United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Mr D Sulan (Solicitor) Instructed by: Free Representation Unit Exchange House Primrose Street London EC2A 2HS
For the Respondent	Mr Jake Davies (of Counsel) Instructed by: L.B of Haringey Corporate Legal Services Alexandra House 10 Station Road Wood Green London N22 7TR


 


SUMMARY

Contract of employment – Definition of employee

Agency worker, having worked at Local Authority for over a year, claimed unfair dismissal against the Local Authority when they dispensed with his services. Employment Tribunal chairman's findings that the Claimant was not an employee upheld. Dacas, Muscat, and James v London Borough of Greenwich considered.


 


THE HONOURABLE MR JUSTICE BEAN

1. This is an appeal from a decision of the Watford Employment Tribunal (Miss A Stewart, Chairman, sitting alone) at a pre-hearing review on 21 August 2006 that the Tribunal had no jurisdiction to hear Mr Craigie's complaint of unfair dismissal nor any claim of breech of contract. The history begins on 4 October 2002 when the Respondent Council entered into a contract with Aptus Personnel Support Staff Ltd (which I shall call "the agency") for the recruitment and supply of temporary workers. On the 9 November 2004 Mr Craigie signed a contract with the agency. He wanted to work for the Respondent Council, and a friend had suggested that there was agency work available. He started his duties as an Estates Services Officer the following week, on 15 November 2004.
2. The terms of contract between Mr Craigie and the agency, so far as relevant, provided that he was not an employee of the agency; that he was to be paid £4.85 per hour by the agency for hours worked subject to deduction of tax and National Insurance; that he was entitled to a minimum of four weeks paid annual leave; that he was not entitled to payment from the company or its client for time not spent on assignments in respect of illness or absence for any other reason other then where there was a statutory obligation; that he was entitled to join the agency's stakeholder pension scheme after 13 weeks continuous service but the company would not make any contributions to that scheme.
3. Then Clauses 12-14 provided:-

"12. The temporary worker is not obliged to accept any assignment offered by the company but if he does so during every assignment until afterwards as appropriate he will,

(1) Co-operate with the client's staff and accept the direct supervision and instruction of any responsible person in the client's organisation

(2) Observe any rules and regulations of the clients establishment to which attention has been drawn or which the temporary worker might reasonably be expected to ascertain

(3) unless arrangements have been made to the contrary conformed to the normal hours of work currently in force at the clients establishment…

13. In the event of the temporary worker declining to accept any offer of work, or not attending work for any reason for any period, the contract for services shall terminate.

14. The company may without notice and without liability instruct the temporary worker to end an assignment at any time."

There was the usual provision entitling the agency to a further payment in the event of the temporary worker becoming employed by the client directly.

4. On 6 June 2005 Mr Craigie filled in an application form seeking a permanent position as an Estates Officer in the employment of the council. The form contained a box in which the name of the present employer was to be put; Mr Craigie put "Aptus/Haringey". That neatly encapsulates the problem in the present case. The council made a provisional offer of that permanent position on 19 August. However, following a delay of some three months, which has not been explained to me, a manager employed by the council stated that Mr Craigie had had 9.5 days sickness leave since June. The offer was withdrawn and moreover the council told the agency that they were dispensing with Mr Craigie's services. The council wrote to Mr Craigie withdrawing the offer on the grounds of unsatisfactory references. He stopped work for the council the same day and the agency dispensed with his services. It turned out, at least as alleged, that the statement about 9.5 days sickness absence was incorrect.
5. No claim was brought against the agency; there would have been obvious difficulties. Firstly, the Claimant's contract with them, as I have already set out, stated that the relationship was not one of employment. Secondly, the agency did not in practice exercise any day to day control over Mr Craigie's activities: see Bunce v Postworth Ltd [2005] IRLR 557 at paragraphs 29 and 30 of the judgment of Keene LJ.
6. In the claim against the council alone, the question for the Employment Tribunal was whether the Claimant was employed under a contract of service with the council. There was apparently some argument before the Tribunal about whether the application form and the dealings which followed it amounted to offer and acceptance. These arguments on the Claimant's behalf, if successful, would have affected the breach of contract claim but could not have affected the unfair dismissal claim since even if they were correct Mr Craigie would not have had the necessary 12 months continuous employment. In any event Mr Sulan, for the appellant, has not renewed that issue before me.
7. Accordingly the issue before me is whether the Claimant had an implied contract of service with the council. The Chairman heard oral evidence from Mr Craigie and Ms Francine Williams for the Council. She set out her findings of fact and conclusions in paragraphs 11-15 of the reasons for her judgment on the pre-hearing review:-

