Secretary Of State For Education & Employment v Bearman & Ors [1998] UKEAT 1201_97_0604

EAT
Secretary Of State For Education & Employment v Bearman & Ors
[1998] UKEAT 1201_97_0604 · 1998-04-06
This appeal raises interesting questions, and its outcome will affect persons and organisations beyond the parties to these proceedings. We should say, at the outset, that we are grateful to counsel for all three parties for their assistance.There are essentially two questions at issue. The first, logically, is the extent to which the EAT may review the decision of an Industrial Tribunal where the point at issue relates to the employment status of the applicant. The general principles are clear; it is their application which is difficult. The second relates to the proper approach to a dispute over which of two organisations is the applicant's employer.Background .The background facts are not in dispute.Two disabled persons, the applicants, worked for some nine years for the Employment Service at the Hornchurch Job Centre. Owing to a re-organisation, their work came to an end and they ceased to be employed there at the end of December 1996. Their work with the Employment Service had been arranged through the Sheltered Protection Scheme. Under the Scheme, a disabled person is sponsored by an organisation such as the Royal British Legion Industries [RBLI], and with their knowledge, expertise and assistance is 'placed' with a 'host' organisation such as the Employment Service. On such a placement, the disabled employee is integrated as fully as possible into the host's workforce, so that he or she is treated with the dignity and respect to which he or she is entitled. The job concerned will have been assessed as suitable for the particular individual, who may, due to the disability, be somewhat less effective in the job than their able bodied colleagues. The standard potential output is measured, and that of the disabled person is expressed as a percentage (being not less than 30% and not more than 80%) of the standard. The host organisation will be responsible for paying the due proportion of salary, calculated by multiplying the ordinary weeks' wage by the percentage. Thus, the host organisation will be responsible for paying at least the true value of the services rendered to them by the disabled person. Sometimes, the host will pay more. For the balance, the sponsor makes payment, and is given a grant for that purpose.There are currently some 8,460 disabled persons who have been found employment under this scheme. The Employment Service alone has 180 of them.The scheme can be operated in two entirely different ways. The first way, which was adopted in this case, as with 160 of the 180 with the Employment Service, is that the individual enters into a contract of service with the sponsor, and by an agreement between the sponsor and the host, the services of the employee are hired out to the host. There is no dispute that the contractual documents which are generated between the three parties are consistent only with an employment relationship existing between the applicant and the sponsor.

