United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR ALLAN ROBERTS (of Counsel) Instructed by: Messrs Kitson Hutchings Solicitors The Forum Barnfield Road Exeter EX1 1QR
For the Respondent	No appearance or representation by or on behalf of the Respondent


 


SUMMARY

JURISDICTIONAL POINTS: Worker, employee or neither

For 13 years the Claimant worked installing double glazing for the Respondent. In 2004 he signed a "contract supply agreement" though matters continued as before. On the Respondent ceasing to use his services the Claimant claimed unfair dismissal. The Respondent asserted the Claimant was not an employee but a supplier of services under the agreement which contained an "entire agreement" clause. The Employment Judge characterised the "entire agreement" clause as a sham and looking at all the circumstances held the Claimant was an employee. The Respondent appealed. Held: the Employment Judge was entitled to reach the conclusion that the entire agreement clause was a sham and looking at all the circumstances to hold that the Claimant was an employee. Appeal dismissed.


 


HIS HONOUR JUDGE REID QC

Preliminary

1. This is an appeal from a decision of Employment Judge Hollow on a pre-hearing review heard at Exeter on 19 February 2009. He held that the Claimant, Mr Larner, was an employee of the Respondent, Launahurst Ltd, for the purposes of the Employment Rights Act 1996. The Respondent appeals against that decision.
2. There was some suggestion that the Respondent wished to challenge some of the underlying findings of fact made by the Employment Judge and to assert that some of the findings of fact were perverse, but no note of the evidence below was ever agreed and no application was ever made for the Employment Judge's notes of evidence. In the circumstances counsel for the Respondent very properly accepted that those points could not be pursued.

Facts

3. The Claimant, who had previous experience of this type of work, started work, to use a neutral phrase, for the Respondent as a window installer in September 1995. Until December 2004 there was nothing in writing to govern the relationship between the parties, but in December 2004 the parties entered into what was described as a "Contract Supply Agreement" ("the Contract"). On 19 September 2008 the Respondent, again using a neutral expression, dispensed with the Claimant's services. The Employment Judge found that the pattern of the Claimant's work did not change to any material extent following the signing of the agreement.
4. The Claimant's working pattern was that he would attend for work on Monday morning each week and be given installation work to do for the Respondent. The Respondent organised its various contractual obligations and scheduled the work. The Respondent decided which jobs would be done on which days and which of the particular teams, of whom there were about 20, would be given each job. The Claimant and all other installers worked on the same basis. He would be given a job which might require him to be on site for one or more days. He would be provided with the windows and doors etc which the Respondent had manufactured to fit. He was provided with a van, which was insured by the Respondent. At the start he paid for his own fuel for the journeys to and from the site, but sometime before December 2004 the Respondent issued the Claimant with a fuel card so that he no longer paid for his own fuel. He provided his own hand tools, such as drills, saws, screwdrivers and the like.
5. Initially he was remunerated on a percentage of the value of the contract, normally ten per cent. At this stage he did not receive any basic wage or salary, only the percentage. He was never required to submit invoices for the work that he had done. Payment was made purely on the basis of the value of the installation contract that he had completed. Latterly (and there is no finding as to whether this was before or after the 2004 agreement) he was remunerated, on the Employment Judge's finding, at a "more or less fixed sum of £610 per week, which he equated to £105 per day". From this sum on occasion deductions were made. The deductions might be in respect of remedial work or charging back to the Claimant equipment which he had bought and charged to the Respondent.
6. Tax was never deducted by PAYE, but at all times the Claimant was registered under the CIS Scheme (or its predecessors) so that the Respondent deducted tax at 20 per cent from the amounts paid. The Claimant made his own arrangements to pay any further tax due. At all times the Claimant made arrangements to pay his own National Insurance contributions. He prepared accounts for the Revenue in which it would have been open to him to make claims for any tools or anything similar that he had had to purchase, though the Tribunal made no finding as to whether in fact he ever did so.
7. He held Public Liability insurance cover throughout the period he did work for the Respondent.
8. The Claimant worked on a daily basis five days per week. He started in the morning and was free to go home as soon as he had finished his particular installation. He would normally work until 5.00 p.m. If he had not finished a job in the day he would return the next day to complete it. Having completed a particular job, he would report back and be given a fresh one. He had no direct choice as to which job he would have been given.
9. If a job required more than one workman he would introduce a colleague who would be engaged by the Respondent and then remunerated by the Respondent directly in the same way as the Claimant was remunerated. It was never suggested that he ever sought to introduce anyone to do a job instead of him.
10. There was never any arrangement for company sick pay or pension scheme. There was no disciplinary procedure in place, although no disciplinary issues ever arose. Before December 2004 there was never any discussion between the parties as to whether or not he might be permitted to send somebody as a substitute for him to carry out installation work.
11. There had been no arrangement for holidays. The practice was that the Claimant would notify the Respondent in good time that he wished to take a couple of weeks' holiday and the Respondent's schedule of work would be adjusted accordingly. He would not be paid for any period that he took off as holiday. It would have been open to him to have taken more than a couple of weeks at one time, but he said that since he would not be paid, he could not take any further time off work beyond a week or two at any one time.
12. In December 2004, the Employment Judge found, "the regime changed as the result of attitude that was taken by the Revenue in relation to the tax and self employment status". The parties entered into the Contract. The Contract contained a provision shortly known as an "entire agreement" term. It stated that the Contract constituted the entire contract between the parties.
13. The Contract comprised 14 clauses, most of which were divided into numerous sub-clauses. It provided that "the Contractor", the Claimant, would provide services to "the Company", the Respondent, "for the duration of each Assignment or Extended Assignment in accordance with the terms of the Agreement". The term "Assignment" was defined as

