United Kingdom Employment Appeal Tribunal
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URL: http://www.bailii.org/uk/cases/UKEAT/2016/0180_15_2203.html
Cite as: [2016] UKEAT 0180_15_2203, [2016] UKEAT 180_15_2203, [2016] ICR 1088
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EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8AE
At the Tribunal
Before
THE HONOURABLE MR JUSTICE KERR
(1) HEART OF BIRMINGHAM TEACHING PRIMARY CARE TRUST
(2) BIRMINGHAM CITY COUNCIL
(3) SECRETARY OF STATE RESPONDENTS
Transcript of Proceedings
JUDGMENT
APPEARANCES
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(of Counsel) Instructed by; The Employment Solicitor 8 Basin Road Diglis Basin Worcester WR5 3GA
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(of Counsel) Instructed by: Government Legal Department One Kemble Street London WC2B 4TS
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For the Second Respondent |
MR JONATHAN MEICHEN (of Counsel) Instructed by: Birmingham City Council Legal and Democratic Services PO Box 15591 Birmingham West Midlands B2 2UP
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SUMMARY
JURISDICTIONAL POINTS - Worker, employee or neither
CONTRACT OF EMPLOYMENT - Whether established
The Employment Tribunal had not erred in law and had applied the law correctly in finding that contractual arrangements made over a long period led to the conclusion that the employer of the Claimant was the Second Respondent and not the First Respondent. The identity of the employer was a question of fact for the Tribunal.
The changes to the contractual arrangements in 2005 did not lead to a change in the identity of the employer, even though the written contract named the First Respondent, not the Second Respondent, as the employer. The Tribunal had been entitled to find that the written contract did not mean what it said and named the wrong employer, even though that meant not giving effect to the words used by the parties.
THE HONOURABLE MR JUSTICE KERR
1. This is an appeal against a finding by an Employment Judge that the Appellant was employed by the Second Respondent, Birmingham City Council (“the Council”), and not by the First Respondent, Heart of Birmingham Teaching Primary Care Trust (“the Trust”), at material times going back to 1992.
2. The Appellant suffers from cerebral palsy and asthma, is disabled and requires reasonable adjustments. For many years he worked within the NHS. He has claimed against all three Respondents for unfair dismissal and disability discrimination, and for an enhanced redundancy payment. The Employment Tribunal, Employment Judge Heap sitting alone, found against him.
3. He began working, effectively for the Trust, in July 1992, remained working there until October 2012 and was given notice of dismissal by the Council on 20 December 2012, though with effect from a later date. He has pursued a number of claims. The Tribunal listed the matter for a Preliminary Hearing to determine by which body he had been employed, and that hearing led to a decision that he was at all the material times not an employee of the Trust but of the Council. He now appeals from that decision.
4. The Employment Judge gave a detailed Reserved Judgment signed on 18 July 2014 and sent to the parties on 30 July 2014. It runs to 211 paragraphs over 34 pages, including detailed findings of fact. The Employment Judge found that the Appellant was employed by the Council and not by the Trust and that he therefore could not claim unfair dismissal or a redundancy payment against the Trust; nor against the Third Respondent, the Secretary of State for Health (“the Secretary of State”), who, it is common ground, would have inherited liability for unfair dismissal compensation or any redundancy payment if the Trust had been under any such liability. The Employment Judge also made certain other findings arising from the legislation relating to protection of agency workers, which I need not mention further.
5. HHJ David Richardson made an Order on 30 June 2015 directing a Preliminary Hearing to determine whether the grounds of appeal raised a point of law with a reasonable prospect of success. That came before me on 27 October 2015 and, after hearing the Appellant, through Mr Roberts, who appeared below and appears today, I made an Order in the following terms (paragraph 1):
“1. The Appellant has permission to proceed with his appeal only to the extent that grounds 1 and 7 of the grounds of appeal assert that the tribunal misdirected itself and/or misapplied the law by accepting evidence of the subjective intention of the parties when ascertaining the respective obligations of the parties and determining which of the respondents was the appellant’s employer, initially in 1992 and/or subsequently in 2005 when the tripartite “Work Step” agreement was signed; and that the tribunal failed to ascertain the respective obligations of the parties by ascertaining objectively what those obligations were.”
6. The main findings of the Employment Judge were as follows. The Appellant was employed in 1992 under the terms of a scheme promoting job opportunities for disabled people called the Sheltered Placement Scheme (“the Scheme”). Under it, the placing body or sponsor had to be a local authority, Remploy Ltd or a voluntary organisation. The body for which the worker worked was called the “host” organisation. The worker was called the “SPS [Sheltered Placement Scheme] worker”.
7. The host here was the predecessor of what used to be the Trust, until April 2013 when it ceased to exist. The sponsor was the Council. The terms of the Scheme were detailed but essentially provided for the sponsor to bear the cost of the “productivity shortfall” of a disabled worker as a proportion of salary, as compared with the productivity that a comparable non-disabled person could deliver. The sponsor would actually pay the SPS worker and then invoice the host for its share of his or her salary.
8. It was not disputed that the terms of the Scheme required the sponsor and not the host to be the contracting party with the SPS worker; that is to say, the legal employer. There were other terms of the Scheme concerning redundancy, discipline and so forth, which the Employment Judge regarded as consistent with the SPS worker’s contract of employment being with the sponsor (here, the Council) and not the host (here, the Trust). I need not set out the detail of those other terms.
