilst the contract remains in force. Even if technically he could refuse a particular offer of work, he could be prevented from earning elsewhere during that period. In practice, that comes close to compelling him to take the work offered by the agency if he is to work at all.
47. Mr Cooray submitted that this only required him not to work elsewhere during a period when he had accepted a specific engagement. I do not accept that such a restrictive reading is the natural meaning of the clause. The clause in my view means that for the duration of the contract the claimant cannot work elsewhere if the agency reasonable considers that it would prevent him being available to work for them as they would wish. That is a significant degree of limitation on the worker's freedom during periods when no work is available, and in my judgment is plainly a contractual obligation imposed on the employee even when he is not subject to a particular engagement. It also strongly supports the Chairman's view that in reality there was an obligation on these claimants to accept work for the agency when it was offered.

Was the agency under any duty to provide work?

48. The Tribunal held that it was, focusing in particular upon the fact that the agency had given undertakings with Welsh Country Foods which could only sensibly have been honoured by giving work to these claimants. Mr Cooray says that this is a clear error of law, and involves implying contractual duties from the terms of a separate and distinct contract. He also adds that in any event the Chairman erred in ignoring the uncontroverted evidence that the contractual terms between the agency and Welsh Country Foods had been modified fundamentally so that the contract was only for staff on an "as requested" basis. Finally he says that this duty cannot lawfully be implied since it contradicts the express term.
49. I do not accept that the Chairman was implying terms directly from the contract between the agency and Welsh Country Foods (or, more accurately, Grampian.) Rather the Chairman was simply looking at the surrounding circumstances, including the obligations created by the relationship with the end user, and asking whether they cast light on the nature of the duties imposed between the claimants and the agency. I would, however, accept that the contract with Welsh Foods would not of itself justify the implication made, even if it had not been modified as Mr Cooray alleges. The extent of the agency's obligations may well demonstrate the likelihood that they will want to use all the staff on their books, but it does not in my judgment thereby demonstrate any legal obligations to do so.
50. Having said that, there were other factors emphasised by the Chairman, in particular the fact that accommodation and travel was provided, which are in my judgment highly material in determining the contractual obligation of these parties. I have no doubt that whilst the agency could not guarantee any specific amount of work, and was not therefore promising to provide any, it would be a necessary implication of the arrangement that at least whilst the staff were being accommodated by the agency, and were obliged to provide the rent, they would have a right to priority for any work which was available as against those not so accommodated.
51. That would equally be the case if, as the contract envisages, it was the client who provided the accommodation. An obligation of that nature, coupled with the worker's restricted right to work elsewhere, would in my judgment constitute sufficient mutuality of obligation for the contract to remain in being even when no work was being performed pursuant to a specific engagement. It is true that the Chairman did not imply a duty imposed on the employer in precisely this way, but I think it is implicit in his analysis that certain of the terms were a sham.

Was the relationship a sham?

52. The Chairman held that the provisions relating to the right to refuse work or to work for someone else was a sham. These workers were newly arrived, spoke little English, were in need of employment, and in reality were obliged to work when required. The experience of Ms Bachorska was consistent with that obligation.
53. I was referred to the following definition of a sham given by Lord Diplock in Snook v London and West Riding Investment Ltd [1967] 2QB 786,802 as an arrangement:

"intended 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"

54. Mr Cooray submitted that it was unjust to infer that there was an intention to mislead the court. The parties had simply signed an agreement openly and in good faith. Mr Segal accepted that it was not a sham in the sense of being consciously and deliberately designed to mislead a court. He submitted that the Tribunal, in using that concept, was merely stating that these terms did not in fact reflect the true nature of the relationship, and that the Chairman was fully entitled to reach that conclusion..
55. There is a difference between a sham and a variation. Where the court finds that the contract or certain terms within it are a sham it is making a finding that they never did reflect what the parties true intentions were. Where there is a variation, the agreement as originally entered into is valid and properly reflects the intentions of the parties but subsequent words or conduct create new rights and obligations which may even contradict the original terms.
56. The possibility that the express terms may be dismissed as a sham was recognised by Peter Gibson LJ in Express and Echo v Tanton [1999] ICR 693. That was a case which concerned whether there was an obligation personally to perform the work. The Court of Appeal emphasised that the answer to that question had to be determined by asking what legal obligations bind the parties rather than by focusing on how the contract was actually carried out. So in that case the fact that in practice the individual had always personally carried out the work would not demonstrate that there was a contractual obligation to do so, and the Employment Tribunal decision was overturned for wrongly drawing such an inference.
57. The concern to which tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship. Peter Gibson LJ was alive to the problem. He said this (p 697):

"Of course, it is important that the industrial tribunal should be alert in this area of the law to look at the reality of any obligations. If the obligation is a sham, it will want to say so."

