Revenue and Customs v Wright [2007] EWHC 526 (Ch)

Case No CH/2006/APP/520[2007] EWHC 526 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Tuesday, 6 February 2007
Strand
London WC2A 2LL
Before
MR JUSTICE LEWISON
Between
COMMISSIONERS FOR HM REVENUE AND CUSTOMSAppellantPHILIP JOHN WRIGHTRespondent
Digital Transcript of Wordwave International, a Merrill Communications CompanyPO Box 1336, Kingston-Upon-Thames, Surrey KT1 1QTTel No: 020 8974 7300 Fax No: 020 8974 7301Email Address: tape@merrillcorp.com
MR NAWBATT appeared for APPELLANTTHE RESPONDENT appeared IN PERSON for in person
JUDGMENT
[1]MR JUSTICE LEWISON: Since 1999 or thereabouts Mr Philip Wright has carried on business providing labour to main contractors engaged in groundwork and civil engineering. His turnover has run to several hundred thousand pounds a year. The main expense is what is described as the cost of sales, which is in effect what Mr Wright pays the actual workers.[2]The Commissioners for Her Majesty's Revenue and Customs raised assessments under regulation 49 of the Income Tax Employment Regulations 1993 and section 8 of the Social Security Transfer of Functions Act 1999. Mr Wright appealed to the General Commissioners for Income Tax and on 6 September 2005 the General Commissioners allowed his appeal. Her Majesty's Revenue and Customs now appeal from that decision by way of case stated.[3]In paragraph 2 of their decision the General Commissioners recorded the issue as being whether the workers engaged by Mr Wright between 6 April 1999 and 5 April 2004 were employees under contract of service, as contended by the Revenue, or self-employed under contract for services, as contended by Mr Wright. That, I think, is not in fact the right question. The real question, as it seems to me, is whether the workers engaged by Mr Wright were employed by him under a contract of service made with him.[4]There is, it seems to me, in modern law no rigid dichotomy between a contract of employment and self-employment. This was made clear in the decision of the Court of Appeal in Dacas v Brook Street Bureau [2003] IRLR page 190 at paragraph 49 in which Mummery LJ said:
"In the absence of a contract, or of a contract having those features, the applicant cannot qualify as an employee, even though it may well be surprising not to regard the applicant as an employee. A tribunal must resist the temptation to conclude that an individual is an employee simply because he or she is not a self-employed person carrying on a business of their own."
[5]In the more recent case of Bunce v Post Worth Limited [2005] IRLR page 557 Keene LJ quoted that with apparent approval and continued:
"I note in passing that those two authorities referred to by Mummery LJ and endorsed by him, both of them being employment agency cases, do indeed provide support for the employment tribunal's approach in this case, namely that the appellant was not an employee simply because he was not self-employed. In any event, whether or not there is some sui generis category of worker neither self-employed nor an employee under a contract of service, the question remains whether in this present case there was a contract of service with Skyblue."
[6]Similarly, in Montgomery v Johnson Underwood Limited [2001] ICR page 819 one of the features of the successful argument that troubled Longmore LJ was that it led to the conclusion that the telephone operator in question, Mrs Montgomery, was neither an employee nor an independent contractor. It is therefore, in my judgment, important to focus on the real question and not to be diverted by false dichotomies.[7]The background to the legal questions which arise is very helpfully set out by Elias J, sitting as the President of the Employment Appeal Tribunal, in James v Greenwich Council. He begins by citing section 230 of the Employment Rights Act, which defines a contract of employment in the following way:
"A contract of employment means a contract of service or apprenticeship whether express or implied and, if it is express, whether oral or in writing."