9. Disputes arose in evidence as to what documents the Appellant was given, and what was said in conversations to which he was privy; although Mr Roberts submitted that there were no real disputes, because there was no evidence to contradict the Appellant’s evidence on that issue. It is clear that the Appellant did not receive documents passing between the Trust and the Council concerning the Scheme and his position with it.
10. The Employment Judge made findings adverse to the Appellant, deciding that it was unlikely that statements had been made to him indicative of employment by the Trust and not the Council, since such statements would, in her phrase, “have flown directly in the face” of what the Scheme provided for and what later followed.
11. Specifically, at paragraphs 72 to 78 in the Tribunal’s written decision the Employment Judge found as follows:
“72. The application for funding under the Scheme in respect of the Claimant was granted. At that stage, the Claimant received a telephone call from Melissa Jameson. She introduced herself as being from the Scheme and advised the Claimant that the [West Birmingham Health] Authority [“the Authority”] wished to offer him the IT Assistant position with the assistance of the Scheme. It should be noted that the Claimant’s statement, neither at this point nor elsewhere, makes reference to the fact that he was told that he was not being offered employment directly with the Authority as now appears to be suggested. For the reasons that I have given and the fact that this would have flown directly in the face of both the Scheme and what later followed, I reject any notion that this is what the Claimant was told at this or any other point.
73. Following that telephone call, Melissa Jameson wrote to the Claimant to confirm the position. The letter, dated 10th July 1992, said this:
“I am pleased to advise you that I have now received approval for your employment at West Birmingham Health Authority under the City Council’s Sheltered Placement Scheme, and confirm the following.
You will commence work with West Birmingham Health Authority on Wednesday 15th July 1992 as an Information Technology Assistant on a starting salary of £7360 per annum.
You will receive an appointment letter from the City Council Personnel Department outlining the terms and conditions of your employment. If you require any further details about the scheme or your employment rights please contact me.
I shall visit you within the first month of your employment.
May I wish you all the best in the employment under Birmingham City Council’s Sheltered Placement Scheme.”
74. Nowhere within that letter did it say that the Claimant was to be employed directly by the Authority. The letter came directly from the Council and made it clear that the employment was under the Scheme and that that Scheme was the Council’s. The letter also made reference to the fact that the Claimant’s appointment letter outlining the terms and conditions of employment would come directly from the Council’s personnel department. As I shall come to, this is what happened.
75. On balance, therefore, and having regard to the conversation that had occurred previously with Melissa Jameson and the fact that the terms and conditions of employment were to emanate from the Council, I am satisfied that the offer was made and accepted by the Claimant on the basis that employment would be with the Council.
76. The letter of course also invited the Claimant to contact Melissa Jameson in the event that he had any questions about the Scheme or his employment rights. There is no suggestion that the Claimant made any enquiries as to why he was being written to directly by the Council, that they would be the ones to again correspond with him about his terms and conditions of employment or any other relevant matter.
77. Having written to the Claimant, Melissa Jameson also wrote on the same date to Paul Shobrook at the Authority. The letter set out the key terms of the Scheme insofar as the Claimant’s position was concerned and recorded the following matters:
1. That the Authority’s contribution to the Claimant’s salary would initially be 60% and that this would be regularly reviewed;
2. That the Authority would pay 60% of employers [sic] NIC’s;
3. That the responsibility for paying the Claimant remained with the Council who would then invoice the Authority for their contribution as “consideration for the supply of staff” and would include payment of VAT.
4. That the Claimant would be a member of the Council’s pension scheme and that contributions would be made for him accordingly;
5. That sick leave and annual leave entitlements would apply in accordance with the Authority’s terms;
6. That the Claimant would receive the same rate of pay as comparable workers at the Authority;
7. That informal disciplinary matters would be dealt with by the Authority with any support from the Melissa Jameson [sic] but that the Council must be involved at the earlier stage in any formal disciplinary action; and
8. That in the event of termination, the full notice period under the Claimant’s contract of employment must be given and, if possible, sufficient time to redeploy the Claimant.
78. The letter made it clear at paragraph 4 that the Claimant was to be employed by the Council. Whilst this was not a letter which the Claimant was sent, nevertheless it reinforces my view that it is highly unlikely that the Claimant was ever told that he was going to be a direct employee of the Authority and it was on that basis that employment was offered. If that had been the case, this also flew directly in the face of what was being agreed between the Council and the Authority about who the employer was. The arrangements under this letter between the Council and the Authority accorded entirely with the Scheme and the explanation as to how matters would work under the Handbook.”
12. The Employment Judge found that after the Appellant started to work at the Trust, the Council continued to behave like an employer, issuing written particulars of employment, providing the opportunity to join the pension scheme of the Council, providing a safety policy document and so forth; and indeed the Appellant did join the Council’s pension scheme.
13. He did not at the time take any issue with those employer-like acts of the Council, and it was the Council that paid his salary and invoiced the Trust for 60 per cent of it as the Scheme provided. That subsequently rose to 70 per cent. The Trust assessed the Appellant’s performance and told the Council to re-grade him at one point, and to give him a pay rise, and that too was in accordance with the Scheme.
14. Then, in 1995, there was a reorganisation at the Trust, and in 2004 what is now the First Respondent changed from being a health authority to a primary care trust (see paragraph 106 of the Tribunal’s decision) under the applicable legislation. According to the Employment Judge, that meant that the Appellant’s post had transferred to the newly created Trust.
