Appeal No.UKKEAT/0022/04/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 18 March 2004

Before
HIS HONOUR JUDGE PETER CLARK
MR P DAWSON OBE
MR D J HODGKINS CB

STAFFORDSHIRE SENTINEL NEWSPAPERS LTD	APPELLANT

MR E POTTER	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR JONATHAN SWIFT
(Of Counsel)
Instructed by:
Messrs Foot Anstey Sargent
21 Derry’s Close
Plymouth
Devon
PL1 2SW	
For the Respondent	MR SAMP RAHMAN
Instructed by:
Messrs GMH Solicitors
1184 Pershore Road
Kings Norton
Birmingham 
B30 3AS	

SUMMARY

Contract of service, or for services.  TANTON.  McFARLANE.  Not a contract for personal service based on express contractual term providing for substitution.  ET finding of contract of service overturned.  Employer’s Appeal allowed.

HIS HONOUR JUDGE PETER CLARK

1.	This appeal raises, once more, the much litigated question, was the unfair dismissal complainant employed by the Respondent under a contract of service or engaged under a contract for services?  If the former, then he may pursue his complaint; if the latter, he cannot.

2.	That question was taken as a preliminary issue by the Shrewsbury Employment Tribunal sitting on 9 October 2003.  By a decision promulgated with Extended Reasons on 30 October the Employment Tribunal resolved the issue in favour of the Applicant, Mr Potter.  He was an employee of the Respondent, Staffordshire Sentinel Newspapers Ltd.  Dissatisfied with that determination the Respondent now brings the matter before us by way of appeal.  We shall refer to the parties by their descriptions below.

3.	The relevant facts may be shortly stated.  The Applicant worked for the Respondent as a Home Delivery Agent (HDA) from 4 February 1999 until the Respondent terminated his appointment on 31 March 2003 with 4 weeks notice.

4.	At the outset he signed a delivery agency agreement.  Material terms were that the agreement was stated to be an agreement for services, not a contract of employment and that the Agent (the Applicant) was an independent contractor.  The Employment Tribunal noted that that written agreement did not contain an express “substitution clause”.

5.	In November 2000, so the Employment Tribunal found at paragraph 16 of their Extended Reasons, the Applicant signed a further agreement for services.  They observe that ‘unlike the initial agreement it also stresses the right to substitute suitable people to ensure the obligations under the agreement are fully complied with’.

6.	The relevant provision is not set out in the Employment Tribunal’s reasons.  We should do so.  At Clause 5.2 of the Agreement dated 9 November 2000, made between the parties, it is said:

“5.2   Subject to Clause 9.2 below the HDA is not required to [discharge his/her operational responsibilities] [its work in the business] personally and in the event that he/she does not want to do so for any reason (including holiday) or is unable to do so for any reason (including illness) the HDA will ensure that he/she engages suitable people to ensure that his/her obligations under this Agreement are fully complied with.”

Clause 9 (there is no Clause 9.2) deals with assignment, and is not material. 

7.	Mr Potter was supplied with a third form of agreement in January 2003.  He did not sign it before termination and thus the relevant written agreement, it is common ground, is that completed in November 2000.

8.	It is unnecessary for us to detail the other terms of the contract, nor the various tests propounded for determination of the question contract of service or for services because Mr Swift, appearing on behalf of the Respondent, contends that there was here absent one of the irreducible minima of a contract of service, namely that it is a contract for personal service.  He relies on the Court of Appeal decision in Express & Echo Publications –v- Tanton [1999] IRLR 367.  

9.	Mr Tanton worked for Express & Echo as a driver under the terms of a document headed ‘An Agreement for Services’.  Clause 3.3 of that Agreement read:

“In the event that the contractor is unable or unwilling to perform the services personally he shall arrange at his own expense entirely for another suitable person to perform the services”

and by paragraph 13 of the Schedule to that Agreement:

“In the event that the contractor (Mr Tanton) provides a relief driver, the contractor must satisfy the company that such a relief driver is trained and is suitable to undertake the services.”

10.	The Employment Tribunal Chairman made certain findings of fact, set out at paragraph 17 of the judgment of Peter Gibson LJ in these terms:

“(13)	That right for Mr Tanton to provide a substitute driver was utilised by him from time to time and, exceptionally, throughout a period of six months whilst Mr Tanton was ill, Mr Tanton paying the substitute driver, though receiving remuneration from the appellant, Clause 3.3, as the chairman expressly found, is not a sham.”

11.	On his findings of fact the Chairman concluded Mr Tanton was employed under a contract of service.  A division of the Employment Appeal Tribunal on which I sat saw no reason in law to interfere with that finding.  The Court of Appeal took a different view.

12.	In the course of giving the principal judgment of the Court, Peter Gibson LJ made the following points:

(1) 	the need for personal service and mutuality of obligation constitute the irreducible minimum of obligations for a contract of service, taking that expression from the judgment of Sir Christopher Slade in Clark -v- Oxfordshire Health Authority [1998] IRLR 125.

(2)	the Employment Tribunal Chairman was wrong to concentrate on what actually occurred, rather than looking at the obligations by which the parties were bound (ie Clause 3.3 of the written Agreement, such Agreement not being a sham).

(3)	the provision contained in Clause 3.3 was wholly inconsistent with a contract of service.  The only proper conclusion was that Mr Tanton was engaged under a contract for services.