The Industrial Tribunal's Decision

As the Industrial Tribunal put it, [and we cite, from different parts of the Decision, various findings of fact]:
"The contract of employment, freely entered into by both applicants and RBLI shows RBLI to be the employer, and this is consistent with the contract between the Employment Service and RBLI and all other documentation relating to the Applicant's employment and with the way the parties treated the formal relationships ... The applicants were not eligible for a Civil Service Pension; they were not entitled to sickness pay; travel expenses were paid in a different manner; they were not entitled to the use of official vehicles ... Each was promoted by the Employment Service during the course of her employment, when a fresh contract of employment was issued by RBLI. ... Because they were not treated as permanent employees, promotion of the Applicants was on a temporary basis ... Had any grievance arisen or disciplinary action been taken, RBLI would have been involved in the process. When it became necessary to dismiss the Applicants it was RBLI that did so. It was RBLI which was responsible for making the redundancy payments to the Applicants."
As we understand it, the Chairman of the Industrial Tribunal, who was sitting alone, was persuaded that, whatever the 'formal' position was, as a matter of reality the applicants were employed by the Employment Service. His decision is set out at paragraph 13:
"Having considered all aspects of the relationship between these Applicants and the Respondents, I find that the true nature of the relationship between the Applicants and the First Respondent [ the Employment Service ] has the characteristics of an employer/employee relationship. The length of their service, the way in which they were managed, the way they regarded themselves and must have been regarded by an external observer, the way in which their employment came to an end are factors which outweigh the distinctions between them and other Employment Service employees and the involvement of RBLI in their welfare and in the arrangements for their payment. Notwithstanding the original label put by the parties on their relationship, and the reason for it, I find therefore that each of the Applicants was an employee of the [ Employment Service ] for the purposes of these Applications."
The Arguments .On behalf of the Employment Service, Mr Elias QC submitted that the EAT were entitled to interfere with the decision of the Industrial Tribunal because the legal analysis of the true relationship between the parties was dependent upon the proper construction of written documents, which is a question of law: Davies v Presbyterian Church of Wales [1986] 1 WLR 323 . If the EAT were to treat the question before the Industrial Tribunal as a question of fact then there would be a risk that different conclusions might be reached by different tribunals, when the parties had used the same documents. In any event, the reasoning of the Chairman is flawed. He had relied upon:(a) length of service, yet the relationship in law cannot have changed over time in the absence of some event or incident;(b) the way they were managed, yet the essence of the arrangements were that they should be integrated into the host's workforce and would inevitably be managed in a similar way to the host's employees;(c) the applicants' own perception of their status and the perception of the external observer, but this was not pertinent since how they were perceived or perceived themselves showed nothing. A person whose services was hired out might well seem to be an employee of the host organisation and might, if asked describe himself as an employee at that place.The Industrial Tribunal must have inferred a contractual relationship which was inconsistent with the express agreement between the three parties and concluded that such a contract was a contract of employment. Of course, the label applied by the parties to describe their relationship will not be determinative. But here, the label was not a matter of form but of substance. The question at issue is whether there was any contractual relationship between the Applicants and the Employment Service. That is a pure question of law and has not been properly answered by the Industrial Tribunal Chairman who has 'assumed' such a contract without any rational basis for it.Mr Goulding, on behalf of RBLI, submitted that the decision of the Industrial Tribunal involved a determination which was mixed law and fact and that the EAT could only interfere with the decision if there had been a misdirection in law or the decision was perverse. In order to ascertain whether A is employed by B or by C involves the construction of the relevant documents and the finding and evaluation of the relevant facts. That is a task conferred on the Industrial Tribunal.In Clifford v UDM [1991] IRLR page 518, the Court of Appeal were concerned with a case where the complainant said she was employed by the UDM, as successors to the Nottingham Area Union of the NUM; the UDM said she was employed by the NUM. The Industrial Tribunal held that she was employed by the Area Union, and thus by the UDM; the EAT reversed that finding and the Court of Appeal restored the decision of the Industrial Tribunal. The Industrial Tribunal had held that the "reality" of the situation was that the applicant was employed by the Area.In giving judgment, Neill LJ said this:
"A question as to whether A is employed by B or by C is apparently a question of law for it is a question as to between whom there is the legal relationship of employer and employee. The resolution of that question is dependent upon the construction of the relevant documents and the finding and evaluation of the relevant facts. Where the only relevant material is documentary in nature then the question is not only apparently but is also actually a question of law ... Where however, the relevant material is an amalgam of documents and facts then the apparent question of law is often said to be a mixed question of law and fact ... The present case is one where the relevant material is an amalgam of documents and facts and it can thus be described as a case of mixed law and fact. This description does not, however, in my judgment mask the reality that the answer to the question is determined by the determination and evaluation of the relevant material. This is the task of the industrial tribunal and is not for either the Appeal Tribunal or this Court. Neither can interfere with the resolution of an issue of fact unless the resolution contains an explicit or implicit misdirection in law ..."
So here, argued Mr Goulding. As in the UDM case, the question is not determined by the label which the parties put on their relationship. There, the Industrial Tribunal said of the document purporting to be a contract of employment between the applicant and the NUM
"All we can say is that the document sent on 25 July 1983 to [ the applicant ] did not, in our view, reflect the truth of the situation."
Neill LJ commented that that seemed to be a conclusion they were perfectly entitled to reach.There was no misdirection in law, Mr Goulding submitted and we are as bound by the decision as was the EAT in the Clifford case.We hope Mr Brown, on behalf of the applicants, will forgive us if we say that, in essence, he adopted Mr Goulding's submissions, although, as he accurately observed, on the facts of this case it made little difference to the applicants against whom they had a claim, it being common ground that they were employed by one or other of the Respondents to his clients' applications.