"11. In the absence of an express contract between the Claimant and the Respondent, (as client of the agency and end user of the Claimant's services), the Tribunal considered whether or not there was an implied contract of service so as to make the Claimant an employee of the Respondent within the meaning of section 230 of the Employment Rights Act 1996. A consistent theme of the relevant case law is that a contract of service is characterized by an irreducible minimum requirement of mutuality of obligation on the employer to provide work and on the employee to perform it, coupled with a sufficient degree of control by the employer over the work done by the employee and the manner in which it is to be carried out. The analysis is fact-sensitive in each case and it is necessary to have regard to the entirety of the practical circumstances and arrangements of each individual case. This includes the intentions of the parties, the explicit labels set out in any contractual or other documentation and the mechanics of payment, although these latter are not determinative of the overall practical substantive realities.

12. In this case the Tribunal was unable to find sufficient mutuality of obligation on the part of the Respondent to provide work for the Claimant, (nor indeed under their contract with the agency for any other of the Agency's workers) nor on the part of the Claimant to do work provided by the Respondent. The Claimant told the Tribunal in evidence that he knew that the Respondent could say to him at any time — don't come to work, and that he himself could have chosen not to go to work at any time, save that he would not have got paid if he had he hadn't gone to work. It appears to the Tribunal that the contractual obligation on the Respondent to pay via the agency for time-sheeted hours worked by the Claimant and the practical constraints on the Claimant not to absent himself from work because he did not want to lose his pay, do not amount to the essential mutuality of obligation to provide and to do the work provided which characterises a contract of employment between two parties. The obligation to pay for services provided and the decision to offer services in order to earn a living are characteristics of a wide variety of contracts for services and are not confined to the employment contract for which something more is required, namely the personal obligation to provide and to perform work on an ongoing basis without the liberty to decide at any given moment not to continue to do so. Both parties in this case acknowledged that each was respectively entitled to cease to offer and to perform the work. The realities as understood by the parties was therefore consistent with the express terms of the contracts. The Claimant was aware that a permanent post with the Respondent would provide him with the additional security and benefits attendant upon the employment relationship and he had desired this.

13. There was in this case a reasonably high degree of control by the Respondent over the day to day practicalities of the Claimant's work. These were contractually provided for and of practical necessity in the circumstances of the Claimant working in the role of Estate Services Officer as part of an established system of operations. Further, the contract between the agency and the Respondent provided additionally for the passing of vicarious liability for the Claimant's conduct during the performance of his duties to the Respondent who had practical control of his working activities. This in itself does not necessarily entail that the Respondent became the Claimant's employer for the purposes of the Employment Rights Act 1996.

14. As to the incidentals; the agency dealt with matters of pay and tax and NI deductions, holiday pay, sick pay entitlement and pension scheme in relation to the Claimant and for vetting his suitability for the role; although disciplinary or grievance procedures did not arise in the Claimant's case, the Tribunal accepted that such matters in relation to the Claimant's conduct would have been dealt with by the agency since the Respondent was entitled to end the Claimant's placement for any reason upon informing the agency in brief terms. The Respondent effectively paid for the Claimant's services and the fact that the mechanics of payment were via the agency did not alter this fact.