15. There was no legal analysis either on the evidence of what happened at the time or in the Employment Judge’s decision to determine whether that was a correct conclusion in fact and law, and it is not a point that arises in this appeal. I find it difficult to understand how the post could be treated as transferring if the identity of the employer, the Council, remained unchanged, but it is clear from paragraph 107 of the decision that the post was treated at the time as transferring, possibly wrongly in law.
16. In July 2005, the Scheme was renamed “Workstep” but without, the Employment Judge found, material changes of substance. The Appellant was asked to and did sign a new tripartite written agreement between him, the Council and the Trust, of which a copy is before me, which makes clear reference to the “legal employer” being the Trust and not the Council. The document runs to some eight pages and is signed by all three parties.
17. It describes the Trust as the employer, the Council as the “provider” and the Appellant as the “client”. It is dated 25 July 2005. It begins by setting out some background about the nature of the Scheme. It then provides for the Appellant to benefit from and take part in the Scheme; and the preamble section, paragraph 2, states: “[t]he agreement is for a permanent position, starting on 15th July 1992”.
18. The nature of the Workstep agreement, as I shall refer to it, is that the Trust would act as the legal employer and perform all of the statutory duties attendant on that role, in relation to matters such as health and safety, equal opportunities, grievance and disciplinary procedures and terms and conditions of employment.
19. The Trust was placed under certain reporting obligations to the Council and was required to consult it in the event of any disciplinary process against the Appellant. By paragraph 18, the Trust would invoice the Council for the agreed level of sponsorship on a monthly basis. In the event of termination of the employment for redundancy or poor performance, paragraph 16 required 28 days’ written notice to be given by the Trust to the Council.
20. The “provider”, the Council, was required under separate provisions within the Workstep agreement, at paragraph 2, to:
“Ensure that the client [that is, the Appellant] has an agreed Contract of Employment from the Employer [i.e. the Trust] before the start date.”
21. The Council was given certain supportive roles, such as the creation with the Appellant of a development plan identifying training and other development needs, and was required by paragraph 6 of the same section in the document to “[o]ffer assistance to the Employer on general issues relating to the Client”. These included disciplinary matters. There were then, in schedule 1 to the Workstep agreement, provisions dealing with pay and annual leave, and the line manager of the Appellant was named as Sharon Worth.
22. Those, then, were the main terms of the Workstep agreement. The Employment Judge treated it as not changing the identity of the employer from the Council to the Trust - although she recognised that the words used in the Workstep agreement did state that the employer was the Trust. She treated the Workstep agreement, as she said at paragraph 117, as “effectively rubber stamping”.
23. At paragraphs 117 to 127 of her written decision the Employment Judge said this:
“117. The Agreement also referred to the agreement of the Council to ensure that the Claimant had an agreed contract of employment with the Trust prior to the commencement date. Of course, that was clearly never going to be feasible given that the Claimant had commenced employment in 1992 and had been provided with the Particulars from the Council who had told him that they were his employer. Quite simply, the arrangements under the [Workstep] Agreement did not fit with what the realities of the Claimant’s situation were and I am satisfied that no-one gave any proper thought to that at the time that the Agreement was signed. I do not doubt that they thought little of it at the time and considered it effectively rubber stamping that everything was to continue as it had for a good many years previously.
118. I fully accept the evidence of Sharon Worth that there was no intention to change the identity of the employer at this time and that as far as she was concerned the documentation was only needed for the purposes of dealing with the change from the Scheme to Workstep.
119. The Agreement was a tri-partite agreement and it was signed by Sharon Worth on behalf of the Trust, Cathie Beevers on behalf of the Council and by the Claimant.
120. It was, however, clear from the preamble to the Agreement that the intention was that the Claimant would remain on the Workstep programme with regard to his ongoing role. This is consistent with the Claimant’s evidence as to what he was told by Sharon Worth at the Trust that nothing would change with regard to his terms and conditions and he would continue to be paid by the Council under their payroll. In essence, other than the name change, things carried on and were intended to carry on as they always had.
121. The Agreement continued to provide for intervention by the Council in terms of monitoring and support and still required, as the Scheme had, that they were involved in any formal disciplinary action that may be contemplated against the Claimant.
122. There is no suggestion made by the Claimant in his evidence that he was told at this stage that he was now to be employed directly by the Trust and not by the Council. He was effectively told that things would continue as normal and at that stage I am satisfied that he believed his employer to be the Council and not the Trust. There is no suggestion, therefore, that come 2005 the parties had decided to vary the previous arrangements between themselves to provide for the Claimant to be a direct employee of the Trust.
123. The position may have been different if, at that stage, the contribution as to the Claimant’s salary and attendant costs had reached 100% for the Trust. At that stage, of course, the idea under the Scheme was that this would be the point when the “Host Employer” would realistically be expected to consider whether to make a direct offer of employment to the SPS Worker. However, it is clear from the Agreement that as at 2005, the Trust’s contribution remained at 70%. I have not been taken to any literature relevant to Workstep - such as a Handbook akin to that for the Scheme - to suggest that things were designed to work any differently in terms of the point when a change of employer would usually be discussed, i.e. at the point when contribution became 100%, and I accept the Respondent’s evidence that other than the name, Workstep worked in the same way as the Scheme had.