"the provision of the Services as set out in the Assignment Schedule. The Assignment shall be on a time and materials basis or fixed price basis as may be agreed from time to time and in accordance with the provisions of this Agreement."

The term "Extended Assignment" was defined as:

"the provision of the Services for the further term (in accordance with the provisions of this Agreement) as agreed between the Company and the Contractor."

14. There was no Assignment Schedule attached to the Contract but it was apparently common ground in the Employment Tribunal that there would be an Assignment Schedule in the form of a document headed "Survey Form" for each job. The Survey Form was one of three copies of the form filled out by the surveyor who measured up for the job. On its reverse was a copy of the Respondent's "Company Fitting Policy". Nowhere in the Contract or in the Survey Form was any price mentioned, nor was there any mention of the time the job was to take.
15. The duration of the Contract was said to be from the "Commencement Date" but the Employment Judge did not see "any clear indication of when that would have commenced, but an assignment seems to have been a particular job which was given to [the Claimant]." The Contract was to terminate automatically "on completion of the Assignment (or Extended Assignment) by the Contractor to the satisfaction of the Company and the Customer", but without prejudice to any provisions intended to operate thereafter.
16. The Contract contained a number of positive and negative obligations on the part of the Claimant. It provided at clause 3(2) that the Claimant might be permitted to substitute someone else for him, provided that the other person was notified to, and approved by, the Respondent, though in fact that situation never arose. It provided that the Claimant would provide his services for as many hours as might be required from time to time. It provided that if he employed anybody else to assist him or carry out the services for the company, he would be responsible for paying them and accounting for their tax and National Insurance contributions and would be responsible for complying with obligations as to the national minimum wage.
17. The Contract required the Claimant to accept liability in respect of any loss or damage which might be caused and to indemnify the Respondent. Hence he was required to take out public liability insurance cover at the request of the Respondent (which he was already doing).
18. There were provisions placing negative obligations on the contractor, which in summary, were to the effect that the Claimant would not enter into competition with the Respondent during the subsistence of the agreement or within six months after its termination.
19. There was no provision for sick pay, holiday pay, disciplinary issues, pension or any of the other matters which would ordinarily be found in a contract of employment.
20. Most important from the point of view of the Respondent were clauses 8, 11 and 12:

"8.1 The Company shall be under no obligation to offer any particular assignment or project to the Contractor however similar that assignment or project may be to assignments or projects previously offered by the Company to the Contractor.

8.2 The Contractor shall be under no obligation to accept any particular assignment or project offered by the Company however similar that assignment or project may be to assignments or projects previously accepted by the Contractor from the Company. …

11.1 The terms herein and the terms and conditions set out in the Assignment Schedule constitute a contract between the Company and the Contractor under which the Contractor shall provide Services to the Company.