[8]In paragraph 18 of his decision the President continues as follows:
"The question whether a contract of employment exists arises in a number of situations. First, it is frequently accepted that there is a contract in place between the employer and the employee and the only issue is whether it is a contract of employment or a contract for services. In that situation the only issue is whether there is sufficient control so as to constitute a contract of employment. "
Second, other cases [and he gives examples] are situations where a worker does some casual work for an employer and for one reason or another it is necessary to show that there is a contract of employment in place even where there is no work being performed. Plainly, there is a contract of some kind in place whilst the work is being performed, but the question which frequently arises is whether there is also a contract governing the relationship - what is variously described as an over-arching, umbrella or global contract - in the periods where there is no work being carried out. It is in that context that the courts have held that there must be this irreducible minimum of contractual obligation in order for a contract to be established. "The third situation is where there is an agency relationship, as exemplified in this case. Typically, as here, there is a contract between the agency and the worker under which the worker agrees to provide his or her services to the ultimate client or end user, and a contract between that client and the agency. Normally there is no express contract of any kind between the end user and the worker. In those circumstances, unless some contract can properly be implied according to established principles, it will not exist at all. Rights which are dependent on there being a contract of some kind will then simply not arise. "The issue in agency cases is, therefore, different to that which arises where the purpose is to determine whether there is some over-arching or umbrella contract. In the latter situation there is no day to day relationship in the periods when work is not being provided and the only question is whether there are sufficient legal obligations to create a contractual nexus; is there the irreducible minimum? In the agency cases there is a relationship between the end user and the worker. In this case, for example, there is significant control exercised over the way in which the work is performed, and plainly the work itself is for the benefit of the end user. The question is, however, whether that work is being provided pursuant to a contractual obligation between the end user and the worker. "It is not necessary to rehearse all the agency cases which have been the subject of consideration by the courts. It is plain that whilst of course every case turns on its own particular facts, it will be an exceptional case where a contract of employment can be spelt out in the relationship between the agency and worker [and he gives authority]. Typically, the agency does not have the day to day control which would establish such a contract. Nor, indeed, is the worker carrying out the work directly for the benefit of the agency, and there is usually no obligation on the agency to find work or on the worker to accept it, let alone personally to do it. In any event, it has not been suggested in this case that there is an employment contract with the agency."[9]The General Commissioners came to the conclusion that the workers in question were self-employed under contracts for services rather than employed under contracts of service. In paragraph 9 of their decision they gave the following reasons for their conclusion:
"We concluded that the terms of engagement were oral only and further that there was no formal contract protecting the worker nor any minimum requirement to pay the worker irrespective of demand or weather and that payment for the workers service was effected strictly on a work done basis."
[10]There are therefore three reasons given by the Commissioners. The first is that the contracts were oral. This is an irrelevant consideration and a wholly inadequate reason. As the Employment Rights Act makes clear, a contract of employment may be oral or written. It need not even be an express contract because where necessary a contract of employment can be implied. The second reason, namely, that there was no formal contract protecting the worker seems to me to be no more than a restatement of the first reason and equally irrelevant for the same reasons. The third reason, that there was no minimum requirement to pay the worker irrespective of demand or weather and payment to the worker was effected strictly on a work done basis, may be relevant to the question of whether there was some umbrella agreement between Mr Wright and the workers governing the period when they were not actually working, but it does not seem to me to bear on the question whether or not they were Mr Wright's employees when they were actually working.[11]The real question which it seems to me the General Commissioners ought to have answered but did not was whether Mr Wright had sufficient day to day control over his workers to make them his employees. That was the key issue that arose.[12]The Commissioners made the following relevant findings of fact. Mr Wright's business during the period in question was to provide labour to main contractors. The workers were engaged by Mr Wright to work on specific contracts with main contractors rather than on a continuous basis. Payment was made by Mr Wright to the workers at an hourly or daily rate of work done on those contracts. In most cases the provision of hand tools, for example, levels, trowels, tape measures, hammers and shovels, normally used by workers in this sector, were provided by the workers themselves. All materials and heavier plant and equipment were supplied either by Mr Wright or the main contractor or by arrangement with Mr Wright.[13]The workers for the most part considered themselves to be self-employed and working on their own account. They did not undertake work exclusively for Mr Wright but looked for other suitable or more attractive work elsewhere. Mr Wright had a number of site based jobs and contracts simultaneously and, although he did attend and work on the site himself, he was not able to maintain a full-time presence at each job or contract.[14]Mr Wright obtained all the work with the main contractors himself. From the list of potential workers which he maintained Mr Wright decided which worker was selected for which job or contract according to their skill, experience and availability. Mr Wright arranged (either by taking the workers by van himself or from prearranged pick-up points or by supplying a van for that purpose) for the appearance of the workers on site. Mr Wright would usually give initial instruction to the worker himself, but after that the precise on-site instructions lay with the on-site foreman. It was the on-site manager or foreman who decided what time the work site started and finished and he signed the workers' allocation time sheets at the end of the day or the week.[15]The workers had the ability to remove their services at will and they did not receive any benefit from Mr Wright apart from transportation to and from their work sites. Mr Wright could and did move workers from one job to another but it was not practical to substitute one worker for another. The workers never tendered or negotiated a price for work or the job. They undertook work on a take it or leave it basis and even if Mr Wright made a loss on the contract the workers themselves were paid for the hours they performed.[16]No training was given to the workers. Where training was necessary for the use of plant or machinery, some on-site instruction was provided either by the main contractor or by the supplier of the equipment. Provision of safety and protective clothing was a matter for the individual worker and obligations about Health and Safety compliance was a matter for the main contractor.[17]On the basis of these findings the Revenue submit that the only possible conclusion is that the workers were the employees of Mr Wright. They argue that the element of control exercised over the workers by the site foreman must be regarded simply as delegation by Mr Wright to a third party to exercise the control over the workers which he himself was entitled to exert.[18]In support of that submission they rely on the decision of Lord Widgery Chief Justice in Global Plant Limited v Secretary of State for Health and Social Security [1971] 3 All ER at page 385. That was a case regarding a man who worked as a driver of earth moving machines on sites under the control of the customer's site foreman. The driver always reported to the site foreman at the customer's site on which his particular machine was to work and he was there told by the site foreman or the site agent, as the case might be, what to do, when to do it and where on the site the work was to be done. At page 390 Lord Widgery said this:
"Turning for a moment to Cooke J's test taken from the Market Investigations case and applying it to the facts of the present case, it seems to me that the factor of control in the present case is a factor which operates strongly in favour of the Minister's decision. It is perfectly true that the control on the site was not exercised by the company's representative but by the representative of their customer, the site foreman. For my part I cannot see this makes any difference, and in my judgment the position would be exactly the same if the company had sent its own representative to the site there to transmit to Mr Summers the necessary instructions from the client company. This is in my judgment, as far as control is concerned, a clear case in which the employee was controlled by his employer in the way in which the work was to be done. It cannot be put more strongly than it was put in the case stated when it was said that the site foreman told him what to do, when to do it, and where to do the work in the site."