124. I also accept the evidence of Sharon Worth that she had pushed back on any agreement to offer direct employment to the Claimant until such time that the Trust’s contribution was to be 100% of salary as this would otherwise lose the Claimant the support of the Workstep programme when he could still benefit from it.
125. I also observe that the “start date” within the Agreement had been set at 15 July 1992 as indentified [sic] above. This suggested, of course, that the Claimant’s continuity of employment had been preserved from the start of his employment under the Scheme. There would be no reason in the circumstances for the Claimant’s continuity to be preserved if this constituted a new offer of employment with the Trust and, indeed, as I shall come to that was one of the sticking points when the Claimant was in fact later offered a position directly with the Trust.
126. I am satisfied that this is one instance where the Agreement did not reflect the reality of the situation and it was not the intention of any of the parties to change the arrangements as to who was the Claimants [sic] employer. If it had, this would have made a nonsense of the representations of Sharon Worth that things would remain the same, the continued involvement of the Council with the Claimant thereafter (which included monitoring visits in the way that they had previously), their continuing to pay the Claimant under their payroll as they always had and their invoicing of the Trust and also the later direct offer of employment to the Claimant by the Trust, to which we shall come shortly.
127. As such, I am satisfied that this was a poorly drafted document, which certainly as far as the evidence goes, did not have any input from legal services and which failed to take properly into account what the arrangements were under the Scheme and then Workstep schemes. In short, it did not properly reflect either what the intentions of the parties were or what the actuality of the arrangements for the employment of the Claimant were.”
24. Moving on from the Workstep agreement of 2005, when in 2010 the name of the Scheme was changed once again, this time to “Work Choice”, the Appellant sought and obtained clarification that he would remain on the Council’s payroll and in its pension scheme (see paragraphs 133 to 135). That new Work Choice Scheme involved the phasing out of the funding contribution to the Appellant’s salary. An offer of direct employment was made by the Trust. The Appellant met Ms Worth but rejected the idea of the Trust directly employing him, because he was told he would lose his 18 years of continuous service in that event.
25. At the time when the Primary Care Trust ceased to exist in 2013, there was an entity called the Birmingham & Solihull NHS Cluster, but it turns out that this had no legal personality. The question arose where the Appellant would work when a further reorganisation threatened the existence of his role within the Cluster. He went to work for the Council in December 2012 and was served with a redundancy notice about a week later.
26. The Council was not able to redeploy him, and its position was that his employment terminated by reason of redundancy on 31 March 2013. The Council paid him a redundancy payment calculated on the normal statutory basis, without any contractual enhancement, calculated by reference to his service going back to 1992. On those facts, the Employment Judge rejected the suggestion that the Appellant was ever employed by the Trust and found that he was at all material times employed by the Council.
27. That is, then, a brief description of the facts as found by the Employment Judge and the process of reasoning by which she reached her conclusion, as I have just set out.
28. What are the applicable principles? This is not a case where the issue is whether the terms of a contract have been dressed up to look like self-employment, by inserting “substitutability” clauses, zero hours clauses and the like. The issue here is as to the true identity of the employer, first under the 1992 arrangements and, secondly, under the 2005 arrangements.
29. It is necessary first to focus on the divide between issues of fact and issues of law. As is well known, a right of appeal to this Appeal Tribunal only lies on a point of law. There is no right of appeal on questions of fact. Where does one end and the other begin? The dividing line between the two is especially important in a case such as this.
30. In Express & Echo Publications Ltd v Tanton [1999] ICR 693 the issue was whether a delivery driver was employed or self-employed. The Employment Tribunal found that he was employed under a contract of employment, and the employer eventually successfully appealed to the Court of Appeal, after failing in the Employment Appeal Tribunal.
31. Peter Gibson LJ at 697A-C accepted the submission of Mr Swift, for the company, that the following approach was the correct one: (1) the Tribunal should establish what the terms were of the agreement between the parties, and that is a question of fact; (2) the Tribunal should then consider whether any of the terms of the contract were inherently inconsistent with the existence of a contract of employment, plainly a question of law; and (3) if there are no such inherently inconsistent terms, the Tribunal should determine whether the contract is a contract of service or for services, having regard to all the terms, a mixed question of law and fact.
32. The Tanton case was considered by this Appeal Tribunal in Consistent Group Ltd v Kalwak and Ors [2007] IRLR 560. The issue was whether certain Polish workers working in the hotel and catering trades through an agency were employed or were, as their written agreements stated, self-employed subcontractors. There was a “substitutability” clause in those contracts.
33. The appeal of the agency to the Appeal Tribunal failed. A further appeal to the Court of Appeal succeeded, but the reasoning of Elias J, then President of the Appeal Tribunal, was later upheld and preferred to that of the Court of Appeal in a subsequent Supreme Court decision, to which I shall come in a moment, so that the approach of Elias J in the Kalwak case is authoritative.
34. At paragraphs 55 to 59 Elias J pointed to the difference between a “sham” and a “variation”, noted at paragraphs 56 and 57 that Peter Gibson LJ in the Tanton case had recognised the possibility of contract terms being a sham, and at paragraph 58 said this:
“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.”
35. Applying that principle, he determined that the Tribunal had been entitled to reach the conclusion it reached to the effect that the employees concerned were employees of the agency, and he added this at the end of paragraph 59:
“59. … 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.”
