Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No. CJSA/2893/2009

ADMINISTRATIVE APPEALS CHAMBER

Before Judge Nicholas Paines QC

Decision: The First-tier Tribunal reached the correct conclusion in this case but its decision involved an error of law. I set it aside and substitute a decision of my own that the claimant was not entitled to jobseeker’s allowance with effect from 21 November 2008 because his earnings exceeded his applicable amount.

REASONS FOR DECISION

1.               The rules on whether people who work for only part of the year are entitled to jobseeker’s allowance or income support are complicated and in some respects controversial. They are not always easy to understand or to apply. In this case the tribunal, at the Secretary of State’s invitation, followed the approach laid down in CIS/166/94. There have been a number of reported decisions since CIS/166/94, including decisions of Tribunals of Social Security Commissioners and of the House of Lords: see in particular Banks v Chief Adjudication Officer (reported as R(IS) 15/01) and R(JSA) 1/03, R(JSA) 2/03, R(JSA) 4/03, R(JSA) 5/03, R(JSA) 1/06, R(JSA) 1/07 and JC v SSWP [2008] UKUT 40 (AAC), reported as R(JSA) 1/09. Certain aspects of the reasoning in CIS/166/94 are not consistent with Banks or the reasoning of the Tribunal of Commissioners in R(JSA) 5/03. Tribunals should follow the more recent decisions.

2.               In the present case the claimant is self-employed. He runs a one-man business in which he provides to owners of cars the service of etching the car registration number onto the vehicle’s windows in order to deter thieves by making it harder to falsify the number plates without it being evident that the number plates have been changed from the original registration. The work is done on the spot, often out of doors. Most of the opportunities for doing this work occur in the evenings when car owners have returned from work. The claimant finds it harder to get business in the middle of winter when the evenings are dark, the weather is more often unsuitable and potential customers give priority to Christmas expenditure.

3.               Accordingly, the claimant stops doing the work in about November; in March he begins leafleting prospective customers in order to build up an order book and resumes working. Often in the winter he spends a period abroad in a country where the cost of living is lower than in Britain. In some years he has found other work, but while he has been in this country and without work he has claimed income-based JSA. In 2007 his claim was rejected, but he succeeded in an appeal to the Appeal Tribunal (see page 69 of the papers). I have not seen a statement of reasons for that decision - presumably none was ever prepared - so I do not know that tribunal’s process of reasoning.

4.               In 2008 the claimant claimed income-based JSA with effect from 21 November. The claim was rejected by the DWP and on that occasion the claimant’s appeal to the First-tier Tribunal was unsuccessful. The claimant now appeals to the Upper Tribunal.

5.               Applying CIS/166/94, the First-tier Tribunal concluded that there was in the claimant’s case a clear pattern of employment and unemployment and that his business was an established and going concern. Consequently, it held that his earnings should be averaged out over the period of a year. The tribunal accepted the DWP’s calculation, which used the claimant’s accounts for the 2007 season to calculate a weekly income figure; this exceeded the claimant’s applicable amount and the tribunal accordingly held that he was not entitled to JSA since his income exceeded his applicable amount.

6.               Two of the sets of rules governing JSA entitlement are potentially of particular relevance in (what I shall call) intermittent working cases. First, under section 1(2)(e) of the Jobseekers Act 1995 a claimant is only entitled to JSA if he “is not engaged in remunerative work”. Secondly, under section 3(1)(a), a claimant is only entitled to income based JSA if his income (if any) does not exceed an “applicable amount” prescribed by regulations made under section 4. The claimant stresses – understandably – that as a matter of ordinary language he did not have earnings while he was not working; I expect he would say that, as a matter of ordinary language, he was not engaged in work then either. But there are special rules for determining whether a person in his position is in remunerative work, and has income, for the purposes of the JSA legislation.

7.               As regards being engaged in remunerative work, paragraph 1 of schedule 1 to the Act gives the Secretary of State power both to define “remunerative work” and to prescribe circumstances in which a person who is in remunerative work is to be treated as not being in it, and vice versa. The Secretary of State has done so in regulations 51 to 53 of the Jobseeker’s Allowance Regulations 1996. Regulations 93 to 105 lay down rules for calculating a claimant’s income.

8.               In regulations 51 to 53, regulation 51, which is headed “Remunerative work”, appears to be a defining provision while regulations 52 and 53, respectively headed “Persons treated as engaged in remunerative work” and “Persons treated as not engaged in remunerative work” are ‘treating’ provisions. In truth, however, only regulation 51(1) is a defining provision. So far as material it reads as follows:

(1) For the purposes of the Act “remunerative work” means –

(a) in the case of a claimant, work in which he is engaged or, where his hours of work fluctuate, is engaged on average, for not less than 16 hours per week;

…

and for those purposes, “work” is work for which payment is made or which is done in expectation of payment.

