Appeal No.	 EAT/542/01

EMPLOYMENT APPEAL TRIBUNAL
SITTING AT THE ROYAL COURTS OF JUSTICE,
STRAND, LONDON, WC2A 2LL

	At the Tribunal
	On 18 September 2001

Before
MR RECORDER UNDERHILL QC
MRS J M MATTHIAS
MR D NORMAN

BYRNE BROTHERS (FORMWORK) LIMITED	APPELLANT

(1) MR A M BAIRD (2) DANIEL McCARTHY 
(3) DENIS McCARTHY (4) JOHN McDONOUGH	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR A STAFFORD QC
(of Counsel)
Instructed by:
Mr S Stanton-Dunne 
Merricks 
Solicitors
207 -208 Moulsham Street
Chelmsford
Essex CM2 OLG	
For the Respondents	MR A HOGARTH
(of Counsel)
Instructed by:
Mr S M Wood
Messrs O H Parsons & Partners 
3rd Floor
Sovereign House
212-224 Shaftesbury Avenue
London WC2H 8PR	

MR RECORDER UNDERHILL QC
INTRODUCTORY

1	This is an appeal from a decision of an Employment Tribunal sitting in Bedford, promulgated on 13th March 2001, that each of the four Respondents is a “worker” within the meaning of the Working Time Regulations 1998 and is accordingly entitled to holiday pay under the terms of reg. 16. Their claim (which originally involved a much larger number of applicants) is supported by their trade union, UCATT. An official of UCATT represented them in the Tribunal: they have been represented before us by Mr. Hogarth.  Mr. Andrew Stafford Q.C. represented the Appellant, Byrne Brothers (Formwork) Ltd., before us (though not in the Tribunal). To avoid confusion between the Respondents before us and the Respondents in the Tribunal, we will refer to the parties as “the Applicants” and “Byrne Brothers”.

2	The Applicants work in the building trade.  Three are experienced formwork carpenters.  The fourth, Daniel McCarthy (the son of one of the other Applicants), is a general/carpenter’s labourer. They started to work for Byrne Brothers at various dates in 1999.

3	On starting work for Byrne Brothers the Applicants were required to sign standard-form “Sub-Contractor’s Agreements”.  The Agreement itself consists largely of a series of boxes for completion and does not explicitly contain any statement of the parties’ primary obligations.  It identifies the “sub-contractor”; the site (Midsummer Place in Milton Keynes) and the “service rendered” (in the sample which we have seen this was given as “carpentry”).  The only substantive provision is a declaration that:
“(a)    I/We agree to abide by the Company’s Health & Safety Policy and Procedures.
  (b)   I/We have read and understood the terms of this Agreement on the back of this form and agree that they accurately reflect the terms under which I/We provide the Services.
  (c)   I/We confirm that I/We do not suffer from any medical or other condition that will or may prevent me/us from carrying out the Services in accordance with this Agreement.”
4	The terms on the back of the form referred to in declaration (b) are headed  “Terms and Conditions of Engagement”.  Since the terms of the contract are fundamental to the issues on this appeal we set them out in full:
   