36. At the end of his judgment, at paragraph 82, he described the case as:
“82. … 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. …”
37. In Autoclenz Ltd v Belcher [2011] ICR 1157, [2011] UKSC 41, the issue was whether the Claimant car cleaners were employed by the Respondent car cleaning company or whether they worked under contracts for services as subcontractors, as their written contracts stated. The Supreme Court upheld the Court of Appeal’s decision that they were both “workers” and “employees” within the minimum wage legislation.
38. Lord Clarke JSC gave the only judgment, with which the other members of the Supreme Court agreed. From paragraphs 17 to 35 he set out the “legal principles” by reference to classic authorities going back to Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, the judgment of MacKenna J.
39. I shall not set out those paragraphs. It is clear from the passages in Lord Clarke’s judgment that a contract is an employment contract if the terms bear the hallmarks of one (work in return for pay, subjection to a degree of control by the master and the obligation to serve personally); the “irreducible minimum” components. I need not go into other issues that bear on the divide between a contract of employment and a contract for services, since this is not a case where that issue arises.
40. In considering such a contract, according to the approach set out in Lord Clarke’s judgment, the principles governing ordinary contracts outside the employment sphere apply, but there is also (paragraph 21):
“21. … a body of case law in the context of employment contracts in which a different approach has been taken. …”
The citation continues:
“21. … Again, Aikens LJ put it correctly in the remainder of para 89 as follows:
“But in cases of contracts concerning work and services, where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties, rectification principles are not in point, because it is not generally alleged that there was a mistake in setting out the contract terms as they were. There may be several reasons why the written terms do not accurately reflect what the parties actually agreed. But in each case the question the court has to answer is: what contractual terms did the parties actually agree?”
22. In this context there are three particular cases in which the courts have held that the employment tribunal should adopt a test that focuses on the reality of the situation where written documentation may not reflect the reality of the relationship: … Kalwak …, Firthglow Ltd (trading as Protectacoat) v Szilagyi [2009] ICR 835 and the Court of Appeal decision in the present case [2010] IRLR 70.”
41. At paragraphs 25 and 26 in the same judgment, Lord Clarke endorsed the approach of Elias J in Kalwak, and at paragraphs 28 and 29 he preferred the approach of Elias J to that of Rimer LJ in the same case on appeal and held that it is not necessary to find that the parties intended to paint a false picture of the true nature of their respective obligations; it is sufficient that the terms of the agreement do not reflect the reality of the situation. He said at the end of paragraph 29:
“29. … The question in every case is, as Aikens LJ put it … what was the true agreement between the parties. …”
42. At paragraph 31, he cited part of the judgment of Smith LJ in the Court of Appeal in the same case, from within paragraph 53 of her judgment, where among other things she said this:
“53. In my judgment the true position … is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. To carry out that exercise, the tribunal will have to examine all the relevant evidence. That will, of course, include the written term itself, read in the context of the whole agreement. It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were. Evidence of how the parties conducted themselves in practice may be so persuasive that the tribunal can draw an inference that that practice reflects the true obligations of the parties. But the mere fact that the parties conducted themselves in a particular way does not of itself mean that that conduct accurately reflects the legal rights and obligations. …”
43. At paragraph 32 Lord Clarke said this:
“32. Aikens LJ stressed … the importance of identifying what were the actual legal obligations of the parties. He expressly agreed with Smith LJ’s analysis of the legal position in the Szilagyi case and in paras 47-53 in this case. In addition, he correctly warned against focusing on the “true intentions” or “true expectations” of the parties because of the risk of concentrating too much on what were the private intentions of the parties. He added:
“What the parties privately intended or expected (either before or after the contract was agreed) may [original emphasis] be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffmann’s speech in the Chartbrook [Ltd v Persimmon Homes Ltd] case [2009] 1 AC 1101, paras 64-65. But ultimately what matters is only what was agreed, either as set out in the written terms or, if it is alleged those terms are not accurate, what is proved to be their actual agreement at the time the contract was concluded. I accept, of course, that the agreement may not be express; it may be implied. But the court or tribunal’s task is still to ascertain what was agreed.”
I agree.”
44. The dividing line between law and fact on appeals raising issues as to what contract terms were agreed, has been considered in three further recent cases. In each of them, the Court of Appeal has treated the exercise of discerning the true nature of the parties’ respective obligations as an issue of fact and not law.
45. The first is Stack v Ajar-Tec Ltd [2015] IRLR 474 CA, concerning whether an investor in a company was also later an employee of the company and a “worker” (see per Tomlinson LJ at paragraphs 26, 27 and 32).
46. The second case is Smith v Carillion (JM) Ltd [2015] IRLR 467 CA. The issue was whether an agency worker in the construction industry had a contract of employment directly with the client, or with the agency. The Court of Appeal held that the Tribunal had not misdirected itself by concluding that the contract was with the agency (see per Elias LJ at paragraphs 31 and 37).
47. Thirdly, in Sharpe v Worcester Diocesan Board of Finance Ltd [2015] ICR 1241 the issue was whether a rector was employed as an “employee”, or as a “worker”, or neither. The Court of Appeal held that he was neither (see per Arden LJ at paragraphs 80 and 103).
48. Those cases indicate that findings about what the terms of a contract are should be treated as matters of fact for the Employment Tribunal. The same must be true, in my judgment, of findings as to which party was the true contracting party on the employer’s side, the issue that arises in this case. That issue is primarily one of fact, and a Tribunal’s conclusion cannot be disturbed on appeal unless there is some material legal error or misapplication of the principles.