9.               The regulation thus defines work as ‘work for which payment is made or which is done in the expectation of payment’ and remunerative work (so far as material for present purposes) as work that is done for not less than 16 hours per week on average. Somewhat oddly, therefore, ‘remunerative’ does not simply mean done for payment; the requirement that it adds is that the work be done for not less than 16 hours per week; this can readily confuse a reader of the Regulations.

10.           Paragraphs (2) and (3) of the regulation then contain not definitions but, rather, rules for determining the number of hours for which a person is engaged in work. Regulation 51(3) is not relevant to the present case but regulation 51(2) is. Regulation 51 (2) provides, so far as material

(2) For the purposes of paragraph (1), the number of hours in which the claimant … is engaged in work shall be determined –

(a) where no recognisable cycle has been established in respect of a person’s work, by reference to the number of hours or, where those hours are likely to fluctuate, the average of the hours, which he is expected to work in a week;

(b) where the number of hours for which he is engaged fluctuate, by reference to the average of hours worked over –

(i) if there is a recognisable cycle of work … the period of one complete cycle (including, where the cycle involves periods in which the person does not work, those periods but disregarding any other absences);

(ii) in any other case, the period of five weeks immediately before the date of claim or the date of supersession, or such other length of time as may, in the particular case, enable the person’s average hours of work to be determined more accurately ….

11.           Most of the ‘treating’ provisions in regulations 52 and 53 are not specifically relevant to intermittent working cases, but regulation 52(1) may be. It provides

(1) Except in the case of a person on maternity leave, paternity leave, adoption leave or absent from work through illness, a person shall be treated as engaged in remunerative work during any period for which he is absent from work referred to in regulation 51(1) (remunerative work) where the absence is either without good cause or be reason of a recognised, customary or other holiday.

It is important to bear in mind that this provision only applies to someone who is absent from ‘remunerative work’ as defined by regulation 51(1), i.e. work done on average for not less than 16 hours per week.

12.           The operation of these provisions has been considered in the decisions I referred to in paragraph 1 above. I shall not try to summarise them. Relevantly for present purposes, they establish first that a self-employed person may have a ‘recognisable cycle’ of work involving annual periods of no work; if so, regulation 51(2)(b)(i) requires the average hours calculation to be done over a complete cycle; secondly, in the case of employees, a period of no work is not a ‘holiday’ within the meaning of regulation 52(1), which refers to a contractual holiday entitlement (see R(JSA) 5/03). By the same reasoning, it seems clear to me that a self-employed person’s seasonal period of no work is not a ‘holiday’ within regulation 52(1) but is a ‘period in which the person does not work’ within the meaning of regulation 51(2)(b). In order to determine whether a seasonally self-employed person is ‘engaged in remunerative work’ for the purposes of JSA one averages his hours of work over the year, taking into account the periods of no work as well as the hours worked in the periods of work but disregarding holidays (if any). A ‘holiday’, is, as I have said, different from a cyclical period of no work. A period of time off deliberately taken during the working season or when work was available could be a holiday for these purposes.

13.           If the annual average is below 16 hours, the person is not ‘engaged in remunerative work’ at any time in the year; conversely, if the annual average is 16 hours or more, the person is ‘engaged in remunerative work’ throughout the year: see paragraph 12 of R(JSA) 1/03, with which I respectfully agree.

14.           Determining, in a case of intermittent working, whether a self-employed person’s earnings exceed his applicable amount involves a similar but not identical exercise. Regulation 95 provides, so far as material,

(1) … where a claimant’s income consists of earnings from employment as a self-employed earner the weekly amount of his earnings shall be determined by reference to his average weekly earnings in that employment –

(a) over a period of one year; or

(b) where the claimant has recently become engaged in that employment or there has been a change which is likely to affect the normal pattern of business, over such other period as may, in any particular case, enable the weekly amount of his earnings to be determined more accurately.

…..

(3) For the purposes of this regulation the claimant’s earnings shall be calculated in accordance with Chapter IV of this Part.

15.           Chapter IV contains regulation 101(2), which provides for the disregarding of any sum specified in paragraphs 1 to 16 of schedule 6, regulation 101(4), which provides that “the net profit of the [self-]employment shall … be calculated by taking into account the earnings of the [self-]employment over the period determined under regulation 95 ….”, and regulation 101(11), which provides

(11)        Notwithstanding regulation 95 … the Secretary of State may assess any item of a claimant’s income … over a period other than that determined under regulation 95 such as may, in the particular case, enable the weekly amount of that item of income … to be determined more accurately.

