The Secretary of State for Business Innovations & Skills v Studders & Ors (Jurisdictional Points : Worker, employee or neither) [2011] UKEAT 0571_10_1705

EAT
The Secretary of State for Business Innovations & Skills v Studders & Ors (Jurisdictional Points : Worker, employee or neither)
[2011] UKEAT 0571_10_1705 · 2011-05-17
[1]This is an appeal by the Respondent from a decision of the Employment Tribunal at Manchester, where Employment Judge Russell sat alone. The decision was sent to the parties on 29 July 2010. The Employment Judge granted a declaration in favour of three Claimants against the Respondent, Unity Personnel Ltd, a company which is in liquidation and insolvent and which has not appeared before me today. The Claimants, who are Respondents to this appeal, were employees of Unity and, pursuant to s.188 of the Employment Rights Act 1996 , the Respondent was bound to make certain payments to them of arrears of wages under s.182 of the Employment Rights Act. The case was referred for a full hearing by Bean J on 30 November 2010. The facts[2]The factual background is largely uncontroversial and concerns the vexed question of the status of agency workers and in what circumstances an agency worker might be an employee of the employment agency. The courts on a number of occasions have expressed concern as to the need for Parliament to intervene to clarify the law in this regard, and although various statutory instruments including new regulations to come into effect later this year have provided additional rights for persons on the books of employment agencies, I am not aware that Parliament has in fact done anything to clarify the law as to the status of agency workers.[3]So far as the facts of this case are concerned, Mr Studders was a foundry dresser, Mr Ballantyne and Mr Baldwin were fetters and grinders. I am not sure what a fetter is but I think I can work out what a grinder is. Unity operated as an employment business and it supplied agency workers to persons such as Mathers Foundry, who might be regarded as the end user. In August 2009 (I believe that there is a mistake in the decision of the Employment Tribunal, which has the date as August 2008) the Claimants saw an advertisement on the internet offering jobs for foundry workers. They contacted Unity and were offered an assignment with Mathers Foundry on 10 August 2009.[4]I have seen a letter at page 55 of my bundle of 11 August, which congratulates the Claimant, Mr Studders, on his successful placement at Mathers. This is relied upon by Mr Kamara as showing that there was in fact a separate contract in relation to the assignment at Mathers, in addition to or in substitution for the more detailed contract which was also sent on that occasion and which it is conceded was received and signed by Mr Studders. The other Claimants signed similar agreements. I need to refer to this agreement in some little detail. It is to be found at page 61 of my bundle and it is headed, “Contract with the temporary workers (terms of engagement/contract for service)”. In paragraph 1.1 there are various definitions:
“assignment” as defined, “means the period during which the Temporary worker is supplied to render services to the Client”
. The temporary worker is defined as being Mr Studders and I assume the other two Claimants would have been similarly named in their contracts of employment.[5]Paragraph 2 contains an entire-contract clause which reads:
“2. The Contract 2.1 These Terms constitute a contract for services between the Employment Business and the Temporary Worker and they govern all Assignments undertaken by the Temporary Worker. However, no contract shall exist between the Employment Business and the Temporary Worker between Assignments. 2.2 For the avoidance of doubt, these Terms shall not give rise to a contract of employment between the Employment Business and the Temporary Worker. The Temporary Worker is engaged as a self-employed worker, although the Employment Business is required to make statutory deductions from the Temporary Worker’s remuneration in accordance with clause 4.1. 2.3 No variation or alteration to these Terms shall be valid unless the details of such variation are agreed between the Employment Business and the Temporary Worker and set out in writing and a copy of the varied terms is given to the Temporary Worker stating the date on or after which such varied terms shall apply.”
[6]Paragraphs3.1 and3.2 read:
“3. Assignments 3.1 The Employment Business will endeavour to obtain suitable Assignments for the Temporary Worker to work as a Foundry Dresser. The Temporary Worker shall not be obliged to accept an Assignment offered by the Employment Business. 3.2 The Temporary Worker acknowledges that the nature of temporary work means that there may be periods when no suitable work is available and agrees: that the suitability of the work to be offered shall be determined solely by the Employment Business; that the Employment Business shall incur no liability to the Temporary Worker should it fail to offer opportunities to work in the above category or in any other category; and that no contract shall exist between the Temporary Worker and the Employment Business during periods when the Temporary Worker is not working on an Assignment.”