“1.   The Contractor will from time to time offer the Sub-contractor assignments on a self-employed basis under the terms of this Agreement.
2     The Sub-contractor will indemnify the Contractor against any liabilities arising under this Agreement due to negligence or misrepresentation by the Sub-contractor or by his agents or employees on his behalf.
3     The Contractor is able to set-off any monies due to the Sub-contractor against any loss made by the Contractor due to the Sub-contractor’s failure to observe the conditions set out in the “Agreement”.”
4.    In the main, the Sub-contractor will be responsible for his own transport to site.  If transport is supplied by the contractor, to the Sub-contractor, the Sub-contractor may be asked to enter into a rental agreement, charges which will appear in the Contractors Schedule of Charges.
5.     The Sub-contractor will be responsible for all tools necessary to undertake the Services.  If the Contractor provides equipment a charge may be made.  Any price-work should reflect such charges which may become due.
6.     Any materials the Sub-contractor provides will be approved by the Contractor.
7.     In the event that faults or defects are found to be the responsibility of the Sub-contractor they will be made good at the Sub-contractors own expense.
8.     Payment will be made in accordance with the agreed schedule of rates or any agreed fixed price which may be subject to negotiation and alteration on a competitive basis.
9.     The Sub-contractor is not entitled to holiday pay, sick pay or pension rights.
10.   The Sub-contractor accepts that the Contractor will incur no liability should it fail to offer an assignment to the Sub-contractor.
11.   The Sub-contractor has the right to refuse to accept an assignment and shall incur no liability to the Contractor.
12.    The Sub-contractor acknowledges that he is entering into a contract for services with the Contractor and acknowledges and declares that this Agreement shall not constitute a contract of employment.
13.   The Sub-contractor is free to employ at his own cost whatever suitably trained additional labour which may be necessary to fulfil the requirements of the Agreement.  Where the Sub-contractor is unable to provide the Services the Sub-contractor may provide an alternative worker to undertake the Services but only having first obtained the express approval of the Contractor.
14.   The Contractor and the Sub-contractor shall be entitled to terminate this Agreement forthwith and without notice.
15.   The Sub-contractor is responsible for ensuring that he has appropriate public liability insurance cover.  Where the Sub-contractor fails to take out such insurance cover, the Contractor will enter into an appropriate insurance policy agreement and such premium costs may be payable by the Sub-contractor or deducted from the schedule of charges.
16.    For the sake of clarity, the Working Rule Agreement of the Joint National Council to the Construction Industry does not apply to this Agreement.”

(The ‘clause’ numbers given above do not appear in the original, which has simple bullets; but we have inserted them for ease of reference.)  We were told by Mr Hogarth that these terms and conditions had been drafted for use by members of a wider group of building trade employers. 

THE CLAIM AND THE TRIBUNAL DECISION

5	The Applicants worked exclusively at the site at Milton Keynes.  They worked up to Christmas 1999 and resumed work after the New Year.  In accordance with their “subcontractor” status and the terms of the agreements which they had signed, they did not receive any pay in respect of that period.

6	On 21 March 2000 each of the Applicants presented claims in the Employment Tribunal claiming that they were entitled under the Working Time Regulations to holiday pay for the period of the 1999-2000 Christmas/New Year break.    It is common ground that their entitlement to such pay depends on whether they were “workers” within the definition at reg 2 (1) of the Regulations.  That definition is in the following terms:
“ “worker” means an individual who has entered into or worked 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.”

It should be noted that the term “worker”, identically defined, appears in other employment legislation.  This usage appears to have originated in s. 8 (2) of the Wages Act 1986 (see now s.  230 (3) of the Employment Rights Act 1996), and it has since also been used in s. 54 (3) of the National Minimum Wage Act 1998 and s. 13 of the Employment Relations Act 1999.

7	The claim came before the Tribunal on 15 January 2001.  It is clear that the Tribunal did not feel that the way in which the case had been presented before it was satisfactory.  It appears that none of the witness statements was directed to the question of whether or not the Applicants were “workers” within the meaning of the Regulations, so that the relevant facts had to be elicited piecemeal at the hearing; and the Tribunal also did not feel that it had been sufficiently helped by the submissions on the law.  We have not seen the witness statements or the Chairman’s notes (or indeed any contemporary documents save for those comprising the contract), but these difficulties may explain the somewhat sparse nature of the factual findings made by the Tribunal. 

8	Broadly, the Tribunal’s reasoning can be summarised as follows:

(1) It found that the Sub-Contractors Agreement and the Terms and Conditions of Engagement were binding on the Applicants.  The Applicants had submitted that those documents “simply did not reflect the reality of their working relationship with the Respondents” (see paragraph 16 of the Reasons); and the Tribunal had itself found as a fact that none of the Applicants had read or understood the contractual documents (see paragraph 13 (7)).  But the Tribunal held (at paragraph 23) that:

“ ……each of the Applicants is bound by the document he has signed:  none were under any misapprehension but that it was a document that related to the work they were going to undertake for the Respondents.”
That finding is not challenged (subject to a point as to the effect of reg. 35 of the Regulations).  Clearly however those documents did not contain the entirety of the contractual terms (for example, the rate of pay is nowhere stated); and where they are silent, or their terms do not clearly deal with a particular area of obligation, it is necessary to go outside them.
(2)  The Tribunal then proceeded to consider whether the Applicants worked under a contract of employment, so as to fall within limb (a) of the definition.  The majority held that none of them did so.  (One member believed that one of the Applicants, Daniel McCarthy, was an employee; but that is not an aspect which we need to pursue.)  The conclusion of the majority was expressed at the end of paragraph 23 of the Reasons as follows:

“The terms of the Agreement which the Applicants entered into meant that although they worked on a day-to-day basis, they did so under an agreement which excluded any possibility of the mutuality of obligation, and permitted the use of a substitute worker.  The majority of the Tribunal find that the lack of mutuality of obligations in the Subcontractors Agreement meant that none of the Applicants can be an employee.”

The reference to the absence of any mutuality of obligation is not fully explained, but we infer that it is a reference to the combined effects of clauses 10 and 11 of the Terms and Conditions set out above: we consider these in more detail below.  The reference to the use of a substitute worker is plainly a reference to clause 13.  There is no challenge before us to the conclusion that none of the Applicants worked under a contract of employment.

(3)  In paragraphs 25 to 28 of the Reasons the Tribunal considered whether the Applicants worked under a contract which fell under limb (b) of the definition.  It held that they were obliged “to perform personally … work or services” for Byrne Brothers (see paragraph 26) and that they did not do so in the capacity of a “business undertaking” of which Byrne Brothers was the customer (see paragraph 27).  Both those conclusions, and the consequential conclusion that the Applicants were workers, are challenged by Mr Stafford on behalf of Byrne Brothers.  This is the principal battleground in this appeal.  The Tribunal’s reasoning on these two issues is very summary, and we shall have to consider it in more detail below.

(4)  The Tribunal held that even if it were wrong about whether the Applicants were workers within the meaning of the Regulations they were unquestionably workers within the meaning of the Working Time Directive (93/104/EC) from which the Regulations derive.  It held, at paragraph 32 of the Reasons:

“… that we must give a purposive interpretation to the Directive, and that we can interpret the Regulations consistently with the Directive, only if we dis-apply both the requirement for an undertaking of personal service and the exception for work undertaken through “any profession or business undertaking carried on by the individual”.  We find, on this basis, that the Applicants succeed.”

With all respect to the Tribunal, that reasoning is obviously wrong.  While, of course, the Regulations must be construed, so far as possible, so as to be compatible with the requirements of the Directive, it is not possible, at least in a claim against an employer who is not an “emanation of the state”, frankly to disapply the explicit provisions of a statutory instrument.  Mr Hogarth, sensibly, did not attempt to defend this part of the Tribunal’s reasoning, and we need say no more about it.  But it does not of course affect the primary basis of the Tribunal’s decision in the Applicants’ favour.

THE ISSUES

9	Against that background, the issues before this Tribunal can be summarised as follows:

(1)  Personal service:  Did the Applicants undertake, under the contracts under which they worked, personally to perform work or services for Byrne Brothers ?  In practice, this turns on the effect of clause 13 of the Terms and Conditions.  
(2)  Business undertaking:  Was the status of Byrne Brothers by virtue of the contract that of a customer of a business undertaking carried on by each of the Applicants ?  

(3)  Mutuality of obligation:  Mr Stafford contends that the relationship constituted by the Terms and Conditions was one under which there was no mutuality of obligation between the Applicants severally and Byrne Brothers.  Although he advanced this submission as part of his submissions in relation to personal service, it seems to us that it is in fact a distinct point. 

(4)  Reg 35:  Mr Hogarth contends that if the Applicants fall outside the definition of “worker” only because of the effect of the contractual provisions on which Mr Stafford relies, those provisions fall foul of the prohibition on contracting out contained in reg 35 of the Regulations.  

We consider those issues in turn.