[19]I do not regard that passage as laying down any principle of law. It is, if I may respectfully say so, a decision on the facts and one which would depend upon a finding that the site foreman was in effect the agent of the employer. But that is not the usual way in which building contracts are structured. The usual position is that the site foreman is nominated by the main contractor. I would not regard the mere fact that workers were told what to do by a site foreman as amounting to control by Mr Wright.[20]Moreover, the law has, in my judgment, moved on since Global Plant Limited v the Secretary of State for Health and Social Security. It is now exemplified by the decision of the Court of Appeal in Bunce v Postworth Limited. That was a case of a welder who was engaged under an agency agreement with a company trading as Sky Blue as a result of which he was sent on a regular basis to carry out welding work for Carillion Rail and other companies. The relevant facts were described by Keene LJ at paragraph 10 of the judgment of the Court of Appeal as follows:
"…when Skyblue were told by a client, such as Carillion Rail, of the need for a certain number of welders, Skyblue would then identify that number of individuals on their data base. Skyblue then would telephone a person on their data base, such as the appellant, about the assignment. If he accepted it, he would be told the location and nature of the job. Once there, he was directed what to do by the local supervisor. When the work was done, it would be inspected by a welder inspector employed by Carillion Rail or other end-client company, as the case might be. The client company in due course would pay Skyblue on a monthly basis a sum based on the number of welders and hours worked that month and their hourly rates."
[21]The case was argued on the basis, amongst others, that Sky Blue delegated control to the end user and in that connection reliance was placed on a clause in the contract between Mr Bunce and Sky Blue under which Mr Bunce undertook to comply with lawful instructions given by the end user. At paragraph 29 of the judgment Keene LJ said this:
"I cannot, however, accept that the mere fact that the client's day-to-day control originates, so far as the appellant's obligation is concerned, in a term of the contract between Skyblue and the appellant is enough to satisfy the requirement for control by Skyblue. The law has always been concerned with who in reality has the power to control what the worker does and how he does it. In the present case, during the periods when the appellant was working on an assignment, it was the client, the end-user, who had the power to direct and control what he did and how he did it. That is not in dispute. Skyblue could not exercise such control over the appellant. Nothing before us in the evidence indicates that Skyblue retained any such power - unlike the situation in McMeechan: see page 553, paragraph (5)(g). Once that state of affairs arose, as it did on any assignment, Skyblue lacked the necessary control over the appellant for him to be seen as their “servant”, in the old “master and servant” terminology, during the time he was on that assignment. That the client's power to exercise day-to-day control over him had its origins in the agreement dated 10 November 2001 with Skyblue cannot make good that deficiency. I would reject the appellant's argument based on the concept of delegation."
[22]On the facts of that case the fact that Sky Blue selected Mr Bunce for a particular assignment was plainly not enough. So here, in my judgment, the fact that Mr Wright selected workers was not enough either. Mr Wright did drive the operatives to the site himself or provided transport, but that, as it seems to me, was only to get them to the workplace and cannot amount to control over the actual work that they did. The initial instructions were given by Mr Wright usually but the site foreman decided both the hours of work and gave precise on-site instructions. Instruction in the use of machinery was given by the main contractor or the supplier of the machinery, not by Mr Wright, and Health and Safety compliance lay with the main contractor.[23]I have come, therefore, to the conclusion that the facts as found by the General Commissioners do not lead to the inevitable conclusion that these workers were the employees of Mr Wright during the relevant period. Whether they were or not is essentially a question of fact for the General Commissioners to determine. It is not for me to substitute my view of the facts for the view which they take. But, for the reasons I have given, I am satisfied that the General Commissioners did apply the wrong legal test and in those circumstances I must allow the appeal and remit the question to the General Commissioners.

Cited in 1 later judgment