United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR LESLIE SAMUELS (of Counsel) Instructed by: Messrs Churchers Solicitors 60/62 Northern Road COSHAM Hants PO6 3DX
For the Respondent	MR JULIAN ALLSOP (of Counsel) Instructed by: Portsmouth City Council Legal Services Civic Offices Guildhall Square PORTSMOUTH PO1 2PX

SUMMARY

JURISDICTIONAL POINTS

Agency relationships

Worker, employee or neither

Agency case; the employment tribunal found that there was no contractual relationship between the claimant and the end user. The EAT held that they had applied the wrong approach when considering whether or not a contract had to be implied by necessity. Furthermore, their reasoning was unsatisfactory. Case remitted for reconsideration by a fresh tribunal.


 


THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT)

1. The claimant in this case (who is now the appellant before us but we shall continue to call the claimant) was supplied by an agency, Eden Brown Ltd, to an end user, Portsmouth City Council (hereinafter "the council.") He was claiming against the council unfair and wrongful dismissal and therefore the issue was whether he was an employee of the council within the meaning of section 230(1) of the 1996 Act. This requires that he should be employed under a contract of service.
2. He also claimed that he had been subject to a detriment as a result of making a public interest disclosure. It was conceded that for that purpose he fell within the extended definition of "worker" provided by section 43K(1)(a ) read with section 230(6) of the Employment Rights Act 1996. The Tribunal, in fact, stated that the effect of the concession was that the claimant was also a worker within the meaning of section 230(3) of the 1996 Act. Had this been correct, it would have involved a concession that there was a contract in place between the claimant and the council, and the only issue would have been whether it was in the nature of a contract of employment. Mr Allsop, counsel for the council, who appeared below, assures me that mis-states the extent of the concession; it was always only limited to an acceptance that the claimant was a worker as far as the "whistleblowing" aspect of the claim was concerned. I accept what he says about that and will analyse the judgment on that premise.
3. The Tribunal held that the claimant was not an employee. As they make plain in the last paragraph of the judgment, that is on the basis that there is no express or implied contract between the parties. On this analysis, not only was he not an employee, neither was he a worker. There was simply no contractual relationship between these parties at all. The claimant now appeals against that finding and submits that the only proper conclusion on the evidence was the claimant was employed by the council under a contract of service.

The background.

4. The claimant worked for the council pursuant to this agency relationship from 24 May 2004 to 1 November 2006 when the relationship was terminated without notice. There was apparently no documentation of any kind between the claimant and the council. There was, however, a contract between the claimant and the agency and a separate contract between the agency and the council. Unfortunately, only the latter document was before the Tribunal. The employment judge did not refer to any of its terms. He appears to have assumed that they did not assist in determining the nature of the relationship between the claimant and the council. I will return to the significance of this; suffice it to say at this stage that in my judgment there is on any view a powerful argument that the role of the agency in this case was to act as an introductory agency for the council i.e merely introducing potential staff who would be employed by the council itself. That analysis is also consistent with the finding of the Tribunal that it was the council, through the claimant's line manager Mr Wallin, who interviewed potential candidates for the post which Mr Cave obtained and who appointed him to the job.
5. The Tribunal heard evidence from the claimant and Mr Wallin, as well as Mr Wallin's line manager Mr Hughes, about how the relationship operated in practice. Mr Wallin described the working relationship that he had with the claimant. The claimant attended work every day, he worked a full day, and he was allocated work by Mr Wallin. He used the council's equipment, including their safety equipment and was paid mileage for car use. Indeed the Tribunal concluded in the light of these factors that:

"with the exception of the arrangements for payment and the existence of the two contracts, there were only the most modest indicators that this might not have been a conventional contract of employment."

6. The Tribunal referred to the well-known case of James v London Borough of Greenwich [2007] IRLR 168 and concluded that, save for one factor there was no material distinction between James and the instant case. (At that stage James had been heard only by the EAT; in fact the Court of Appeal has since confirmed that the approach of the EAT was correct: see [2008] IRLR 302).
7. James highlights the requirement for agency arrangements of the type being operated in that case; it is only legitimate to infer a contract between the worker and the end user if it is necessary to imply a contract to explain that relationship. If the work provided to the end user can be explained by the contracts that exist between end user and agency, and agency and worker respectively, then such a necessity does not arise. It is, however, important to emphasise that the contract between the claimant and the agency in that case stated that she contracted with the agency as a self employed contractor in relation to each assignment entered into by her, and the contract between the end user and the agency was consistent with that.
8. In this case the Tribunal then defined the question it considered that it had to ask itself as follows:

"What the tribunal has to decide is whether upon the evidence before it, and within the definition of a contract of employment at section 230(1), an implied contract exists between [the parties [?"