[7]Paragraph 4 deals with remuneration:
“4. Remuneration 4.1 The Employment Business shall pay to the Temporary Worker remuneration calculated at a minimum hourly rate of £5.73 per hour being the minimum rate of remuneration that the Employment Business reasonably expects to achieve, for all hours worked. The actual rate will be notified on a per Assignment basis, for each hour worked during an Assignment (to the nearest quarter hour) to be paid weekly in arrears, subject to deductions in respect of PAYE pursuant to Sections 44-47 of the Income Tax (Earnings and Pensions) Act 2003 and Class 1 National Insurance Contributions and any other deductions which the Employment Business may be required by law to make. 4.2 Subject to any statutory entitlement under the relevant legislation, the Temporary Worker is not entitled to receive payment from the Employment Business or Clients for time not spent on Assignment, whether in respect of holidays, illness or absence for any other reason unless otherwise agreed.”
[8]Paragraph 5.1 is headed “Statutory leave”. The agreement sets out from paragraph 5.2, “5.2 The annual leave to be granted will be the statutory minimum provided for under the Working Time Regulations 1998. 5.3 All entitlement to leave must be taken during the course of the leave year in which it accrues and none may be carried forward to the next year. 5.4 Where a Temporary Worker wishes to take paid leave during the course of an assignment s/he should notify the Employment Business of the dates of his/her intended absence giving notice of at least twice the length of the period of leave that s/he wishes to take. In certain circumstances the Employment Business may give counter-notice to the Temporary Worker to postpone or reduce the amount of leave that the Temporary Worker wishes to take and in such circumstances the Employment Business will inform the Temporary Worker in writing giving at least the same length of notice as the period of leave that it wishes to postpone or reduce it by.”[9]Paragraph 8 reads as follows:
“8 Conduct of Assignments 8.1 The Temporary Worker is not obliged to accept any Assignment offered by the Employment Business but if s/he does so, during every Assignment and afterwards where appropriate, s/he will: - a) Co-operate with the Client’s reasonable instructions and accept the direction, supervision and control of any responsible person in the Client’s organisation; b) Observe any relevant rules and regulations of the Client’s establishment (including normal hours of work) to which attention has been drawn or which the Temporary Worker might reasonably be expected to ascertain; c) Take all reasonable steps to safeguard his or her own health and safety and that of any other person who may be present or be affected by his or her actions on the Assignment and comply with the Health and Safety policies and procedures of the Client; d) Not engage is any conduct detrimental to the interests of the Client; e) Not at any time divulge to any person, nor use for his or her own or any other person’s benefit, any confidential information relating to the Client’s or the Employment Business’ employees, business affairs, transactions or finances. 8.2 If the Temporary Worker is unable for any reason to attend work during the course of an Assignment s/he should inform the Client and/or the Employment Business within one hour of the commencement of the Assignment or shift. 8.3 If, either before or during the course of an Assignment, the Temporary Worker becomes aware of any reason why he may not be suitable for an Assignment, he shall notify the Employment Business without delay.”
[10]Paragraphs9.1 and9.2 read as follows:
“9 Termination 9.1 The Employment Business or the Client may terminate the Temporary Worker’s Assignment at any time without prior notice or liability. 9.2 The Temporary Worker may terminate an Assignment at any time without prior notice or liability.”
[11]In broad terms therefore, and taking the contract at face value, there is no employment contract between the Claimants and Unity; there is no obligation on Unity to provide work and the Claimants had no obligation to accept work; the Claimant would be paid by the Respondent only when on assignment and all statutory deductions would be made by it; both the Claimant and Unity were entitled to terminate the contract at any time without notice, and as is clear from the decision of the Employment Tribunal at paragraph 4.4, that Unity did not exercise any day-to-day control over the Claimants, though it had some modest right of control over holiday periods.[12]It is apparent from the witness statement of Mr Studders that there were difficulties with payment from Unity, culminating in a letter dated 8 October 2009 from Unity, saying that it was the subject of insolvency proceedings. There were two weeks’ wages outstanding at this point in time. The letter thanked Mr Studders for his efforts “while in our employment”. The Claimants were also sent their P45s. There was a letter from the administrators dated 19 October 2009 to the effect that Unity had terminated what were described as their contracts of employment.[13]I note, incidentally, that in the application to the Respondent for payment, which I have at pages 83-85, Mr Studders and Mr Baldwin both said that Unity was obliged to provide work to them and that they were bound to perform. Mr Ballantyne, at page 87, states that Unity did not have to provide him with work but that he was obliged to accept it, I assume, if offered. The decision of the Employment Tribunal[14]I turn to the decision of the Employment Judge. He said the language that there was no contract of employment was not conclusive. I draw attention to paragraph 5.2 of the decision of the Employment Tribunal where he said:
“I am satisfied that during the assignment at the foundry there was a mutuality of obligations between the claimants and the insolvent company. In particular the insolvent company was obliged to provide work to the claimants during the course of the assignment and the claimants were obliged to perform such work. 5.3 Although I accept that the insolvent company did not exercise day-to-day control of the claimants it nevertheless exercised some control with regard to such matters as the taking of holidays by the claimants.”