11.2 This Agreement constitutes the entire contract between the Company and the Contractor and no variation or alteration to these terms shall be valid unless approved by a Director of the Company in writing.

11.3 The Company shall endeavour to obtain suitable assignments for the Contractor with its Customers but shall be under no obligation to do so.

11.4 Neither the Contractor nor any of its Personnel is an employee of the Company...

…12.2 This Agreement embodies and sets forth the entire agreement and understanding of the parties and supersedes all prior oral or written agreements or understandings or arrangements.

12.3 This Agreement shall not be modified varied or supplemented except in writing signed, by duly authorised representatives of the parties."

21. There were about five occasions in the last year or so, when the Respondent's business was quiet and by agreement with the Respondent the Claimant obtained work from private customers of own. He purchased windows from the Respondent at a price which was quoted to him, and he and a workmate installed them at his customers' homes. He was invoiced for the goods on each occasion by the Respondent as "Mr Larner (Staff)". The Employment Judge did not regard these transactions as particularly significant in the context of the case.

The Employment Judge's Decision

22. The Employment Judge, having made his findings of fact, said:

"15. …A powerful piece of evidence is, in my view, the entire contract clause which is set out in the agreement although I do not think that is necessarily determinative on its own.

16. The authorities indicate that a term such as that, in a contract, may be disregarded if it is a sham, that is to say that it has been created for the purpose of deceiving, e.g. the Revenue as to the true nature of the contract or did not reflect the true intention of the parties: Redrow Homes (Yorkshire) Ltd v. Buckborough & anor, [2009] IRLR 34. It may be a sham if it does not reflect the reality of the situation as it was operated between the parties and in those circumstances, I think that particular clause in the contract is a sham on that basis. In my view it bears no reality to the way the parties conducted themselves throughout the working arrangement both before and after the signing of the Contract.

17. I must then look at all the circumstances of the case and decide whether the picture that is painted is one of employment or self employment. As in so many of these cases, there are factors which point to one conclusion and factors which point to a different conclusion. The fact that Mr Larner was responsible for his own tax and National Insurance and provided his own tools, is a factor which points away from employment status. The fact that he was remunerated on a regular basis, albeit by some form of commission, the fact that he had no direct control over particular jobs that he undertook and the fact that, in my judgment, he would have appeared to outside observers to have been to all intents and purposes, an employee, are factors, which together with others, which [sic] point to the conclusion that he was an employee. I have come to the conclusion after considering all various issues that I have referred to, that on balance, Mr Larner was an employee of the respondent for the purpose of the Employment Rights Act 1995 [1996] and that his service was continuous from September 1995 up to the date that it was termination [sic]."

23. The Respondent attacks these conclusions on the following bases: (1) There was no mutuality of obligations. This is a pre-requisite for any contract of employment: see Clark v Oxfordshire Health Authority [1998] IRLR 125 (CA). The contract between the parties clearly expressed that no such obligation exists (clause 8). It was submitted this was fatal. (2) In any event adopting the "multiple test" from Ready-Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 (a) the worker did not undertake to provide his own work and skill in return for remuneration: he could use an approved substitute; (b) the worker did not "agree to be subject to the other's control to a sufficient degree as to make him his master". He was given a set of assignments with the locations and specifications of the window dimensions and was free to deploy his skill and services to carry out the work in his own way. There was no control over the "way in which it shall be done, the means to be employed in doing it", though there might be a deadline imposed by when it should be done. The Respondent could not instruct the Claimant how he should install the windows nor instruct him to stop what he was doing to move to another site to assist another worker. The lack of authority demonstrated there was an insufficient degree of control. (3) There were other factors inconsistent with a contract of employment: (i) The Claimant was paid for results and not remunerated for his time. (ii) He did not work a prescribed number of hours but was free to work in his own time, at his own pace. (iii) He provided and used his own tools; (iv) He was responsible for his own tax and national insurance. (v) He was free to work elsewhere and had exercised that right. (vi) He was responsible for correcting any defects in work at his own expense and in his own time.
24. Counsel further submitted that the Employment Judge was incorrect to hold that the "entire agreement clause" was a sham. Whilst not attacking the reasoning in Redrow Homes (Yorkshire) Ltd v. Buckborough & anor he sought to distinguish it essentially along the lines of the Court of Appeal decision in Consistent Group Ltd v Kalwak [2008] IRLR 505 (CA). There was no reason to categorise the single clause in the Contract as a sham and it was clearly a contract for services. It could not be said that neither party intended the Contract or the relevant provision to be effective. There was no finding that the Respondent intended that the Contract should not have the effect according to its terms and so the Contract could not be categorised as a sham: see per Diplock LJ in Snook v London & West Riding Investments [1967] 2 QB 786 (CA) at 802 C-F. Unlike Redrow it could not be suggested that the parties had a common intention.
25. The Contract would ordinarily take precedence over any agreement of the parties as to the categorisation of their relationship, but in this case it was clear the Claimant believed he was self-employed: in his ET1 he stated he was not an employee of the Respondent but was a worker providing services to the Respondent.