15. The reality of the situation was a triangular contractual relationship between the Claimant, the agency and the Respondent in which the Claimant was entitled to refuse work offered by the Respondent or the agency and the Respondent was entitled to cease the Claimant's work placement, without contractual repercussions in either case. In these circumstances the Tribunal was unable to find that irreducible minimum requirement of mutuality of obligation characteristic of a contract of employment. The fact that the Claimant continued diligently in his work for the Respondent for over a year and that the Respondent exercised a high degree of practical control over his working arrangements and effectively paid for his hours of work do not suffice to create a contract of employment in the absence of mutuality of obligation to provide and to perform the work. Further, it cannot be said that it is necessary to imply a contract of employment between the Claimant and the Respondent in order to give business reality to the parties' situation since the express triangular contractual relationships as set out in paragraphs 4 and 5 of these Reasons governed the situation without difficulty for a year until the Respondent's provisional permanent job offer was withdrawn for what the Respondent now admits was a reason founded on error and the Respondent thereafter terminated the Claimant's placement."

8. I was referred to a number of authorities, of which the three most significant were Dacas v Brook Street Bureau (UK) Ltd [2004] ICR 14 37, Cable & Wireless Plc v Muscat [2006] ICR 975, those two being decisions of the Court of Appeal, and James v London Borough Council of Greenwich a decision of this Appeal Tribunal delivered by Elias P as recently as 18 December 2006. Dacas, as the President observed in directing this case to proceed to a full hearing, is a difficult case. Mrs Dacas was a cleaner who carried out her work at a care home run by Wandsworth Council. She was registered with Brook Street Bureau as a temporary worker. When her services were dispensed with she brought a claim in the Tribunal against both the agency and the council and was unsuccessful against both. She appealed to this Appeal Tribunal but only in the respect of the claim against the agency. She was successful at this level, but the agency's appeal to the Court of Appeal was allowed. The result was that the claim was dismissed. The council were directed to attend and be represented on the hearing in the Court of Appeal, but the Court of Appeal were powerless to make any finding against the council since the rejection of the claim against the council in the ET had not been the subject of any appeal. Two members of the Court however, that is to say Mummery LJ and Sedley LJ, made it tolerably clear that if Mrs Dacas had appealed against the rejection of her claim against the council she would have succeeded, at least to the extent of the case being remitted and possibly outright. The difficulty about Dacas is that Mummery LJ and Sedley LJ gave separate judgments which are not in all respects identical in their reasoning, and in any event the observations indicating that the council were probably the employers of Mrs Dacas were obiter.
9. However, the case cannot simply be written off and indeed was the subject of analysis by a unanimous Court of Appeal in the case of Cable & Wireless v Muscat. Mr Muscat was a telecommunications specialist. In September 2001 his then employers told him that he would have to become a 'contractor' and provide his services through a limited company. According he was dismissed on 15 October and immediately re-engaged as a contractor. A company called E-Nuff Comms Ltd was set up for the purpose of receiving his pay and car allowance. A little over a year later the employers (by this time Cable & Wireless, following a takeover) informed Mr Muscat that his services were no longer required. He claimed that he had been unfairly dismissed. An Employment Tribunal held that he had been an employee throughout the relevant period, that there was a TUPE transfer on the takeover of the business and that on the transfer he became the employee of Cable & Wireless and remained so. The Tribunal found that he had an implied contract of employment with Cable & Wireless and the fact that the party entering into an express contract was an intermediary did not affect the position. (There were other factual complications into which I need not go.)
10. The judgment of the court delivered by Smith LJ includes the following:-

"34. The difference of opinion within the Court of Appeal in Dacas arose because Munby J considered that the minimum mutuality of obligations could not be satisfied where the obligation to remunerate did not lie on the person having control of the worker's work. The majority took the view that, so long as the remuneration was being provided by the 'employer' it mattered not that it was not paid directly but through some other arrangement made by the employer. In other words, the fact that a person who would otherwise be the worker's employer did not cease to be his employer simply by arranging for the wages to be paid via a third party.