[15]The Employment Judge had stated at paragraph 3 that he had been referred to a number of authorities including Ready-Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2QB 497 , Montgomery v Johnson Underwood Limited [2001] ICR 819 , and the decision of the Court of Appeal in Autoclenz Limited v Belcher [2010] IRLR 70 .[16]It seems to me – and I just pause here – that the finding by the Employment Judge that, during the course of a particular assignment Unity was obliged to provide work to the Claimants and the Claimants were obliged to do that work, simply flies in the face of the terms of the contract. It also fails to have to regard to the fact that the agreement provided as I have noted that either party could terminate it at any time without notice. Every agency worker who agrees to accept an assignment is obliged to perform it, but that is so in all cases. Although Unity exercised control over holidays (see paragraph 5.3) it was accepted that Unity did not exercise any day-to-day control.[17]The Employment Judge also referred to the deduction of tax and national insurance on the basis that the Claimants were employees of Unity; although not conclusive, this was a significant factor. I again observe that the Employment Judge appears to have completely ignored the fact that the employment agency had a statutory duty to deduct PAYE and National Insurance whether it wished to do so or not, and therefore it is impossible to regard the fact that it did so as pointing to the existence of an employment contract or otherwise. The Notice of Appeal[18]On the basis of the findings that the Employment Judge had made, he made declarations under s.188 that the Claimants were employees and that the Secretary of State was accordingly bound to make appropriate payments under s.182. I now turn to deal with the Notice of Appeal and the Respondents’ submissions.[19]Firstly, it is submitted that the Claimants were not employees with Unity within the meaning of s.230 of the Employment Rights Act and the Employment Judge was wrong so to find. The Employment Judge, it is then said, failed to apply the correct test determining the employee status of the Claimants in the context of their being agency workers. My attention was drawn to the cases of Montgomery v Johnson Underwood , Brook Street Bureau (UK) Ltd v Dacas [2004] ICR 1437 , Bunce v Postworth Ltd t/a Skyblue [2005] IRLR 557 and Secretary of State for Trade and Industry v Alade & others UKEAT/0591/06. I was also referred to the decision of Elias J in James v Greenwich LBC [2007] 1 ICR 577.[20]Thirdly, it was submitted that the Employment Judge had failed to place sufficient weight on the terms of the written agreement; fourthly, that it was perverse for him to find that the terms did not reflect the intentions and expectations of the parties. This particular finding was not supported by any evidence at all. There was no finding that the agreement was a sham, and in this regard I was referred to the case of Tanton v Express and Echo [1999] ICR 693 CA and Secretary of State for Trade and Industry v Alade .[21]It was submitted to me that it was wrong for the Employment Judge to have placed any significant reliance on correspondence, some of which was from an insolvency practitioner. The Employment Judge, it was said, ignored the entire contract provision in paragraph 2.3 of the agreement. He was wrong to find there was mutuality of obligations and to focus on one assignment rather than by looking at the agreement as a whole. It was said that the Employment Judge disregarded the express terms of the contract, in particular 2.2, 3.1, 3.2, 9.1 and 9.2. Those terms, it was submitted, were almost identical to the terms construed by the courts in Alade and Bunce v Postworth . In both of those cases it was found there was no relationship of employer/employee.[22]The Employment Judge, it was further said, was wrong to find that Unity was obliged to provide work during the assignment and the Claimants were obliged to do that work. Such a finding, it was submitted, was quite inconsistent with both parties’ rights to terminate the contract without notice, contained in paragraphs 9.1 and 9.2. Further, the Employment Judge, having found that Unity did not exercise day-to-day control over the work of the Claimants, left him with no basis for finding they exercised sufficient control to make them liable as their employers simply because of their control over holidays, especially as regulation 32 of the Working Time Regulations required Unity to provide the Claimants with paid leave. My attention in this regard was drawn to Bunce v Postworth and to paragraph 8.1 of the agreement.[23]The control over the work carried out by the Claimants was that of the end user, Mather, and not Unity. So far as control was concerned, the essential matter for consideration was who had the power to exercise control in reality, and my attention was drawn to the Judgment of Keene LJ in the Bunce case. It was also submitted to me that the payment of National Insurance and PAYE was a statutory obligation under s.44-47 of the Income Tax (Earnings and Pensions) Act 2003 and was thus wholly neutral in determining the question of whether or not the Claimants were employees.