Appeal No. EAT/640/96

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 4 October 1996

Before
THE HONOURABLE MRS JUSTICE SMITH
MR I EZEKIEL
MR D A C LAMBERT

MR R KNIGHTS	APPELLANT

ANGLIAN INDUSTRIAL SERVICES
	RESPONDENTS

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING

Revised

	APPEARANCES

For the Appellant	MR LEWIS
(of Counsel)
ELAAS	

	MRS JUSTICE SMITH:	This is the preliminary hearing of an appeal from a decision of an Industrial Tribunal sitting at Norwich, whose decision was promulgated on 13 May 1996.  

	The Applicant had claimed that he had been unfairly dismissed by the Respondents, Anglian Industrial Services, but the Industrial Tribunal had rejected his claim.  On a preliminary issue they found that he had not been employed under a contract of service with the Respondents and that therefore, there was no jurisdiction to hear the claim for unfair dismissal.  Section 54 of the Employment Protection (Consolidation) Act 1978 gives an employee the right not to be unfairly dismissed.  An employee is an individual who works or worked under a contract of employment or, in other words, a contract of service..

	The Appellant had signed on for clerical work with the Respondents, who are an employment agency, in 1990.  They placed him with a customer for whom he worked for about nine months.  Then he worked for a firm of estate agents for a further period of about nine months, that employment having been arranged by another agency.  Then in May 1992 the Respondents placed him with Amec Ltd in their Personnel Department at Great Yarmouth.

	On 16 June 1995 his engagement was terminated by the Personnel Manager of Amec, for allegedly having allowed Amec employees to go off-shore without proper certification.  The Appellant’s claim was that he had done nothing wrong and his employment should not have been terminated.  However, the Respondents asserted that he was not their employee  i.e. he was not an individual who worked under a contract of employment.  The Industrial Tribunal’s task was to decide whether the Appellant was the Respondents’ employee.

	The Industrial Tribunal, having set out the facts of the matter very briefly, turned to consider the contractual relationship between the Appellant and the Respondent, and to some extent the relationship between the Appellant and Amec.  They referred themselves also to several authorities as set out in the decision but especially to the case of McMeechan v Secretary of State for Employment [1995] ICR 444.  That authority requires the Industrial Tribunal to examine all the terms and conditions of the contract and to decide whether the relationship between the Applicant and the Respondent is that of employer and employee.  This Industrial Tribunal performed that exercise in some detail and, as it seems to us, with great care.  We quote from the decision beginning at paragraph 4.  

“4  ...  it is necessary for us to look at the terms of his [the Appellant’s] engagement with the respondents in some detail.  The document evidencing the basis upon which he worked for the respondents are in two virtually identical documents of 26 May 1992 and its amendment made on 8 March 1993 when the pay rate was changed.  The document is headed ‘Temporary Staff Terms and Conditions’; it sets out that his pay will be dealt with by PAYE, specifies his hourly rate, makes clear that his hours of work are as dictated by Amec Limited, that he is not entitled to overtime, not entitled to holiday or sickness pay and that he is to be paid on the basis of time sheets which are to be signed by Amec and submitted by him weekly, his place of work is said to be the Gt Yarmouth premises of Amec and that his contact is a Mr Turner who at the time was the personnel manager at Amec.
5  During the period of his engagement with Amec the applicant had very little personal contact with any individual from the respondents.  On no more than four or five occasions during the entirety of his assignment did he speak with the Anglian Industrial Services partners.  He simply sent in his time sheets and they converted them into payment on the basis of the hourly rate set out in the letter of engagement.  All the applicant’s instructions came from the manager to whom he was responsible at Amec; if he wished to arrange any time off he would arrange it with that manager and would not seek permission from the respondents.
6  In October 1994 the Amec management asked if he was prepared to go on to the Amec agency books instead of the AIS books.  Amec seemingly run their own agency to supply themselves with staff; because they would not have been paying AIS for the provision of labour they would have been able to give the applicant a slightly higher hourly rate.  He felt some loyalty towards the respondents and turned down the possibility.  He was also under the impression that he was an employee of AIS and that, by changing agencies, he would lose his continuity of employment.  He in fact asked the personnel manager at Amec if he could be granted continuous service with the commencement of the AIS engagement.  It is of interest that those employed by the Amec ‘in house’ agency receive a higher rate of pay than those who are directly employed by Amec but it is common ground that those who were directly employed would have paid holidays, a pension scheme and overtime rates.
7  The terms of business between AIS and Amec show that Amec had a responsibility to sign properly presented time sheets in respect of work carried out by ‘contractors’ and that Amec had the sole responsibility for allocating the work, supervising and directing the control of the contractor and also the responsibility to provide adequate supervision.  The engagement of any contractor could be brought to an end under the terms of the arrangement on one week’s notice subject to the proviso that -
‘The client [that is Amec] will not be restricted ... in exercising the right to terminate without notice the contract of any contractor who commits an act for which the contractor could be instantly dismissed if employed by the client under a contract of service.’
8  In the event the respondents extracted pay in lieu of one week’s work from Amec in pursuance of the clause requiring one week’s notice and passed that additional payment to the applicant.
9  The respondents have not taken the applicant off their books and he also continues to be on the books of a number of employment agencies.”

