Appeal No. UKEAT/0160/08/DA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 4 June 2008

Before
HIS HONOUR JUDGE PETER CLARK
(SITTING ALONE)

AUTOCLENZ LIMITED	APPELLANT

MR J BELCHER & OTHERS	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR P GREEN
(of Counsel)
Instructed by:
Messrs Colemans-CTTS Solicitors
1-3 Union Street
Kingston-upon-Thames
Surrey KT1 1RP	
For the Respondent	MR P EDWARDS
(of Counsel)
Instructed by:
Messrs Rowley Ashworth Solicitors
1 Snow Hill Plaza, St Chad’s
Queensway
Birmingham B4 6GJ	

SUMMARY

JURISDICTIONAL POINTS:  Worker, employee or neither
Whether Claimants were (a) employees or (b) limb (b) workers.  Answer no and yes. Appeal allowed in part.

HIS HONOUR JUDGE PETER CLARK

Introduction
1.	The issues in this appeal are, first, whether the Claimants, Mr Belcher and others, were employed by the Respondent, Autoclenz Limited, as valeters in its vehicle cleaning operation at Measham in Derbyshire.  Employment Judge Foxwell so found, sitting alone at Nottingham, in a judgment promulgated with reasons on 1 March 2008.  In the alternative, he found that they were workers.  That finding is also challenged on appeal

The Facts
2.	The Respondent cleans vehicles under contract for British Car Auctions (BCA) at various sites.  The arrangement at the Measham site, where the Claimants worked, is as follows.  Valeters are organised into teams of four, one of whom acts as team leader.  Each team works on a batch of six vehicles at a time.  The cleaning tasks such as washing, vacuuming and so forth are divided between the team members until the cleaning process is completed.  The team then moves onto a fresh batch of vehicles until all are cleaned.

3.	The Respondent provides all cleaning equipment and materials including jet washers, vacuum cleaners, sponges and chemicals.  Since 2007, the Respondent has levied a flat‑rate charge for the use of such equipment on each valeter, fixed at 5 percent of his or her weekly pay.  Payment is on a piecework basis, £9 for each ‘standard retail clean’.  The number of vehicles cleaned by a team are totted up and the amount is then divided between team members.  Valeters are required to have public liability insurance cover.  The Respondent has arranged group insurance in respect of which each valeter has a sum of £9 per week deducted from his or her weekly payment.  When working, the valeters wear overalls, originally bearing the Respondent’s logo but now a BCA logo.  Each valeter submits a weekly invoice for payment.

4.	Valeters are recruited through advertisements in the local press or Job Centre.  The advertisements emphasise that the Respondent is looking for self‑employed people.  Each valeter is required to sign a written agreement.  In the case of Mr Huntington, the sample Claimant from whom the Judge heard evidence, he first began work for the Respondent in 1991.  His original contract was dated 18 June 1991.  He is there described as a sub-contractor, confirming that he was self‑employed.  In 2007, the Respondent decided to introduce revised terms of contract for valeters.  In Mr Huntington’s case, he signed an agreement dated 21 May 2007 which contained the following material provisions:

(1) The preamble read:
“For the purposes of providing car‑valeting services to its clients’ garage, Autoclenz wishes to engage the services of car valeters from time to time on a subcontract basis.”

(2) The third paragraph read:
 “For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenz’s requirements of sub-contractors as set out in this agreement …”

And then various requirements are set out (the substitution clause).
	(3) Finally, in capital letters:
“YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO SUCH AN AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY OBLIGATION TO ENGAGE YOUR SERVICES ON ANY PARTICULAR OCCASION.”

		(The obligation clause)

5.	The valeters paid their own tax and National Insurance on a self‑employed basis, and in May 2004 the Inland Revenue, following a review, were satisfied that the then contracts with the valeters were properly ones of self‑employment rather than employment for the purposes of the PAYE tax scheme.

The Claims
6.	By their form ET1 lodged on 19 November 2007 the Claimants claimed a declaration that they were employees of the Respondent and not subcontractors and, at section 8, claimed unpaid wages, holiday pay and other amounts which are not identified.

7.	The hearing before Judge Foxwell was held to determine the preliminary question as to whether the Claimants were employees of or workers engaged by the Respondent.  Their money claims related to entitlement to the National Minimum Wage and holiday pay under the Working Time Regulations 1998 (‘WTR’).