58. In other words, if the reality of the situation is that no-one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.
59. Applying this principle here, in my judgment the Tribunal was entitled to say that that this was a situation where there was no realistic possibility that these claimants, as heavily dependent as they were on the economic power of the agency, would be free to accept work as and when offered, nor to work for someone else whilst the contract they had signed remained in place. They had come from Poland expecting to work for the agency, their continued accommodation depended on doing such work, and there was no realistic chance of their working elsewhere, at least whilst the agency needed their services. On these matters the formal document bore no relationship to reality. Tribunals should take a sensible and robust view of these matters in order to prevent form undermining substance, and this is precisely what this Chairman did. I detect no error of law.
60. In my view, therefore, there is a mutuality of obligation between the parties which continues even when the worker is not working pursuant to a pre-agreed work stint. Furthermore, the nature of these obligations is plainly located in the field of work. It has not been, and could not sensibly be, suggested that these claimants are providing these services in the course of carrying on a business or profession. There can be no real doubt that the provision of personal services is the essential feature of the contract.
61. It follows that in my judgment these claimants are workers for the periods they actually work (which would bring them within the Minimum Wage legislation); and that status will continue in the gaps between work if the above analysis is correct.

The issue of control.

62. This is central to drawing the distinction between the worker and the employee. The test for determining when an individual working for another becomes an employee has been put in various ways, but it is accepted that there must be an irreducible minimum of control before the status of employee is established.
63. Mr Cooray submits that the nature of the control is highly material. He says that unless there is control over the day to day activity of the worker, the control cannot as a matter of law be of such a kind as will entitle a tribunal to find that the status of employee is established. He cited a number of cases in support of this submission, starting with the early case of Yewens v Noakes (1880) 6 QBD 530 Bramwell J defined a servant as "a person subject to the command of his master as to the manner in which he shall do his work"
64. In Lane v Shire Roofing Company [1995] PIQR 417 the question was whether a worker injured at work was an employee or an independent contractor. The Court of Appeal overturned the decision of the first instance judge and held that he was an employee. In the course of his judgment, Henry LJ noted that the determination of the issue is highly fact sensitive, and considered the issue of control as follows:

"First, the element of control will be important; who lays down what is to be done, the way in which it is to be done, the means by which it is to be done, and the time when it is to be done? Who provides (ie hires and fires) the team by which it is to be done, and who provides the material, plant and machinery and tools used?"

65. In Bunce v Postworth Ltd [2006] IRLR 557 the Court of Appeal had to determine whether an employment tribunal had been entitled to conclude that a welder who was regularly provided work by an employment agency was not an employee of that agency and therefore could not bring a claim for unfair dismissal. The worker accepted that there was no overarching or umbrella contract of employment but submitted that there was a contract of employment with the agency established with each separate engagement. The Court held that there was no error of law. It was accepted that the relationship gave rise to a contract for services, but the agency contended that it had insufficient control to create a contract of service.
66. In his judgment Keene LJ referred to the speech of Mummery LJ in Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358 when he said (para 49):

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

67. Keene LJ then focused on the issue of control in this way (para 25):

"The importance of control as a feature of contract of service and in particular control not only over what the worker does but how he does it is long established. In the vicarious liability case of Mersey Docks and Harbour Board v Coggins and Griffiths (Liverpool) Ltd [1947] AC 1 Lord Porter in a well-known passage at page 17 emphasised that what matters is the ability to control the method of performing the tasks. He added

'It is true that in most cases no orders as to how a job should be done are given or required: the man is left to do his own work in his own way. But the ultimate question is not what specific orders, or whether any specific orders, were given but who is entitled to give the orders as how the work should be done."