49. It is also necessary to refer briefly to general contract law principles that apply where a court is faced with a contract that is said on its true construction to mean something other than what it says on its face. These issues have been discussed in a number of cases outside the employment sphere, but for present purposes it is sufficient to refer to the speech of Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101. In that case there was an issue as to the construction of a commercial land development contract and there was also a counter claim for rectification. At paragraph 15 Lord Hoffmann said this:
“15. It clearly requires a strong case to persuade the court that something must have gone wrong with the language and the judge and the majority of the Court of Appeal did not think that such a case had been made out. On the other hand, Lawrence Collins LJ thought it had. It is, I am afraid, not unusual that an interpretation which does not strike one person as sufficiently irrational to justify a conclusion that there has been a linguistic mistake will seem commercially absurd to another …”
50. At paragraphs 22 to 25 Lord Hoffmann referred to what Brightman LJ had described in an earlier case, East v Pantiles (Plant Hire) Ltd [1981] 263 EG 61, as “correction of mistakes by construction”:
“22. In East … Brightman LJ stated the conditions for what he called “correction of mistakes by construction”:
“Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction.”
23. Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd [2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that “correction of mistakes by construction” is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said, at p 1351, para 50:
“Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph ‘as it stands’, as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended.”
25. What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied.”
51. I note that Lord Hoffmann there was dealing with principles of construction and not with the equitable remedy of rectification. On the subject of what evidence is admissible for the purpose of construing a contract, he said this at paragraphs 64 and 65:
“64. The other case is the decision of Laddie J in Cambridge Antibody Technology Ltd v Abbott Biotechnology Ltd [2005] FSR 590, in which he rejected a submission that evidence of the subjective state of mind of one of the parties contained in statements which had not been communicated to the other party (“crossed the line”) was inadmissible. In my opinion, Laddie J was quite right not to exclude such evidence, but that is not inconsistent with an objective approach to what the terms of the prior consensus were. Unless itself a binding contract, the prior consensus is, by definition, not contained in a document which the parties have agreed is to be the sole memorial of their agreement. It may be oral or in writing and, even if the latter, subject to later variation. In such a case, if I may quote what I said in Carmichael v National Power plc [1999] 1 WLR 2042, 2050-2051:
“The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done.”
65. In a case in which the prior consensus was based wholly or in part on oral exchanges or conduct, such evidence may be significant. A party may have had a clear understanding of what was agreed without necessarily being able to remember the precise conversation or action which gave rise to that belief. Evidence of subsequent conduct may also have some evidential value. On the other hand, where the prior consensus is expressed entirely in writing, (as in George Cohen Sons & Co Ltd v Docks and Inland Waterways Executive [1950] 84 Ll L Rep 97) such evidence is likely to carry very little weight. But I do not think that it is inadmissible.”
52. So I come to the submissions of the parties. For the Appellant, Mr Roberts submitted that the Tribunal had fallen into the error of deciding the identity of the employer on the basis of the subjective intentions of the parties, in particular of those representing the employer’s side; instead of deciding the issue by ascertaining objectively which of the Respondents assumed the obligations of being the employer.
53. Mr Roberts said that was the wrong approach, especially where, as in this case, the Workstep agreement of 2005 had been put into writing and signed by the parties. He also referred me to two additional documents subsequent to the Workstep agreement not referred to in the Tribunal’s decision. In the course of producing a “review record” in July 2008 and again in February 2010, the parties had once again been identified as they had been on the face of the Workstep agreement: the “employer” representative being that of the Trust and not the Council.
54. Mr Roberts submitted that the Employment Judge had been dismissive of objective evidence of factors that needed to be weighed when ascertaining what the parties’ respective contractual obligations were; in particular, a job description document referred to at paragraphs 52 and 53 of the Judge’s decision; and the fact that the interview for the post was conducted by the Trust and not the Council (see paragraph 54).
55. Mr Roberts criticised the decision as concentrating too much on how the Scheme operated (for example, see paragraphs 61 to 71) even though it was not suggested by the Respondents that the documents containing the Scheme’s terms were ever provided to the Appellant. Mr Roberts’ criticism was that the Judge attached a lot of weight to the terms of the Scheme and that those terms were only capable of indicating one party’s subjective understanding of the meaning of the contract.
56. In relation to the Workstep agreement in 2005, Mr Roberts submitted that its purpose was indeed to provide continuity and that the status quo that it was intended to preserve was that the employer was and remained the Trust. He relied in that regard on the provision I have already mentioned providing for a permanent position starting on “15th July 1992”.
57. He pointed out that the Workstep agreement is the only written document setting out the respective obligations of the parties; that it makes clear that the employer is the Trust and, further, what role the Council was to play; and that a contract signed by all three parties must be taken to contain the terms agreed between those parties unless there is a very good reason for deciding otherwise.
58. He submitted, further, that this was not a case in which it could be said that the contract terms were a sham; there was no suggestion of attempting to mislead anyone and if the terms had been mistaken the remedy for that would be the equitable remedy of rectification, which is not available in an Employment Tribunal and no such claim had been made elsewhere. He criticised in particular the passage in paragraph 118 of the Tribunal’s decision in which the Tribunal said this:
“118. I fully accept the evidence of Sharon Worth that there was no intention to change the identity of the employer at this time and that as far as she was concerned the documentation was only needed for the purposes of dealing with the change from the Scheme to Workstep.”