The statutory definitions
8.	For the purposes of protection under the Employment Rights Act 1996 (‘ERA’), an ‘employee’ is defined in section 230(1) as an individual who has entered into or works or worked under a contract of employment, i.e. a contract of service.  An individual falling within that classification is also a ‘worker’ under s230(3)(a) and by s230(3)(b) worker also includes, so far as is material, work under a contract 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.
9.	The definition of worker contained in s230(3) ERA is, in all material respects, replicated in regulation 2 of the Working Time Regulations and regulation 2 of the National Minimum Wage Regulations 1999 (‘NMWR’) (by reference to s54 of the National Minimum Wage Act 1998).

10.	For ease of reference, I shall use the expressions “employee” and “limb (b) worker” to distinguish between those employed under a contract of service and those engaged under a protected contract for services, and “self‑employed contractor” for those falling outside the statutory definitions of employee/worker.

The Employment Tribunal decision
11.	The Judge was alive to the irreducible minima of a contract of service, namely mutuality of obligations and personal service, as well as the question of control.  I note (Reasons paragraph 23) that the Judge, on his own initiative, referred the advocates then appearing before him (neither Mr Green nor Mr Edwards, now appearing before me) to the judgment of Elias P in Consistent Group Limited v Kalwak 2007 IRLR 560.  In particular, to the passage at paragraphs 57-58, where the President considered the judgment of Peter Gibson LJ in Express and Echo Publications Limited v Tanton [1999] IRLR 367, in which his Lordship said:
“Of course, it is important that the Industrial Tribunal [now Employment Tribunal] should be alert in this area of the law to look at the reality of any obligations.  If the obligation is a sham it will want to say so.”

The President continued at paragraph 58:
“In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship.  But, if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.”

12.	At paragraph 26 of his Reasons, the Judge considered a submission on behalf of the Respondent that the present case was indistinguishable from that of Stevedoring & Haulage Services Limited v Fuller [2001] IRLR 627 (CA).  In that case stevedores, formerly employed under contracts of service until made redundant, were taken back under the terms of a written contract, which provided that they were employed on an “ad hoc and casual basis” with no obligation on the part of the company to provide work nor on the claimants to accept it.

13.	A division of the EAT on which I sat dismissed the employer’s appeal against a finding by the Employment Tribunal that the stevedores were employees.  The Court of Appeal took a different view, holding that the express contractual term negatived the necessary mutuality of obligation.  Here, the Employment Judge distinguished Fuller on the facts in that in the present case the relevant agreements were, until only recently, silent about the obligations to do or provide work, relying on the President’s approach in Kalwak and the judgment of Langstaff J in Cotswolds Development Construction Limited v Williams [2006] IRLR 181, where he spoke of the question as to whether the mutual obligations under the contract are truly a wage/work bargain.

14.	In holding that the Claimants were employees of the Respondent, the Judge pointed to the degree of control exercised by the Respondent (paragraph 35);  he found that the Claimants were fully integrated into the Respondent’s business (paragraph 36);  he found that the substitution clause introduced in 2007 did not reflect what was actually agreed between the parties, relying particularly on the President’s observations at paragraph 58 of Kalwak;  he applied similar reasoning to the work obligation provision in the new contract.

15.	Having found that the Claimants were employees, the Judge went on to find, if he was wrong about that, that they were limb (b) workers (Reasons paragraph 39).

The Appeal
16.	I propose to deal separately with the first two questions raised in this appeal:  (1) Were the Claimants employees of the Respondent and (2) if not, were they nevertheless limb (b) workers?  The further alternative possibility, contended for by Mr Green, is that they were self‑employed contractors, using the terms identified earlier in this judgment.

(1) Employees
17.	Mr Green has addressed me on certain findings made by the Employment Judge which, he submits, are inconsistent with other findings made below and with the evidence before the Employment Tribunal.  I do not propose to dwell on those submissions because there is, in my view, a more fundamental basis of appeal advanced by Mr Green.  It focuses on the Court of Appeal decision in Kalwak [2008] EWCA Civ 430 29 April 2008.  That decision, of course, post‑dates the Tribunal’s judgment in this case.

18.	The guiding principle which I draw from the leading judgment of Rimmer LJ, with which May and Wilson LJJ agreed, in Kalwak, reversing the decision of the President below, is that it is not the function of an Employment Tribunal to recast the parties’ bargain.  If a relevant term of the contract between them is to be rejected in favour of a different one, that can only be done by a clear finding that the real agreement was to that different effect and that the term in the contract was included by them so as to present a misleadingly different impression (paragraph 40).  That view differs from that expressed by the President at paragraphs 57‑58 of his judgment, where he adopted what might be called the reality test.  Further, to reach such a finding it is necessary for the Employment Tribunal to conclude that the relevant term or terms of the contract are a sham in the sense explained by the House of Lords in Snook v London & West Riding Investment Limited [1967] 2QB 786, that is, that both parties intended the contract in that respect to paint a false picture of their respective obligations under the contractual term.  In short, a joint intention to mislead (paragraph 28).