35. In our opinion, the view of the majority in Dacas was correct. The essentials of a contract of employment are the obligation to provide work for remuneration and the obligation to perform it, coupled with control. It does not, in our view, matter whether the arrangements for payment are made directly or indirectly.

36. For those reasons, we would say Dacas was correct and the guidance provided for ETs was unimpeachable. We would accept that it was not strictly 'binding' according to the rules of precedent but it was plainly right for ETs to heed it. The guidance did not direct ETs to reach any particular conclusion; only to consider the possibility that an implied contract might exist. It is true that the Court expressed some concern about the extent to which, as the result of recent decision in ETs and the EAT, workers within a triangular relationship had been held to have no employment rights. As we understood the guidance in Dacas, this was not an attempt to resolve a social problem by judicial creativity but an attempt to ensure that ETs considered (and made relevant findings of fact) according to the existing law."

11. It was submitted to the Court of Appeal on behalf of the Appellants in Muscat that this Appeal Tribunal, in the judgment appealed from, had thought that:-

"Dacas was binding authority for the proposition that in circumstances such as these there should be a finding of an implied contract of employment between the worker and end user".

The court's response was to say that:-

"In our view that contention is untenable. First when the EAT judgment is read as a whole it is a clear that its members perfectly well understood that the effect of Dacas on this case was only to give guidance as to the approach the ET should take and was not in any way seeking to suggest what finding should be made."

12. Later in the judgment the court referred to the well established proposition contained, for example, in the judgment of Bingham LJ, as he then was, in The Aramis [1989] 1 Lloyd's Rep 213 that:-

"No contract should be implied on the facts of any given case unless it is necessary to do so, necessary that is to say in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist."

They then cited an observation in paragraph 16 of the judgment of Mummery LJ in Dacas that:-

"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"

13. The court in Muscat took that, as I do, to be an express appreciation of the principle referred to in The Aramis the inference must be a necessary one and not merely a possible or even a desirable one. The court said at paragraph 48:-

"We accept that the question whether it is necessary to infer the existence of an employment contract between two parties may sometimes be difficult."

a proposition which I would wholeheartedly agree. They concluded at paragraph 52 that the Employment Tribunal had been entitled to hold that Mr Muscat had been an employee throughout the period of work, that the Tribunal did not misdirect themselves and that they properly applied guidance given by the Court of Appeal in Dacas which guidance was itself correct. They continued:-

"54. It may well be that the Court of Appeal in Dacas felt concerned that some recent decisions in ETs and the EAT had had the effect of depriving a worker, such as Mrs Dacas, of the employment rights to which the circumstances of her work suggested that she should be entitled. We share that concern. However, the concern was, as we understand it, that, by failing to consider the possibility of an implied contract of employment between worker and end-user, ETs were not applying the law correctly so as to provide the employment protection which Parliament intended. No doubt, if ETs apply their minds to the possibility of an implied contract between the worker and end-user, there will be some cases in which they find that relationship, as in this present case. There will no doubt also be many cases in the future in which ETs will conclude that a worker in the triangular relationship is not an employee of the end-user. That may be because they find that he or she is an independent contractor. It may be that the ET will conclude, on the particular facts of the case, that the worker was employed by the agency. Another possibility is that the worker may be found to have had a series of short employment contracts with different end-users but no continuing contract of employment such as will support employment rights. All will depend on the facts of the individual case. We find it hard to imagine a case in which a worker will be found to have no recognised status at all, either as an employee of someone or as a self-employed independent contractor. But that question must await another day."