59. He pointed out that earlier, at paragraph 108, the Tribunal had accepted:
“108. … the evidence of the Respondent that other than the name, in essence little of substance changed and things continued as they had previously under the Scheme, certainly insofar as the Claimants [sic] position was concerned. …”
That was not, Mr Roberts noted, accompanied by any finding that any conversation had taken place between the Appellant and either of the other two parties about what the Workstep agreement meant.
60. In the alternative, Mr Roberts submitted that if his submissions about the continuity of the arrangements going back to 1992 were wrong, the Workstep agreement was a variation of the 1992 contractual arrangements, which changed the identity of the employer. He said there was no evidence to contradict what the Workstep agreement said on its face, i.e. no evidence of a common intention that the identity of the employer should not change.
61. Once again he submitted that the Tribunal had impermissibly crossed the line into interpreting what the Workstep agreement meant by accepting the subjective understanding of it of Ms Worth, as shown in paragraph 118, rather than confining the Tribunal’s treatment of her evidence as, at the most, relevant to what might have been the objectively determined meaning of the Workstep agreement.
62. For the Council and the Secretary of State Mr Beever submitted as follows. He said the Appellant’s submission is very difficult to make good because the evidence of Ms Worth’s understanding was not said by the Appellant to be inadmissible. Mr Beever submitted that there was nothing in the decision that rendered irrelevant the findings of fact that the Employment Judge made.
63. He pointed first to paragraph 24 of the Tribunal’s decision, which said this:
“24. A starting point in considering the question of the relationship between the parties will be the terms of any written agreement between them. However, those terms should only be disregarded where they do not reflect the true agreement between the parties - in other words where the contractual terms do not reflect the actuality of the relationship (Autoclenz …).”
64. Mr Beever submitted that that was a proper and correct statement of the law, which was properly applied to the facts as expressed in the conclusion of the Tribunal at paragraph 175 in these terms:
“175. However, as I have set out earlier in my findings of fact, I am satisfied that this Agreement did not reflect either the reality of the situation or the intention of the parties which, although not determinative of itself, is still a relevant consideration.”
He relied in particular on the words “although not determinative of itself”.
65. Mr Beever submitted that what the Employment Judge did was to use the evidence of the subjective intentions of the parties not for the impermissible purpose of thereby determining what the contract meant, but for the permissible purpose of giving some indication what, objectively, the parties’ respective obligations were. He said that the Judge did not wrongly use subjective evidence of intention in order to recast the contract.
66. As to the contractual arrangements in 1992, he submitted that the Tribunal’s treatment of that issue was equally unimpeachable; and he referred in particular to paragraph 75, where the Judge said this:
“75. On balance, therefore, and having regard to the conversation that had occurred previously with Melissa Jameson and the fact that the terms and conditions of employment were to emanate from the Council, I am satisfied that the offer was made and accepted by the Claimant on the basis that employment would be with the Council.”
67. Mr Beever submitted that that finding included objective evidence of a common understanding based on a conversation between Ms Jameson of the Council and the Appellant, and on the letter written to him, which he did receive.
68. Mr Beever’s further submission was that the Employment Judge was aware of and alive to the point that another letter to which the Judge referred, sent contemporaneously in July 1992 to the Trust, about the employment arrangements of the Appellant, was not sent to the Appellant. The fact that the Judge went out of her way to mention that it was not sent to the Appellant (see paragraph 78) showed that she was well aware of the need to use caution when setting out and relying on subjective intention evidence and the limited purpose for which it could be considered.
69. Mr Meichen supported the arguments of Mr Beever and adopted them on behalf of the Council, which also takes the position in this appeal that the Employment Judge’s decision was correct and that the Appellant was the Council’s employee and not the Trust’s, at all material times. Mr Meichen submitted that the Judge correctly followed the approach of the Supreme Court in Autoclenz and made no error of law either in relation to the 1992 arrangements or the 2005 arrangements.
70. I come, then, to my reasoning and conclusions. First, the Employment Judge directed herself in rather brief terms at paragraph 24 of her decision, where she set out the principles she derived from the decision of the Supreme Court in the Autoclenz case. It was an abbreviated statement of the applicable principles, but it was not in itself a misdirection of law. In Employment Tribunals, as elsewhere, brevity is a virtue. The Judge did not get off on the wrong foot by encapsulating the principle in the way that she did in that paragraph. I also bear in mind Mr Beever’s point that at paragraph 175 of the decision, the Judge made it clear she was aware that the subjective intention of the parties was “not determinative”.
71. Nevertheless, it remains to consider whether the Judge was impermissibly distracted by the evidence of Ms Worth’s subjective intention and placed too much weight on the evidence of the terms of the Scheme, which were not communicated to the Appellant and thus could not provide support (other than, perhaps, by raising an inference about what probably was or was not communicated to the Appellant at the time) for a common understanding of the parties.
72. In approaching that issue, I bear in mind that the parties’ conduct subsequent to the 1992 arrangements is of some objective probative value. It throws light on how the parties jointly viewed those arrangements, made a very long time ago and evidenced only by a few letters (cf. the passage in Lord Clarke’s judgment in the Autoclenz case at paragraphs 30 and 31, where he cited from the judgment below of Smith LJ, and see at 1167F-G).