9. The Tribunal observed that the factor which arguably made this case different from earlier agency decisions such as James was the evidence of Mr Wallin, the claimant's line manager, that he specifically selected Mr Cave for the job. Mr Wallin told the Tribunal:

"I expected him to turn up every day."

10. Other evidence also pointed to the importance of the personal nature of the relationship. When Mr Cave was off work for three weeks he had not been immediately replaced by the agency. The evidence of Mr Hughes was that he would have sought a replacement if the claimant had been off work much longer. The Tribunal noted, however, that the initiative was with Mr Hughes to decide whether or not to replace the claimant rather than the agency; and in practice, he decided not to do so.
11. The Tribunal then recast the question it had to ask itself in the following way:

"Is this a case where the Tribunal sees the written contracts a framework within which the three parties were operating but in so far as the Claimant and Respondent were concerned, a contract had been created which was personal to Mr Cave and took the relationship outside the tripartite situation which then only acted as a practical vehicle for implementing the terms of the implied contract?"

12. The Tribunal then made reference to the case of Ready Mixed Concrete v Minister of Pensions & National Insurance [1968] 2 QB 497, which was expressly relied upon by the claimant. That case is important for determining whether, when there is a contract in existence, it is a contract for services or a contract of service. It established the threefold test for assessing in which category a worker falls. The three criteria were summarised (not entirely accurately) by the Tribunal as follows:

"(1) 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.

(2) 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.

(3) Provisions of the contract are consistent with its being a contract of service."

It will be noted that the first criterion identifies whether a contract exists at all; the other two go to the issue of the kind of contract it is. More specifically, the third criterion does not assist in answering the prior question whether there is a contract in existence at all.

13. Having referred to the Ready Mixed criteria, the Tribunal then set out its conclusions as follows:

"15 It will be apparent from the above that the relationship, as found between Mr Cave and Portsmouth City Council, may meet conditions (1) and (2) but importantly one must look at the behaviour of the Claimant and how he treated the relationship. It has already been stated above that many of the characteristics of employment are present but the Claimant himself gainsays employment on a number of occasions: at page 50 on 9^th March 2006 he sends an e-mail to Mr Meredydd seeking employment on 26^th May 2006 he refers to himself at page 57 as "Agency riff raff". It is only when the arrangement is terminated that Mr Cave looks to establish an implied contract of employment. The clear understanding from the e-mails and other documentation is that both the Claimant and Respondent understood this to be an agency contract and acted accordingly until the termination of the contract.

16 In the House of Lords decision in Carmichael and National Park plc [2000] IRLR 43, where (paragraph 18) Lord Irvine of Lairg pronounced that there should be an irreducible minimum of mutual obligation necessary to create a contract of service." This issue, in turn, is addressed by Elias J in the James case (paragraph 54) in the conclusions it is stated "But whereas in casual worker cases, the quest for mutual obligations determine whether or not there is a contract, in the agency cases the quest for a contract determines whether there are mutual obligations. Having found in this case that there is no implied contract, then it follows that there are no mutual obligations meeting the critical requirement in Carmichael."

The Tribunal accordingly held that there was no contract of employment in place. Logically, its conclusion with respect to the third criterion in Ready Mixed would also suggest that even had there been a contract in existence, it would have found that it was not a contract of service.

The grounds of appeal.