The Decision

It is sometimes difficult, at the margin, to distinguish between the various processes which underlie a judicial decision. In the large majority of cases, it will be possible to say that the tribunal has identified the legal principles, determined or found the facts, and applied the principles to the facts. In general terms, it can be said that the correct identification of the legal principles is a matter of law and that the application of them to the facts will often involve legal analysis.Thus, a decision of an Industrial Tribunal will always involve a question of law [the identification of the correct legal principle, or relevant statutory provision] and will usually also involve decisions of fact.It seems to us that, perhaps, there is a temptation on an appeal for advocates to seek to classify as fact or law determinations made by a tribunal, when the true position may not be clear. That process can obscure the more important question which always arises on every appeal which is, simply, whether it has been shown that the Industrial Tribunal have misdirected themselves in law, expressly or implicitly [e.g. perversity]. The question for us is not some difficult typecasting of points as points of law or questions of fact, but rather whether we have been persuaded that the Industrial tribunal has misdirected itself. It is rare for there to be a dispute as to whether, if there has been a misdirection, the misdirection itself can be termed an error of law.It follows, we think, that where the question at issue is whether an applicant was an employee or working under a contract for services, there is rarely an issue as to whether the Industrial Tribunal have identified the correct legal principles. The principles are clear: there is a wealth of authority from which may be derived a number of pertinent factors which every tribunal will wish to consider, such as control, method of payment and tax, and so on. The tribunal then has to apply those factors to the facts as they have determined them to be. Their conclusion is one which, even if it technically could be said to be, or involve, a question of law, is not only best left to the industrial jury but is one which by its very nature is not likely to be subject to a convincing argument that there has been misdirection. In other words, the circumstances of a decision may be such that there is limited room for a successful challenge on appeal. But where the question at issue involves the proper interpretation of an admitted contract [see the uncorrected judgment of the Court of Appeal in Carmichael & Leese v National Power PLC where the Court reversed a decision of an Industrial Tribunal, which itself had been upheld by this Court], or whether there is a contract between the alleged employee and alleged employer [see Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at 628, cited with approval in the Carmichael judgment] the scope for challenge is greater. In both such instances it may well be apparent to the appellate body that there has been a misdirection, even when due respect is accorded to the fact finding tribunal.We note that one of the curiosities in this case is that if Mr Goulding were right that the decision of this tribunal fell into the category of those which, effectively, could not be successfully challenged on appeal, it is not because the fact-finding tribunal has sat as an industrial jury with the benefit of informed help from experienced lay members. The first occasion on which Lay Members have been called on to examine the relationships between the parties has been on this appeal. Whilst, of course, the Tribunal's decision has the same status as decisions made by a full panel, we have to say we think it was unwise for the Chairman to deprive himself of the opportunity of the good advice of his lay colleagues, who might well have had some practical, working experience of the very issues under consideration. I must say that in this case I have been particularly helped by my two Lay Colleagues.We are unanimously of the view that there has been a misdirection in this case. It seems to us that the correct approach would have been to start with the written contractual arrangements and to have inquired whether they truly reflected the intention of the parties. If they did, then the next question was whether, on the commencement of their employment, the applicants were employees of the Employment Service or employees of RBLI. If the conclusion was that, when properly construed, on commencement of their employment the applicants were employed by RBLI, then the Chairman ought to have asked the question: did that position change and, if so, how and when.As we read the decision, the Chairman was not saying that the contractual documents did not tell the truth about the relationship between the parties. If the Tribunal had felt, as the tribunal felt in the Clifford case, that the documents had been 'created', it should, and we consider would, have said so. If so, and this appears to be his approach, the parties expressly intended to create a position in which the applicants were employed by RBLI and their services 'hired out' to the Employment Service. On what basis, therefore, did the Tribunal reach the conclusion that the position changed? It is not clear to us that the Tribunal has asked or answered this question. The reasoning for the decision does not seem to us to be convincing. The fact that they were to be 'integrated' so as to become part of the team says nothing, we think, to indicate a change of position: in the circumstances of this case 'integration' was consistent with either basis of employment. Similarly, in relation to the other factors to which the learned chairman referred in the passage cited from the Decision. We accept Mr Elias' submissions on this issue.By not adopting what we consider to be the correct approach in law, there has been a material misdirection. It will be seen from the decision that the RBLI contended for some kind of novation; presumably a new contract between the Employment Service and the applicants. No doubt that submission was made because, in order to succeed, RBLI had to say either that the documents were 'created' and did not tell the truth about the relationship, or that the position changed at some unspecified time and in some unspecified way. Whilst in theory there might have been a new contract which changed the relationship between the parties, it does not appear, on the findings of fact, that that is what the parties thought had happened. As the tribunal found, new statements were issued by RBLI after any promotion and RBLI effected the dismissal.Accordingly, as it seems to us, the only conclusion open to the Industrial Tribunal was to find that the applicants were employed by RBLI and not by the Employment Service. This conclusion accords with the purpose of the Scheme. There may well be a number of employers who would be reluctant to commit themselves to an employment relationship with, but who would be quite happy to take on the services of, a disabled person and to integrate him or her properly into their organisation. Indeed, the statistics we were given suggests that many more placements are made on the basis of the disabled person's services being hired out by an organisation such as RBLI. It is to the advantage of the disabled community that opportunities for employment are provided as widely as possible. It would be unfortunate if an Industrial Tribunal were to discourage such schemes by treating the person's integration as a reason for disturbing very carefully structured contractual arrangements. Had the learned chairman had the benefit of the wisdom of his lay colleagues, we doubt whether he would have fallen into the error of law to which we have referred.Therefore, the appeal will be allowed and a finding that the applicants were employed by RBLI and not by the Employment Service be substituted for the tribunal's decision.