73. The Tribunal’s account of the law was incomplete in that it omitted any mention of the way in which a Tribunal should treat extrinsic evidence of what the contract meant, as discussed by Lord Hoffmann in Chartbrook at paragraphs 64 and 65, and it omitted any reference to the notion of correcting a mistake by construction, as also discussed by Lord Hoffmann in Chartbrook at paragraphs 22 to 25.
74. Did the Tribunal nonetheless in substance apply the correct principles to the facts as it found them, and thus reach a conclusion that cannot be disturbed in this Appeal Tribunal? I shall deal first with the 1992 arrangements. After reflection and viewing the Tribunal’s findings in the round, I consider that those findings were open to the Judge and not perverse nor tainted by any misunderstanding of principle, error of law or misdirection.
75. In particular, at paragraph 72 the Employment Judge referred to a telephone call between Ms Jameson of the Council and the Appellant pre-dating his employment in 1992. In that call she introduced herself, talked about the Scheme, told the Appellant he was being offered employment and did not suggest that his employment would be directly with the (then) Authority. The Judge reached the factual conclusion that the Appellant was not told at that or any other point that his employment would be with the Trust (then, the Authority).
76. Secondly, in the next paragraph the Tribunal referred to the letter of 10 July 1992 offering employment to the Appellant, not stating in that letter that the employment would be with the Authority, although the letter did state that the Appellant would work “with” what is now the Trust and “under” the Scheme. The Tribunal then at paragraph 75 reached the conclusion that:
“75. … having regard to the conversation that had occurred previously with Melissa Jameson and the fact that the terms and conditions of employment were to emanate from the Council, I am satisfied that the offer was made and accepted by the Claimant on the basis that employment would be with the Council.”
77. It seems to me that that was a finding which was open to the Tribunal and cannot be impugned in this Appeal Tribunal, which deals with points of law only.
78. I am reinforced in that conclusion by the findings of the Tribunal about the conduct of the parties subsequent to the 1992 contractual arrangements: see paragraph 83, referring to the provision of a statement of particulars of employment by the Council of the Appellant; paragraph 84, referring to the Appellant’s signed acknowledgement of a health and safety policy document emanating from the Council; and paragraph 90, referring to the absence of any subsequent query from the Appellant as to why he had been sent particulars of his employment terms by the Council; and the evidence of his joining the Council’s pension scheme.
79. I then turn to the contractual arrangements in 2005. There is no doubt that the Workstep agreement was not a sham; it was a shambles. This is not a case in which the parties set out to create a document that would deliberately mislead others about what the true nature of their respective obligations was. This is a case in which there is no doubt, if the Respondents are correct, that the Workstep agreement did not mean what it said about the identity of the employer.
80. It seems to me that extrinsic evidence relevant to the meaning of the Workstep agreement was admissible in this case to the limited extent explained by Lord Hoffmann in Chartbrook at paragraphs 64 and 65. It follows that the Employment Judge was not wrong to admit that evidence provided she limited herself to doing so to that extent only. After reflection, I am persuaded that the Employment Judge did not fall into the error of using the evidence of Ms Worth, about the subjective intention of the Trust, as determinative of the meaning of the Workstep agreement.
81. The Judge was entitled to have regard to that evidence, in addition, for the purpose of applying the principles discussed in the speech of Lord Hoffmann in Chartbrook at paragraphs 22 to 25, namely, the correction of mistakes by construction.
82. Here, there was evidence before the Employment Judge entitling her to find that there was an objective common understanding between the parties that the Workstep agreement did not mean what it said about the identity of the employer; see in particular paragraph 122, where the Tribunal said this:
“122. There is no suggestion made by the Claimant in his evidence that he was told at this stage [at the time of the Workstep agreement] that he was now to be employed directly by the Trust and not by the Council. He was effectively told that things would continue as normal and at that stage I am satisfied that he believed his employer to be the Council and not the Trust. There is no suggestion, therefore, that come 2005 the parties had decided to vary the previous arrangements between themselves to provide for the Claimant to be a direct employee of the Trust.”
83. That is a finding properly made, in my judgment, about an objectively determined common understanding between the parties about the identity of the employer from July 2005.
84. The mistake in the Workstep agreement, on the Judge’s findings, is so stark and so extreme that I have considered anxiously whether her conclusion can be justified, applying the principles that I have already mentioned. The Judge gave the Workstep agreement a meaning that directly contradicts what it says on its face. But I do not, ultimately, accept that it was wrong for her to do so as a result of placing unwarranted reliance on subjective factors.
85. The exercise of determining whether the mistake was made and, if so, the correction by construction needed to cure it, was one of fact for the Employment Judge. In making the finding she did about the identity of the employer, she effectively applied the principle of curing a mistake by construction of the contract, albeit without formulating that principle or saying that that was what she was doing.
86. For those reasons, I think the Judge was entitled to find that this was another exceptional case where, as in Kalwak, the contract did not reflect the objectively determined true bargain between the parties; here, because in short, it named the wrong employer.
87. I also bear in mind that the Judge was entitled to have regard to the conduct of the parties subsequent to 2005 (see in particular paragraphs 141 to 144 of the decision). The Tribunal found that in 2010 the Appellant expressly rejected the idea of becoming employed directly by the Trust for the very good reason that he would thereby lose 18 years of continuous service. That evidence was relevant and admissible to show what the common understanding of the parties was. It is difficult to square that position taken by the Appellant with the notion that he considered himself to be already an employee of the Trust.
88. I am, for those reasons, in the end not persuaded that the Employment Judge made an error of law, and I must dismiss the appeal.