14. The claimant submits that the Tribunal erred in concluding that there was no contract of employment in existence. First, it is submitted that the Tribunal was wrong to say that the case was in most material respects similar to the James case. Mr Samuels, counsel for the claimant, says that it is clear from the terms of the contract between the agency and the council that all the agency was doing was introducing the claimant to the council. Thereafter it was the council who was employing him. Although the agency was paying the wages, the relevant provision in the contract between the agency and the council stated in terms that the payment was "on behalf of" the council. By failing properly to focus on the terms of the arrangement, the Tribunal had made unwarranted assumptions about the nature of the relationship between the claimant and the council, and, more specifically, about the function of the agency.
15. Second, even if the Tribunal was right to see an analogy with James, it thereafter failed to apply the right test. The employment judge did not ask whether it was necessary to give effect to the business reality of the relationship to imply such a contract, as James requires; rather he wrongly applied the Ready Mixed test which really has no materiality in this context. Furthermore, in so doing he reached a perverse conclusion by placing so much weight on how the parties themselves perceived the relationship. Had the employment judge properly applied the necessity test to the facts of this case, he could only have concluded that a contract of employment existed. The personal nature of the relationship was fundamental; moreover, when there was a dispute over hours, the matter was raised and resolved directly with the claimant and not through the agency.
16. The respondent council contends that the Tribunal plainly directed itself properly as to the question it had to ask. Moreover, the council's argument below was directed specifically to the necessity test. Having so directed itself, the employment judge was entitled to reach the conclusion he did. Mr Allsop reminds me of the observations of Mummery LJ at paragraph 40 in the James case, to the effect that these are questions for the Employment Tribunal and the EAT should interfere only if there is a plain misdirection in law or the decision is perverse. The latter requires an overwhelming case that no reasonable tribunal could properly reach the result that this tribunal did. That, he submits, is nowhere near being satisfied here. Indeed, the claimant had sought but been refused direct employment with the council.
17. Mr Allsop submits, relying on some observations of the EAT ( HH Judge Peter Clark presiding) in Heatherwood and Wexham Park Hospitals NHS Trust v Kulubowila UKEAT/0633006 paragraph 30, that this was wholly inconsistent with the existence of a contractual relationship. More specifically, the Tribunal referred to, and must be taken to have had regard to, the terms of the contractual arrangements between the agency and the council. It must be assumed that they had formed a view about them contrary to the claimant's submissions.
18. In addition, the employment judge was entitled to consider how the parties perceived matters. He mentioned and plainly appreciated the apparent significance of the personal nature of the work being offered, and must be taken to have weighed that up in his decision. Mr Allsop accepts that the reasoning of the Tribunal is in certain respects less than satisfactory, but he submits that the explanation is sufficient to satisfy the basic Meek requirement – essentially that the parties should know why they have won or lost, as the case may be.

Conclusions.

19. In my judgment this decision is flawed and the reasoning cannot support the conclusion. There need to be two distinct stages in the analysis. The first is whether there is a contract in existence at all. The second is whether, if there is, the contract is a contract of employment or some other contract.
20. Generally, once the existence of a contract with the end user is established, it will be a contract of employment, but that is not necessarily so in all cases. In my opinion the Tribunal confused these two stages in this case. In paragraph 15 the Tribunal is ostensibly applying the third element in the Ready Mixed analysis and they are doing so by focusing on the parties' own labelling of the relationship.
21. That may be relevant to the question whether the contract is one of service or services - although even then only in a marginal case: see the observations of the Court of Appeal in Massey v Crown Life Insurance Company [1978] ICR 590. However, in the context of answering that question the Tribunal appears to have concluded that there was no contract in existence at all. That is not the relevance of the question. Moreover, the answer does not sit happily with the finding that the relationship may have met the first criterion in Ready Mixed; that suggests that a contract may have been present.
22. I am not therefore satisfied that the Tribunal did properly apply the necessity test. Even if they did, the reasoning is in my view defective. Given the Tribunal's finding that the personal nature of the relationship was considered crucial to the council, it was in my judgment necessary for the Tribunal to engage with that issue in its conclusions.
23. I agree with Mr Samuels that the perception of the parties could not be decisive of the issue whether a contract existed. Indeed, I doubt whether it has any relevance at all to the question whether it is necessary to imply a contract in order to explain the way in which the relationships operate in practice. However, I have not heard argument on that specific point and reach no concluded view about it. But even if it has some relevance, it cannot be decisive of the issue, as the Tribunal appear to have concluded.
24. I have not specifically found for the claimant on the basis that the contract, when properly analysed, envisages the creation of a contractual relationship between the claimant and the council and is therefore, contrary to the view of the Tribunal, not on all fours with James, This was not, it seems a point argued below when the claimant represented himself, and it was not initially a matter raised in the grounds of appeal either. I do not think it can be said to have been an error of law for the Tribunal to fail to take the point on its own initiative. It was advanced in the EAT as a result of certain observations of mine with respect to the scope of the concession. My provisional view is that there is certainly force in the argument. However, neither party came before me ready to argue this issue of construction, and it would be unjust for me to reach a concluded view in those circumstances without hearing full argument.
25. Furthermore, it is conceivable – although I would have thought unlikely in the circumstances of this case - that some argument may be developed along the lines that it would be unsatisfactory to allow the point to be argued now because it might need further findings of fact. No formal application to amend was made, and these issues were not explored before me. In the circumstances I am not prepared to say that the Tribunal erred in law in its approach to the written contract.

Disposal.

26. Nonetheless, I am satisfied that the Tribunal erred in law in the way it applied the necessity test. In my judgment, the Tribunal did not clearly separate out the two issues of whether there was a contract between claimant and council at all, and if so, what was its nature. Both parties have sought to persuade me that the answer is obvious in the light of the tribunal's factual conclusions. I do not agree and am not willing to undertake the task which is the prerogative on the Employment Tribunal.
27. In the circumstances the issue has to be remitted to a fresh tribunal to hear the matter again. The terms of the concession should be spelt out and recorded in writing. All potential arguments will be available to both parties.