	It seems to us that in that exposition the Industrial Tribunal have carefully considered not only the written terms of the contract between the Appellant and the Respondent and the nature of the relationship between Amec and the Respondents, they have also considered how the arrangement worked in practice.  In our view they were right to take that multifactorial approach to their task.

	Having referred themselves to various authorities and in particular the McMeechan case to which we have already referred, the Tribunal then began the operation of weighing up the various factors which pointed towards or against the relationship between the parties being one of employer and employee and at paragraph 12 they said this:

12  The factors pointing towards it being a contract of service are that the respondents deducted tax and national insurance from payments made to the applicant.  Without doing an injustice to the arguments of the applicant it seems to us that apart from his own belief that he was an employee the method of payment by the respondents is the only significant factor which points towards this being a contract of service.  All other factors point against it.  The respondents took the applicant on to their books under no obligation to provide him with work and he having no obligation to accept work from them.  He was on the books of more than one agency and was entitled freely to accept or reject the work at any time.  There was no provision for the applicant to be required to give notice or to be given notice.  The applicant was only paid for work actually done.  He did not receive any holiday or sick pay.  The rate of pay was higher than would be expected for a directly employed individual.  The respondents had no control whatsoever over the work of the applicant, he was simply obliged to report to the personnel manager of Amec and thereafter was directed as to the hours to be worked and the work itself under the direct supervision of the Amec management.  There is no disciplinary procedure or grievance procedure set out in the terms and conditions of contract.  The applicant was paid at a fixed rate regardless of whether he worked normal or unsocial hours and regardless of the number of hours he carried out per week.  There was no pension provision.”

	Pausing there, Mr Lewis, who has appeared voluntarily on behalf of the Appellant today and for whose assistance we are most grateful, has submitted that the Tribunal was wrong to say that in effect there were only two factors which pointed towards employee status, namely the fact that the Respondents deducted Schedule E Income Tax and paid National Insurance contributions.

	He submits, and in particular he points to Mr Justice Mummery’s judgment in the McMeechan case, where he indicated that, in general, and in that case in particular, the payment of a fixed rate of pay per hour, the fact that the worker completed time sheets, were matters which pointed, or at any rate were consistent with, employee status.  We think that is a point of some validity and we will return to it again in due course.

	At paragraph 13 the Tribunal considered the effect of section 134 of the Income and Corporation Tax Act 1988.  It is not necessary for the purpose of this judgment to set out the terms of that section which can be found conveniently in the Tribunal’s decision, but the Tribunal concluded that the effect of that provision is to require an employment agency to deduct Schedule E Income Tax from persons on their books whom they hire out to their clients regardless of whether or not those persons are the agency’s employees.

	The Tribunal considered that the existence of that section meant that the fact that the agency were deducting tax and National Insurance payments was not a very strong factor pointing towards the relationship of employer and employee, because whether that relationship existed or not, the agency would still have to make the deductions under section  134.

	Mr Lewis submitted that the Tribunal were wrong to draw that conclusion as to the effect of section 134, which he submitted was of neutral or no effect in the consideration of whether the relationship was one of employer and employee.  We consider, for our part, that the Tribunal were plainly right that the effect of section 134 is to require the agency to deduct tax and National Insurance, whether or not the worker is an employee and therefore, although the fact of deduction of tax and NI contributions is a pointer towards employee status, it is not a strong pointer and certainly not a conclusive one.

	Mr Lewis advanced a third argument but upon reflection withdrew it.  Our conclusion is that Mr Lewis has raised one modestly attractive point.  It could be said that the Tribunal had wrongly limited the number of factors which they could and should have taken into account in favour of employment status by omitting any reference to fixed rates of pay and the completion of time sheets.  But having said that and having carefully read the balancing exercise which this Tribunal carried out, we are firmly of the view that it cannot be suggested that this Tribunal have, on the facts and circumstances of this case, reached the wrong conclusion.  The pointers towards employee status are, even including the ones which the Tribunal arguably left out, of much less significance than the very weighty considerations which fall on the other side of the line.  

	In the event our conclusion is that, although one could make a modest criticism of this decision, its conclusion is plainly right and in those circumstances we conclude that this appeal must be dismissed at this preliminary stage.