[24]The Claimants’ submissions are essentially to rely upon the correctness of the decision of the Employment Judge. Stress was laid upon paragraph 5.4 of the agreement, regulating holiday entitlement. It was also submitted the Employment Judge was correct to find that where the Claimants were sent on assignment they were bound to carry it out. There was potentially a contract of employment between Unity and the Claimants when on assignment and thus there was sufficient mutuality and control. There was no reason, it was submitted, why an agency could not be the employer of an agency worker during the term of an assignment, and my attention was drawn to the case of McMeechan v Secretary of State for Employment [1997] ICR 549 . The authorities do not say it is impossible to spell out a contract of employment with an employment agency and a worker, although it was difficult. But this was overcome in the present case by the findings of control and mutuality.[25]It is necessary to have regard to a number of statutory provisions; in particular I refer to ss.13, 182, 188 and 231 of the Employment Rights Act, which deal with such matters as the definition of an employee and the rights of employees or workers who have not been paid to make application under s.182 of the Act. S.13 of the Employment Rights Act provides that an employer should not make a deduction from wages of a worker; I am not sure that that is relevant. Ss.230(1) (3) and (4) of the Employment Rights Act provide as follows:
“(1) In this Act ‘employee’ means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment. […] (3) In this Act ‘worker’ […] means an individual who has entered into or works under (or, where the employment has ceased, worked under) — (a) a contract of employment, or (b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly. (4) In this Act ‘employer’, in relation to an employee or a worker, means the person by whom the employee or worker is (or, whether the employment has ceased, was) employed.”
[26]“Employment” is also given a meaning that is consistent with employment as an employee or as a worker.[27]Ss.44-47 of the Income Tax (Earnings and Pensions) Act 2003 requires an agency who employs – and I use a neutral term – agency workers, which it provides on assignment to end users or clients, is obliged to deduct National Insurance and PAYE. Regulation 32 of the Working Time Regulation provides that workers who are working for an employment agency are bound to be provided with paid holidays. The 2003 Conduct of Employment Agencies and Employment Business Regulations requires an employer business to say in any agreement with work seekers, whether they are engaged under a contract of service or a contract for services. It is quite clear from the terms of the agreement as I have read them out that this contract was expressed to be a contract for services. The case law[28]I now need to have a look at some of the authorities. In James v Greenwich LBC , Elias J, having considered cases such as Montgomery and Johnson Underwood , which referred to the classic Judgment of MacKenna J in Ready-Mixed Concrete , Bunce and Dacas , had this to say:
“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 the worker.”
[29]The classic statement of the law in relation to the determination of whether someone is an employee or not is to be found in the judgment of MacKenna J in Ready-Mixed Concrete . MacKenna J put the matter in this way:
“A contract of service exists if three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service. […] As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job either by one’s own hands or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be.”
[30]In Montgomery v Johnson Underwood Buckley J in the Court of Appeal stated that the above passage was the best guide to the irreducible minimum required for a contract of employment, mutuality of obligation and control exercised by the employer. I could cite similar passages from, for example, Carmichael v National Power [1999] ICR 1226 and Brook Street v Dacas .[31]So far as control is concerned it is helpful to have regard to the Judgment of Keene LJ in Bunce v Postworth at paragraph28. In this case, the Claimant was an agency worker contracted to a company known as Skyblue. “Is it enough that the ability of the client to control the day-to-day work originates in an agreement with Skyblue? It is to be observed that the contractual term principally relied on by the appellant, clause 7(a), requiring him to accept the directions, supervision and instruction of the client, seems to be a standard term in these contracts used these days by employment agencies. A term in almost identical words was a feature of the agreement in Dacas between Mrs Dacas and the agency, as it was in Stephenson v. Delphi Diesel Systems Limited [2003 I.C.R. 417 . […]29. 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 period 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. […]30. That is really fatal to his case. It means that there was and is no prospect of establishing that there was a contract of service with Skyblue, even during the periods of time when the appellant was working on an assignment.”[32]On the question of whether or not a contract was a sham or did not reflect the parties’ intentions, it is helpful to have regard to the Judgment of HHJ Peter Clark in the Employment Appeal Tribunal in Alade at paragraph 19:
“In the absence of any finding that the contract was a sham (see Tanton v Express and Echo [1999] ICR 693 CA) it is not permissible to go behind the express term of the contract, particularly in circumstances where there is a whole-contract clause […] Further, the deductions of tax and National Insurance by the agency do not necessarily point to a contract of service.”