19.	In these circumstances, Mr Edwards realistically accepts that, as the law has now been revealed by the Court of Appeal, the Judge below misdirected himself in law in adopting what I have called the reality test as formulated by the President in Kalwak.  In particular, in relation to the obligations term of the May 2007 contract.

20.	Given that very proper concession and the irreducible minimum of a contract of employment, namely mutuality of obligation as endorsed by the House of Lords in Carmichael v National Power plc [2000] IRLR 43, I am satisfied that, in this material respect, the Judge fell into error, as Mr Green submits.

21.	Mr Edwards has sought to persuade me that I should remit this issue to the Employment Tribunal for rehearing.  He argues that, in the light of the Court of Appeal approach in Kalwak it will be necessary for a fresh Employment Tribunal to consider whether, in the case of each Claimant (not just the specimen Claimant, Mr Huntington) there was indeed a sham agreement in the Snook sense.  I reject that submission for the reasons advanced by Mr Green.  The case was never argued, either evidentially or in submission, on behalf of the Claimants in this way below.  They cannot now have a second bite of the cherry on remission.  In any event, the EAT decision in Kalwak appears to have been raised not by the parties but by the Judge (Reasons, paragraph 23); thus, they prepared their cases on the basis of the law absent reference to that case in the EAT or the later decision in the Court of Appeal.  Further, there is no indication on the facts found that (a) Mr Huntington intended to mislead anyone, presumably HM Revenue and Customs, when he signed the May 2007 contract without studying it, or (b) Mr Hassall, the Respondent’s witness, intended the relevant contractual provision to reflect anything other than the agreement between the parties.  Indeed, the Employment Judge found (Reasons paragraph 11) that the parties intended their relationship to be one of self‑employment.

22.	In these circumstances, I shall allow the appeal against the Employment Judge’s finding that the Claimants were employed by the Respondent, and therefore limb (a) workers, and substitute a declaration that they were not employees.

(2) Limb (b) workers.
23.	Here I find the boot is firmly on the other foot.  Mr Green argues that the Employment Judge’s finding (Reasons, paragraph 39) that if he was wrong in finding that the Claimants were employees then he had no hesitation in finding that they were workers (I infer under limb (b)), is flawed, first because of the misdirection as to the contract applying Kalwak in the Court of Appeal and, secondly, because this alternative finding is not sufficiently reasoned.

24.	I have already accepted that the Employment Judge misconstrued the terms of the written contract as to both the obligation clause and, I would add, the substitution clause.  It may also be said that his reasoning at paragraph 39 was, at the least, economical.  However, I have considered the factual matrix in this case in the light of the seminal judgment of Mr Recorder Underhill QC, as he then was, in Byrne Bros (Framework) Ltd v Baird [2002] IRLR 96, a case to which the Employment Judge directed himself.  Having done so, I am satisfied that:
	(1) This was a contract whereby each Claimant undertook to do or perform personal service for the Respondent.  The existence of the qualified substitution clause does not, in my judgment, undermine that element.
	(2) The lack of mutuality of obligation, to provide and do work, fatal to a contract of service, does not prevent the contract in this case being a contract for the purposes of the limb (b) worker definition.  On this aspect, I accept Mr Edwards’ submission.
	(3) I agree with the Employment Judge (Reasons paragraph 39) that, on the facts as found, these Claimants were not providing their services in circumstances where the Respondent was their client or customer.  I adopt the legitimate policy consideration to which Mr Recorder Underhill paid heed at paragraph 17(4) of his judgment in Byrne Bros.

25.	Put shortly, I accept Mr Edwards’ submission that in finding that the Claimants were, in the alternative, limb (b) workers, the Employment Judge’s conclusion was plainly and unarguably right; see Dobie v Burns International Security Services (UK) Ltd [1984] ICR 812 (CA).  Accordingly, I shall dismiss this part of the Respondent’s appeal.

Disposal
26.	The appeal is allowed in part.  I shall substitute for the finding of the Employment Judge a declaration that the Claimants are not employees of the Respondent, but are otherwise workers for the purposes of the ERA, WTR and NMWR.

Leave to appeal
27.	Application for leave to appeal refused.