14. James v Greenwich Council contains a valuable analysis of the two decisions of the Court of Appeal. At paragraphs 24 and 25 the President referring to Dacas emphasised as did the Court of Appeal in Muscat, Mummery LJ's reference to a "necessary inference". The President added:-

"Mummery LJ did not suggest that the inference could readily be made. He observed that parties are entitled to seek to regulate their relationship in this tripartite way, he cautioned against Tribunals giving way to temptation of finding in contract of employment whenever the worker was not self employed or carrying on business on his own account and he merely observed that the formal express contracts "may not tell the whole story about the legal relationships affecting the work situation, they do not as a matter of law necessarily preclude the implication of a contract of service"."

15. Passing on to Muscat, the President noted that the Court of Appeal in that case had likewise emphasised that in order to imply a contract to give business reality to what is happening, the question is whether it is necessary to imply such a contract. Finally in paragraphs 53-61 of the judgment of this Appeal Tribunal in James the President said:-

"53. Neither Dacas nor Muscat seek to indicate to Tribunals how they might approach the question of implying a contract with the end user, save for saying that the possibility must be considered. We make certain observations in the hope that they may assist Tribunals in this task.

54. The casual worker cases, where the issue is whether there is an umbrella or global contract in the non-work periods, the relevant question for the Tribunal to pose is whether the irreducible minimum of mutual obligations exists. It is not particularly helpful to focus on the same question when the issue is whether a contract can be implied between the worker and end user. The issue then is whether the way in which the contract is in fact performed is consistent with the agency arrangements or whether it is only consistent with an implied contract between the worker and the end user and would be inconsistent with there being no such contract. Of course, if there is no contract then there will be no mutuality of obligation. But whereas in the casual worker cases the quest for mutual obligations determines whether or not there is a contract, in the agency cases the quest for a contract determines whether there are mutual obligations.

55. If there were no agency relationship regulating the position of these parties then the implication of a contract between the worker and the end user would be inevitable. Work is being carried out for payment received, but the agency relationship alters matters in a fundamental way. There is no longer a simple wage-work bargain between worker and end user.

56. In Dacas, Munby J was surely right when he observed that in a tripartite relationship of this kind the end user is not paying directly for the work done by the worker, but rather for the services supplied by the agency in accordance with its specification and the other contractual documents. Similarly, the money paid by the end user to the agency is not merely the payment of wages, but also includes the other elements, such as expenses and profit. Indeed, the end user frequently has no idea what sums the worker is receiving.

57. The key feature is not just the fact that the end user is not paying the wages, but that he cannot insist on the agency providing the particular worker at all. Provided the arrangements are genuine and the actual relationship is consistent with them it is not then necessary to explain the provision of the worker's services or the fact of payment to the worker by some contract between the end user and the worker, even if such a contract would also not be inconsistent with the relationship. The express contracts themselves both explain and are consistent with the nature of the relationship and no further implied contract is justified.

58. When the arrangements are genuine and when implemented accurately represented the actual relationship between the parties as is likely to be the case where there was no pre-existing contract between worker and end user then we suspect that 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 a 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.

59. Typically the mere passage of time does not justify any such implication to be made as a matter of necessity, and we respectfully disagree with Sedley LJ's analysis in Dacas on this point. It will no doubt frequently be convenient for the agency to send the same worker to the user, who in turn would prefer someone who has proved to be able and understands and has experience of the systems in operation. Many workers would also find it advantageous to work in the same environment regularly, so the more facts that the arrangements carry on for a long time may be wholly expectable by considerations of convenience for all parties, it is not necessary to imply a contract to explain the fact that the relationship has continued perhaps for a very extensive period of time. Effluxion of time does not of itself establish any mutual undertaking of legal obligations between the worker and end user. This is so even where the arrangement was initially expected to be temporary only but has in fact continued longer than expected. Something more is required to establish that the tripartite agency analysis no longer holds good.