68. Keene LJ then referred to the fact that in Dacas one of the reasons why Mummery LJ had concluded that there was no contract with the end user was that the agency did not exercise any relevant day to day control. He observed that there were many other authorities establishing that "such control will normally be a necessary condition, although not always a sufficient one, for the existence of a contract of service." (para 26; emphasis added.)
69. Mr Cooray also relied upon some observations of mine to similar effect in James v London Borough of Greenwich [2007] IRLR 168, para 22, where I observed that it will be exceptional for a contract of employment to be spelt out between agency and worker because typically the agency does not have sufficient day to day control.
70. Relying on these and other authorities, Mr Cooray says that plainly there cannot be a contract here. The agency exercised no control at all over the day to day activities of the workers; that was exercised by Welsh Country Foods.
71. Mr Segal retorts that this approach seeks to elevate one, albeit important, feature of the contract of employment into a necessary requirement. What he termed "micromanagement" will always be important but it need not be conclusive.
72. Mr Segal submits that the authorities do not support the proposition that it is always a necessary condition. First, exceptionally it is well established that a contract of service can exist even where day to day control is absent, such as an example given in the Ready Mixed case of a master of a ship who is employed by the ship owner but under the control of the charterer. Second, there are cases where an agency has been held to have a contract of service with someone on their books, or has accepted that this was so, examples being McMeechan v Secretary of State for Employment [1997] ICR 549 and Cairns v Visteon UK Ltd [2007] IRLR 175.
73. Furthermore, recent Court of Appeal authorities have envisaged this possibility: Dacas para 19 per Mummery LJ, and Cable & Wireless plc v Muscat. [2006] IRLR 354, at para. 54 per Lady Justice Smith. Third, as many cases have recognised, for many skilled workers the notion of detailed control is fanciful. It would therefore be artificial to treat control over the actual work done as having a decisive role in all cases.
74. Ultimately, submits Mr Segal, the issue is fact sensitive. Here there was a sufficient basis to permit the Tribunal to conclude that there was a contract of service; the Chairman weighed a series of factors and was struck by the extent to which the workers were in fact reliant on the agency, notwithstanding the lack of detailed control over them when they were actually at work.
75. I agree with this submission. As the authorities demonstrate, the lack of detailed control over the work activity itself will certainly be a factor, and often - perhaps usually - a decisive one against inferring a contract of service. In Montgomery v Johnson Underwood Ltd [2001] ICR 819 the Court of Appeal overturned a finding of an employment tribunal precisely for this reason.
76. But essentially for the reasons advanced by Mr Segal, it is not always a necessary condition. Indeed, in Montgomery itself, Buckley J, giving judgment in the Court of Appeal, observed that although there was insufficient control in that case, he was not saying that as a matter of law there never could be sufficient control to constitute a contract of employment with the agency. Indeed, he noted that the traditional approach as adumbrated in the classic case of Ready Mixed Concrete (South East) Ltd v Minister for Pensions [1968] QB 497:

"permits tribunals appropriate latitude in considering… the "control" the employer has over an individual." (para 24).

Even Keene LJ in Bunce, which as Mr Segal conceded was the high watermark of the case against the claimants on this point, did not say that day to day control was always necessary, merely that that would normally be the case.

77. Leaving aside the rather esoteric example of the ship's master skippering a chartered boat, there will be more humdrum illustrations of cases where employees may in their daily tasks be controlled more by a third party than by the employer.. A cleaning company might send staff to clean premises in circumstances where the party for whom they clean exercises a greater degree of control than the company. Similarly a catering company may send staff into a works canteen in circumstances where the client retains significant control over what food is produced.
78. Mr Cooray points out that in such cases the company will be likely to provide plant and equipment. That may be so, although not always and in any event it will often be a relatively minor feature in the overall assessment of the status of the relationship.
79. The Chairman identified certain features of this case which firmly distinguished it from the more traditional agency relationship. On the traditional model, the agency simply places staff registered on their books with clients and has relatively limited contact with them. That was far from being the position here. Not only were the claimants effectively obliged personally to do the work offered, but they were recruited in Poland, transport and accommodation was provided in circumstances where they were not in reality in a position to refuse them, and there were severe practical and legal limits placed on their working elsewhere whilst the contract with the agency was maintained.
80. In Hall v Lorimer [1992] ICR 739, 745 Mummery J (as he was) identified a number of factors which were likely to have a bearing on whether there was a contract of service in place or not. These were not intended to be exhaustive, and in particular they were not focusing on the agency cases where other specific features will come into play. I will not set them out, but it is pertinent to note that many of the features there identified, such as whether the worker provided his own tools, and whether he could profit from sound management, support the Chairman's conclusion. Mummery J also observed that ultimately the issue whether someone was an employee or not did not involve simply a mechanical assessment of the factors in play; rather "the object of the exercise is to paint a picture from the accumulation of detail".
81. In this case the Chairman indicated that the picture that he saw was of persons who went to work with no more practical alternative than ordinary employees; it was their job and they did it where and when they were told to by the agency.
82. In my judgment this decision was not outwith the latitude that is given to tribunals when assessing whether the degree of control is sufficient to constitute a contract of employment. This is an exceptional case where the nature of the relationship justified a finding that there was a contract of employment between the agency and the workers. It follows that the appeal fails and the case must now go to a hearing on the merits.