13.	Against that legal background we turn to the material findings of the Shrewsbury Employment Tribunal.  At paragraph 7 of their Extended Reasons they found:

“7	The applicant was responsible for the distribution of the papers to the distributors after publication.  However, the respondent exercised a high degree of control over how he did this.  He could substitute someone to cover holidays and sickness, but this was not an unfettered right.  His first choice of substitute was not approved of by the respondent after concerns about them, and he had to find another of whom the respondent did approve.  On one occasion, the respondent actually found a substitute itself for Mr Potter.  We have no reason to doubt that, if the applicant had been unable to provide a suitable substitute, the respondent would have done so again in order to cover the large delivery area covered by the applicant.”

And at paragraph 20 they say this:

“20	Our starting point was the Ready Mixed Concrete test (that is Ready Mixed Concrete (South East) Ld -v- Minister of Pensions & National Insurance [1968] 2 QB 497.  McKenna J).  This has been affirmed in the more recent cases of Carmichael (Carmichael -v- National Power Plc [2000] IRLR 43) and Montgomery (Montgomery -v- Johnson Underwood Ltd [2001] IRLR 269.  There was a mutuality of obligation.  Mr Potter had to provide his own work and skill in return for remuneration.  However, he could substitute a third party in his place.  We find that this was a limited right of substitution as the substitute had to meet with the respondent’s approval and the respondent had previously provided their own substitute for the applicant.  This fits more closely with the situation in McFarlane (McFarlane -v- Glasgow City council [2001] IRLR 7 than Tanton.”

14.	In McFarlane –v- Glasgow City Council [2001] IRLR 7 there was no express term of the contract in writing dealing with personal service or the use of substitutes.  As a matter of fact, in the operation of the relevant contracts, the Applicant gym instructors, when unable to take a class, arranged for a replacement taken from the Council’s register of approved instructors.  The replacement was then paid directly for the session by the Council.

15.	An Employment Tribunal held, purportedly following Tanton, that the ability to arrange a replacement was inconsistent with a contract of service.  The Applicant’s appeal was upheld, Lindsay P, giving judgment on behalf of the Employment Appeal Tribunal, explaining the effect of Tanton (particularly at paragraph 13).  In that case the relevant contractual clause in Tanton was extreme.  The individual need never turn up for work.  In McFarlane it was open to an Employment Tribunal to hold that what may be a contract for personal service does not cease to be such simply because there is a right to send along a substitute in a limited sense.

16.	We accept Mr Swift’s analysis of these 2 cases, Tanton and McFarlane.  They are not inconsistent with each other as a matter of principle, indeed they are entirely consistent.  The critical question is what is the relevant contractual term?  Where there is no clear express term in writing then it may be necessary to look at the overall factual matrix in order to discern that term - see Carmichael -v- National Power Plc [2000] IRLR 43.  However, where the term is clear from the contractual document that course is unnecessary, subject to variation of the term or where it can be said to be a sham, to use Peter Gibson LJ expression in Tanton. 

17.	Here, submits Mr Swift, the term of the contract is clear.  It is to be found in Clause 5.2 of the 9 November 2000 Agreement.  It provides that the HDA is not required to do his work personally.  That is inconsistent with a contract of service.  The Employment Tribunal, he submits, was bound as a matter of law to so find.

18.	We think that the key to this appeal was provided by Mr Rahman when he opened his submissions in opposition to the appeal.  If Clause 5.2 stands up, he accepted, there is no contract of service.

19.	In submitting that Clause 5.2 did not stand up he put the Applicant’s case in a number of ways, based on the Employment Tribunal’s findings.  First that there was to be implied a term that the Applicant should provide personal service.  That in our view cannot be maintained in the face of a contradictory expressed term.  Secondly, that Clause 5.2 was a sham.  There is no finding to that effect by the Employment Tribunal despite such a submission being advanced below on behalf of the Applicant.  We do not infer from the Employment Tribunal’s reasons that they were so finding.  Thirdly, that the term contained in Clause 5.2 had been varied.  The material for that submission, in the absence of any explicit finding by the Employment Tribunal that the term was varied, is in our view flimsy.  Looking at the Employment Tribunal’s factual findings at paragraph 7 of their Extended Reasons, the fact that from time to time the Respondent did not approve a substitute proffered by Mr Potter is entirely consistent with the provision of Clause 5.2 for a suitable person.  On one occasion, so the Employment Tribunal found, the Respondent provided a substitute when the Applicant was unable to do so.  In its Notice of Appeal the Respondent took the point that there was no evidence to support that finding.  That point has not been pursued by Mr Swift in oral submissions.  It was, in our judgment unnecessary to do so.  Accepting that finding of fact, it is not so inconsistent with the written term as to lead to the conclusion that the term must have been varied.

20.	It follows, in our judgment, that Clause 5.2 does stand.  As Mr Rahman rightly accepted, consistent with the Court of Appeal approach in Tanton, as followed by the Employment Appeal Tribunal in McFarlane, that contractual provision was inconsistent with a contract of service.  The Employment Tribunal was bound so to find, properly applying the law.  It did not do so, but reached a conclusion that was based, in our judgment, on a material misunderstanding of the law as explained in both Tanton and McFarlane.  Accordingly we must allow this appeal, substitute a finding that the Applicant was not employed by the Respondent under a contract of service and consequently dismiss his complaint of unfair dismissal, there being no jurisdiction in the Employment Tribunal to entertain it.