16.           In CIS/166/94 the claimant was not a seasonal worker but a self-employed builder who had fallow periods when no work was available. He claimed income support during such a fallow period. The Commissioner held that the claimant was not ‘engaged in remunerative work’ during the fallow period on the simple basis that he did not work for 16 hours per week during that period. The Commissioner went on to hold that, for the purpose of applying the income support provision equivalent to regulation 95(1), it had to be investigated whether he remained in ‘gainful employment’ during the fallow period within the meaning of section 2(1)(b) of the Social Security Contributions and Benefits Act 1992, which provides:

‘self-employed earner’ means a person who is gainfully employed in Great Britain otherwise than in employed earner’s employment (whether or not he is also employed in such employment).

This was because the regulation referred to employment as a self-employed earner and (like the Jobseeker’s Allowance Regulations) the Income Support Regulations import the above definition of the term. The Commissioner remitted the case with a direction to the tribunal to answer nine questions directed at whether the claimant remained in self-employment during the fallow period.

17.           It seems to me that the approach of determining the claimant’s number of hours of work by looking only at the fallow period cannot survive the House of Lords’ decision in Banks and the more recent reported decisions I have referred to. Though Banks concerned the provision equivalent to regulation 51(2)(c) (now repealed) of the JSA Regulations, it was the clear view of the House that, apart from that provision, the hours of school employees who were not offered work in the holidays were to be calculated over a cycle of one year pursuant to the equivalent of regulation 51(2)(b)(i). It seems to me that, by parity of reasoning, in a non-cycle case (such as CIS/166/94) the hours are to be calculated in accordance with regulation 51(2)(b)(ii), which does not restrict consideration to the fallow period. Decisions such as R(JSA) 1/03 are consistent with the House’s approach and should in my view be followed instead.

18.           Secondly, I respectfully doubt whether it is necessary or appropriate to resort to the definition of a self-employed earner in intermittent working cases. As Judge Rowland pointed out in R(JSA) 1/09:

6. Mr Commissioner Goodman appears not to have been referred to paragraph 3 of Schedule 8 to the 1987 Regulations, which is to the same effect as paragraph 4 of Schedule 6 to the 1996 Regulations. The latter provides that, in the calculation of earnings, there are to be disregarded:

“In the case of a claimant who has been engaged in remunerative work or part-time employment as a self-employed earner or, had the employment been in Great Britain, would have been so engaged and who has ceased to be so employed, from the date of the cessation of his employment any earnings derived from that employment except earnings to which regulation 95(2) (royalties etc) applies”.

19.           It seems to me necessary, for the purpose of applying regulation 95 to a non-working period (whether seasonal or not), to decide whether self-employment has or has not ceased within the meaning of paragraph 4 of schedule 6. In my judgment paragraph 4 refers to an outright cessation rather than an interruption; applying it therefore involves asking much the same questions as Mr Goodman prescribed, but avoids the confusing exercise (see paragraph 8 of R(JSA) 1/09) of considering whether a person is ‘in gainful employment’ despite doing no work. It is in my respectful view unnecessary to invoke the definition of a self-employed earner for the purpose of deciding whether a case falls within regulation 95(1). Regulation 95 (1) refers to ‘earnings from employment as a self-employed earner’; there is no doubt that the money that a seasonal self-employed person earns while he is doing work is earnings from employment as a self-employed earner; in order so to hold it is unnecessary to consider, as Mr Goodman did, whether a claimant is still a self-employed earner during the fallow period.

20.           One of the difficulties with the Regulations, as Judge Rowland observed in R(JSA) 1/03, is that nowhere do they explicitly attribute self-employed earnings to any particular week. It is understandable that Mr Goodman should have looked for a test by which to answer the question whether earnings from an active period should be attributed to a fallow period. But the references in regulation 101 to regulation 95 ‘determining’ a period (see above) indicate to me that the draftsman intended the period whose earnings are looked at to be the period prescribed by regulation 95: in a normal case, one year ending with the benefit week at issue. In a case falling within regulation 95(1)(b) the period would be some other appropriate period ending with that benefit week, but I do not consider that regulation 95(1)(b) is triggered, in a case of seasonal self-employment, by a move from the active to the fallow period. There may be cases where a period other than that prescribed by regulation 95(1)(a) or (b) should be used pursuant to regulation 101(11).

21.           I do not consider that it is an implicit precondition of regulation 95(1) itself that the claimant remains in self-employment. The existence of paragraph 4 of schedule 6 indicates the contrary: there would be no need for the disregard of pre-cessation earnings under the schedule if regulation 95 itself excluded consideration of them.

22.           My view is therefore that tribunals should treat the question whether earnings from an active period are relevant to a claim period as simply a matter of applying paragraph 4 of schedule 6. As I have indicated, Commissioner Goodman’s list of issues can be a helpful approach in some cases, though they are not part of the statutory test and should not be regarded as such. As Judge Rowland pointed out in R(JSA) 1/03, it is unnecessary to go through all of them in a seasonal working case.