[33]There is also detailed discussion by the Court of Appeal in Autoclenz , to which I have referred. I refer to the Judgment of Smith LJ at paragraphs 40-53 and Aikens LJ at paragraphs 86-92. They are authority for the proposition that, prima facie, a written contract represents the agreement between the parties. Once the court is satisfied the terms have been agreed it is not possible to imply inconsistent terms because, prima facie, the written terms represent the entire agreement. If it is suggested that the written terms of the agreement did not represent the parties’ agreement and their true intention, the matter must be decided on the evidence.[34]Smith LJ had this to say at paragraph 53:
“In my judgment the true position, consistent with Tanton , Kalwak and Szilagyi , 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 there 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. For example, there could well be a legal right to provide a substitute work and the fact that that right was never exercised in practice does not mean that it was not a genuine right.”
[35]Aikens LJ said at paragraph 91:
“I respectfully agree with the summary of the legal position set out by Smith LJ in Protectacoat v Szilagyi , at [50], as explained in her judgment in this case at [47] to [53]. Thus, in cases where there is a dispute as to the genuineness of the written terms of a contract relating to work or services, the focus of the enquiry must be to discover the actual legal obligations of the parties. Speaking for myself, I would respectfully suggest that it is not helpful to say that a court of tribunal has to consider whether the words of the written contract represent the ‘true intention’ or the ‘true expectation’ of the parties. There is a danger that a court or tribunal might concentrate too much on what were the private intentions or expectations of the parties. What the parties privately intended or expected (either before or after the contract was agreed) may be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffman’s speech in the Chartbrook case at [64] to [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.”
[36]Now, it might be thought from a superficial reading of the decision in McMeechan that matters of control and mutuality cease to be relevant in considering whether there is a contract of employment as between an employment agency and an agency worker outside the terms of the umbrella contract in relation to a specific assignment only; that is the case that has been advanced in this case by Mr Kamara. However, as explained by Buckley J in Montgomery at paragraph 28, it must be taken that Waite LJ had well in mind and had assumed that there was no issue as to whether mutuality and an appropriate degree of control were requirements of any contract of employment. It is not altogether clear what matters led the Employment Tribunal to the conclusion it did in McMeechan , but this case must be looked at on its own facts. Conclusions[37]In relation to the self-direction at paragraph 3 of the decision I am bound to say that it is a somewhat unsatisfactory and superficial analysis of the relevant principles. There is nothing exceptional about the facts of this case that would enable a contract of employment to be spelt out in the relation between Unity and the Claimants, either in relation to the overall contract or in relation to the specific assignment. There is nothing to suggest that the parties intended that Unity should be the employer. It is clear from the terms of the contract itself that Unity had no such intent. The contract has been drafted carefully and specifically so that Unity would not be regarded as an employer and the contract makes this clear on a number of occasions.[38]So far as the Claimants’ intentions are concerned there is a total lack of evidence so far as I can see that the Claimants had any intention contract personally with Unity as their employer. None was referred to, perhaps understandably, because there was none. There is no evidence at all that the parties conducted themselves on the basis that Unity was the employer. I am quite satisfied that the only conclusion that a Tribunal that had correctly directed itself as to the law and on the basis of the evidence before it could have come to was that there was no mutuality so far as this case was concerned; Unity was not obliged to provide the Claimants with work; if it did offer work to the Claimants they were not bound to accept it; and during the course of an assignment they were not obliged to complete the work; they had an absolute right to terminate the agreement at any time as did the Claimant. So far as control was concerned, while it is right to say that there is a modest degree of control exercised over holidays, no doubt for logistical reasons by Unity, there is no control at all over the times or manner in which the Claimants were to work. This was solely a matter for the end user, Mather.[39]It seems therefore that neither of the two necessary requirements of a contract of employment exist – mutuality and an appropriate degree of control – and in those circumstances, despite the helpful and able written and oral submissions of Mr Kamara this appeal must be allowed. In these circumstances and on the basis that I have found that there was only one conclusion to which a properly directed Employment Judge could have come, the correct course for me is to allow the appeal and to dismiss the claims.