60. It will, we suspect, be more readily open to a Tribunal to infer a contact in a case like Muscat where the agency arrangements were super-imposed on an existing contractual relationship. It may be appropriate, depending on the circumstances, to conclude that arrangements were a sham and that the worker and end user have simply remained in the same contractual relationship with one another, or that even if the intention was to alter the relationship that has not in fact been achieved. That may be legitimate, for example, where the only perceptible change is in who pays the wages. In such a case the only effect of the agency arrangements may be to make the agency an agent of the employer for the purpose of paying wages. However, in these cases the Tribunal is not strictly implying a contract as such but is rather concluding that the agency arrangements have never brought the original contract to an end.

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 on the margins. That is not to say that all agency relationships simply 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, may 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."

16. Mr Sulan argued three points before me. The first was that the present case is effectively indistinguishable on the facts from Dacas. Mr Sulan appended to his skeleton argument an impressive list of facts in Dacas and effectively indistinguishable facts in the present case. However there are, I think, two answers to this. Firstly, the Court of Appeal at paragraphs 37 and 38 of the judgment in Muscat indicated that it was not sufficient, in order to establish the existence of an implied contract of employment, to say that the circumstances were in Dacas. They emphasised that Dacas was not binding authority for the existence of an implied contract of employment in such circumstances.
17. Secondly, I do not accept, despite the numerous factual similarities, that the cases are identical. We do not know from the decision in Dacas what if anything Mrs Dacas said in the witness box before the Tribunal. But in the present case the Chairman records at paragraph 12 of the judgment that she was told by the Claimant himself in oral evidence that he knew that the Respondent could say to him at any time "don't come to work" and that he himself could have chosen not to go to work at any time, save that he would not have been paid if he had not gone to work. That, if nothing else, serves to distinguish the position of Mrs Dacas from that of the present Appellant.
18. Mr Sulan's second ground of appeal is that the Chairman's findings of fact on control and mutuality of obligations are unsustainable. As to control this was a succinct point because the finding of the Chairman was simply that:-

"There was in this case a reasonably high degree of control by the Respondent over the day to day practicalities of the Claimant's work."

The facts in so far as they are set out support that, as does commonsense about what an Estates Services Officer does. I do not think there is any basis for saying that the phrase 'reasonably high degree of control' was perverse or in some way unfairly diluted the reality of what went on.

19. More extensive argument was devoted to the question of mutuality of obligation. In particular, Mr Sulan points to paragraph 13 of the contract between the Claimant and the agency providing that in the event of his declining to accept any offer of work or not attending work for any reason for any period the contract for services shall terminate. This is a difficult clause to interpret and difficult to reconcile with clause 12 which says, "the temporary worker is not obliged to accept any assignment offered by the company"; but a more significant problem is that I do not see how a clause in a contract between the agency and the Claimant can impose on the Claimant a contractual obligation in favour of and enforceable by the council. In any event this point also, in my judgment, is defeated by the Claimant's own evidence (which the Chairman was entitled to accept) that he could have chosen not to go into work on any particular day.
20. Mr Sulan's third point was that the Chairman was not entitled to find (in paragraph 15 of the judgment) that the implication of a contract of employment was not necessary in order to give business reality to the parties' situation, since the triangular relationship expressly provided for in the two contracts (agency/counsel/worker) had governed the situation without difficulty for a year. But in line with the observations of the President in James v Greenwich Council which I have already cited, and with which I agree that was a conclusion to which the Chairman was entitled to come.
21. It follows that each of the three points which has been argued before me, in my judgment, is unsound in law and the appeal must be dismissed. I wish however to add three things. Firstly, the state of the law regarding the status of long term agency workers is, in my view, far from satisfactory, but it will need legislation to change it. Secondly, the Claimant is on the facts as set out in the Tribunal decision entitled to feel aggrieved at the way he was treated although that may be of little consolation. Thirdly, Mr Sulan who has appeared in this case through the good offices of the Free Representation Unit, argued the Appellant's case with great skill and tenacity. The profession can justly take pride in pro bono advocacy of such high quality.