Discussion

26. A useful starting point is Protectacoat Firthglow Ltd v Szylagyi [2009] EWCA Civ 98. In that case Smith LJ pointed out that while a document which could be shown to be a sham designed to deceive others would be wholly disregarded in deciding what was the true relationship between the parties, it was not only in such a case that its contents ceased to be definitive. If the evidence established that the true relationship had been, and had been intended to be, different from what was described in the document, it was that relationship and not the document or the document alone which defined the contract. In a case involving a written contract, the tribunal would ordinarily regard the documents as the starting point and ask itself what legal rights and obligations the written agreement created. But it might then have to ask whether the parties had ever realistically intended or envisaged that its terms, particularly the essential terms (ie those central to the nature of the relationship, viz mutuality of obligation, and the obligation of personal performance of the work), would be carried out as written.
27. In this case the Contract had been entered into "as a result of attitude that was taken by the Revenue in relation to tax and self employment status", to quote the Employment Judge's words. He formed the view that the "entire agreement" clause was never intended to be that. It bore, he found, no reality to the way in which the parties conducted themselves before or after the signing of the Contract. He pointed out the regular remuneration, the way in which the Claimant was allocated work and the fact that the Claimant would have appeared to be an employee to the outside world. To that might have been added the fact that, apart from the five occasions when with the Respondent's consent he did work on his own account, he worked only for the Respondent over a lengthy period in circumstances that he did so on a daily basis and that he gave notice of proposed holidays with the result that the Respondent adjusted its work schedules to take account of his absences.
28. In these circumstances he was in my judgment entitled to hold that the "entire agreement" clause was a sham since the operation of the relationship demonstrated that the parties did not realistically intend or envisage that the terms would be carried out as written. His view formed a proper foundation for finding that the written words do not truly reflect the intentions of the parties: see Protectacoat at para 57. He was entitled to hold that the Contract did not describe or represent the true intentions and expectations of the parties and so that it was not definitive.
29. Clearly if the Employment Judge was restricted to looking at the Contract, then the Claimant was not an employee. There was, on the face of the document, no mutuality of obligation, no obligation to offer work and no obligation to accept it. However in the circumstances he was entitled to look at the whole picture and the reality of the matter, as found by the Employment Judge, was that day in and day out over many years five days a week the Claimant reported in and was given work which he invariably did personally. The Claimant was an experienced installer so there was no question of telling him how to do a job. In common with many others he could knock off when he had finished the day's task. If he was not going on holiday, he notified the Respondent in good time and it adjusted its schedule accordingly. Although the Employment Judge did not expressly spell it out, it is clear that he was finding that there was a mutuality of obligation.
30. He then went on to balance a number of factors. In this case as in many such cases there were, as he found, factors pointing in each direction. It has not been suggested that he left out of account factors which he ought to have brought into account or that he brought into account factors which he should not have done. There were in particular factors such as the Claimant's responsibility for his own tax and National Insurance which weighed against his being an employee, but there were factors on the other side, such as the regularity of work and his pay, the provision of his vehicle and fuel, his lack of say in which jobs he did or when, which went the other way.
31. This experienced Employment Judge weighed those factors and came down on the side of saying the Claimant was an employee. He cannot in my view be said to have erred in law in reaching the conclusion which he did. It follows that the appeal must be dismissed.