23.           In the present case the claimant emphasises that he did not (in ordinary language) have earnings in the claim period. But the statutory question is whether he had earnings that are to be taken into account under regulation 95. In my view his earnings in the year ending with the first week of his claim are to be taken into account pursuant to regulation 95(1)(a) unless he ceased self-employment within the meaning of paragraph 4 of schedule 6 in November 2008. On the tribunal’s findings, he did not cease self-employment but merely entered into a cyclical period of not working. I add for completeness that regulation 95(1)(b) does not make the appropriate period the period since his resuming work in the spring of 2008: it follows from the conclusion that his seasonal fallow periods do not interrupt his self-employment that he did not ‘become engaged’ in self-employment at the end of the previous fallow period.

24.           The Secretary of State supports the tribunal’s decision. He submits that, though the tribunal did not proceed to answer the four questions posed by Judge Rowland in R(JSA) 1/09, it did conclude that the claimant remained a self-employed earner, thereby answering Judge Rowland’s first question. It also concluded that his earnings over the year were such as to disqualify him for JSA, thereby answering Judge Rowland’s fourth question, which was sufficient to determine the appeal.

25.           I respectfully agree with Judge Rowland that the first question to ask is whether the claimant has ceased trading (that is, ceased outright); however, for the reasons given above, I prefer to see it as a question of applying paragraph 4 of schedule 6, which is one of the ways in which Judge Rowland saw the issue: see paragraph 11 of R(JSA) 1/09. If there has been a cessation, then not only will pre-cessation earnings fall to be disregarded but any cycle of work for the purposes of regulation 51 (the ‘remunerative work’ issue) will have been broken. I agree that the tribunal did answer the question in terms indicating that the claimant had not ceased self-employment.

26.           The Secretary of State accepts that the tribunal did not make explicit findings in respect of Judge Rowland’s second and third questions: whether the claimant remained in self-employment and whether his average weekly hours exceeded 16. It seems to me that the answer to the first question will determine the answer to the second question, but would respectfully echo Judge Rowland’s emphasis on the importance – at any rate where a case is being decided under regulation 51 – of determining whether the 16-hour average threshold is crossed (his third question). The Secretary of State submits that in the present case it was not an error of law to fail to answer the question in the absence of any suggestion that the average weekly hours did exceed 16. I see the matter differently; in my view it is not an error of law to 16-hour on average) work if the claim for benefit fails on financial grounds.

27.           There may well be cases in which it easer to reach a decision on whether the claimant’s earnings, computed in accordance with regulation 95, exceed his applicable amount (Judge Rowland’s fourth question) than to make a finding on the claimant’s average hours computed in accordance with regulation 51. If the claim fails on earnings grounds it is unnecessary to decide whether it would also fail on ‘remunerative work’ grounds and I do not consider it wrong in such a case for a tribunal to proceed directly from the first question to the question of earnings. The only disadvantage of doing so is that, if on appeal the Upper Tribunal finds that the conclusion on earnings involved an error of law, a case will probably have to be remitted. I do not consider that the risk of that justifies requiring tribunals to make findings on average hours in all cases.

28.           However, I should add that, unless a claim fails on earnings grounds, it is in my view an error of law for a tribunal to fail to make a finding on average hours of work merely because there is no suggestion in the papers that the threshold is exceeded; it should investigate the matter.

29.           The Secretary of State submits that in the present case the tribunal correctly answered Judge Rowland’s fourth question by looking at earnings over a year. As to that, I agree that one year is the applicable period under regulation 95(1)(a); but I consider that the relevant year is the year ending with the first week of the claim. The tribunal used earnings for the 2007 season, which was not in my view the correct period for a claim made with effect from November 2008. There is also an issue, which I do not need to go into, as to whether the calculation that the tribunal accepted computed NICs correctly. The statement of reasons says that the figures were not disputed by the claimant, but that presumably refers to the correctness of the earnings figure rather than the relevance of the figures as a matter of law. The claimant has subsequently produced figures for the 2008 season (page 60), which show lower earnings than 2007. I am prepared to assume that these were the claimant’s only earnings in the year to 21 November 2008. Even on that assumption, they exceed his applicable amount. Calculated in accordance with regulation 95, the claimant’s weekly earnings over the relevant period of a year were £89.30, which exceeded his applicable amount even after disregarding £5.

30.           Accordingly I can decide the appeal myself: I hold that the claimant was not entitled to jobseeker’s allowance with effect from 21 November 2008 because his earnings exceeded his applicable amount.

Judge Nicholas Paines QC

5 July 2010