(1) PERSONAL SERVICE

10	The issue is whether the contracts under which each of the Applicants worked obliged them “to do or perform personally any work or services” for Byrne Brothers.  We are, therefore, concerned with the construction of the contracts under which the Applicants worked. So far as this issue is concerned, the relevant terms are to be found in the Sub Contractor’s Agreement and the Terms and Conditions of Engagement referred to in it:  see paragraph 8 (1) above.  On ordinary principles, those documents must be construed in the light of all the relevant circumstances; but subject to that we are concerned simply with the construction of those documents.  The issue is accordingly one of law:  see Carmichael v. National Power plc [1999] ICR 1226.

11	In our view it is plain that the contracts do require the Applicants personally to perform work or services for Byrne Brothers.  As a matter of common sense and common experience, when an individual carpenter or labourer is offered work on a building site, the understanding of both parties is that it is he personally who will be attending to do the work.  In our view that consideration is admissible as part of the factual matrix.  But even if that were not so, the same understanding can be clearly inferred from the documents.  Declaration (c) carries a clear implication to that effect; and we agree with Mr. Hogarth that clause 13, which concerns the use of additional or substitute labour, only makes sense against the background of an understanding that, subject to its provisions, the services are to be provided by the contractor personally.  

12	It is of course true that the effect of the provisions of clause 13 is that in certain circumstances the services may be provided by someone other than the sub-contractor himself.  But the clause falls far short of giving the sub-contractor a blanket licence to supply the contractual services through a substitute.  For convenience, we set its terms out again here:

“The Sub-contractor is free to employ at his own cost whatever suitably trained additional labour which may be necessary to fulfil the requirements of the Agreement.  Where the Sub-contractor is unable to provide the Services the Sub-contractor may provide an alternative worker to undertake the Services but only having first obtained the express approval of the Contractor”

We make the following points:

(1)  The first sentence is not, strictly, concerned with the employment of substitutes at all.  It gives the sub-contractor the right to employ “additional labour”.  It is not entirely clear what this means in practice (perhaps not surprisingly, since these are standard terms, and plainly at least to some extent lawyer-driven); but, whatever it may mean, it does not appear to us to impinge on the primary obligation of the sub-contractor to do the work personally.

(2)  Although the second sentence does indeed allow the sub-contractor to provide a substitute, it only does so “where [he] is unable to provide the services”.  Again, the exact scope of that phrase may be somewhat vague, but we cannot construe it as allowing him to provide a substitute whenever he chooses:  if that were the intention, those words would be simply redundant.  

(3)  A substitute worker may only be supplied with the prior approval of the contractor.  No doubt there is scope for argument as to the extent of the contractor’s entitlement to withhold approval:  perhaps he would only be entitled to do so on reasonable grounds.  But that does not seem to us to mean that the contract cannot be regarded as a contract to supply personal services.

13	We reach that conclusion in the first instance without reference to the authorities relating to the requirement of an obligation of personal service in a contract of employment.  However, we do not believe that it could be right to adopt a different approach in considering the requirement of personal service implicit under limb (a) and that explicitly stated in limb (b).  The authorities relating to contracts of employment are thus plainly relevant.  In our view those authorities are wholly consistent with the conclusion which we have reached.  They clearly establish that a limited power to appoint substitutes is not inconsistent with an obligation of personal service.  In his much-cited judgment in Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497, MacKenna J said (at p. 515):

“A contract of service exists if these three conditions are fulfilled:
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.  …  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 [emphasis supplied]:  see Atiyah’s Vicarious Liability in the Law of Torts (1967) pp. 59-61 and the cases cited by him.”  
The passage from Atiyah there referred to is worth setting out in full:

“Although there appears to be no express decision in which this factor has by itself been treated as conclusive, it seems reasonably clear that an essential feature of a contract of service is the performance of at least part of the work by the servant himself.  If, therefore, the person in question is entitled to delegate the entire performance of the work to another it is thought that this would be conclusive against the contract being a contract of service.  As was said by a New Zealand judge, a servant “is not a person who makes a profit out of the labour of others.  He earns his wage entirely by the sweat of his own brow, and not partly by that and partly by the sweat of other people’s brows” [McKenzie v. Taratu Coal Co.. [1919] N.Z.L.R. 756].  The nearest English authority on the Point is Braddell v. Baker [(1911) 104 L.T. 673], in which the respondent employed a jobbing gardener who came on four days a week but who was entitled to send a substitute if he could not come.  On appeal to the Division Court, Avory J applied the traditional control test, but Hamilton J regarded the fact that the gardener was not himself bound to do the work as conclusive that he was not a servant.  He said:
“If a particular reason is necessary to show that, it appears to me that the fact in paragraph (c) of the case is itself conclusive.  The jobbing gardener in this case, if he could not come on any date, was bound to send a qualified substitute.  A servant contracts to render personal service, and if illness or other lawful excuse prevents his rendering personal service, he commits no breach of contract by his absence and is not bound to find a substitute; whereas a tradesman who contracts that a certain result shall be obtained – namely a garden kept in order – may break his contract unless somebody keeps it in order.” 
It may be that Hamilton J, was putting it a little high in treating this as conclusive in this case because the gardener was not, it seems, entitled to delegate the entire work to someone else.  In another case where a cloakroom attendant was required to provide a substitute at her own expense on her evening off this was treated merely as one of the relevant factors to be considered [Pauley v. Kenaldo Ltd [1954] 1 All E.R. 226].  And in Hill v. Beckett [[1915] 1 K.B. 578] where a person was employed to load and unload coal in the respondents’ yard he was held to be a servant despite the fact that he employed assistants and occasionally, with the permission of the respondents, stayed away leaving the assistants to carry on in his absence.
If it is correct to regard some degree of personal service as an essential part of a contract of service it would seem to follow that, as a matter of law, a corporation cannot be employed under a contract of service.”

14	It is of course a matter for assessment in relation to any given contract whether such delegation as may be permitted means that the contract cannot be regarded as a contract of service.  Two recent cases have fallen on either side of the line – Express & Echo Publications Ltd v. Tanton [1999] I.R.L.R. 367 and MacFarlane v. Glasgow City Council [2001] I.R.L.R. 7, both of which were referred to by the Tribunal.  In Tanton the putative employee, who was a driver, had an unrestricted right under the contract to appoint a substitute if he were “unable or unwilling to perform the services personally [emphasis supplied]”; and the Court of Appeal held that this right was inconsistent with a contract of employment.  In MacFarlane two gymnastics coaches working at the Council’s leisure centres were entitled to arrange for their classes to be covered by replacements on a register of coaches maintained by the Council if they were “unable” to take a class.  The Employment Appeal Tribunal held that this was not incompatible with the assistance of a contract of employment.  Lindsay P said, at pp. 10-11:

“11.     The Tanton case is in our judgment distinguishable from that at hand for at least the following cumulative reasons.  Firstly, the appellants in our case could not simply choose not to attend or not to work in person.  Only if an appellant was unable to attend could she arrange for another to take her class.  Secondly, she could not provide anyone who was suitable as a replacement for her but only someone from the council’s own register.  To that extent the council could veto a replacement and also could ensure that such persons as were named on the register were persons in whom the council could repose trust and confidence.  Thirdly, the council itself sometimes organised the replacement (without, it seems, protest from the appellant concerned that it had no right to do so).  Fourthly, the council did not pay the appellants for time served by a substitute but instead paid the substitute direct.  There is no finding as to what the substitutes were paid, nor that they were paid the same as the appellants, nor that the appellants had any say in what the substitutes were paid.  These four grounds in our view provide ample reasons for the Tanton case to be distinguished …
12.   Without in any way meaning hereby to doubt the correctness of Tanton, which in any event we are not free to do, but having in mind the distinctions we have mentioned, we do not see that Tanton obliged the tribunal in our case to hold the contract to have been one for services.  We cannot regard a provision of the kind found by the tribunal in our case to have such force that it had to be seen to overwhelm the factors pointing the other way; it was not such that it had inescapably to lead to a conclusion that the appellants were not employees.  We note that in the Ready Mixed Concrete (South East) Ltd case, supra, MacKenna J, in a passage very frequently relied upon since, said (with our emphasis):
‘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:  see Mr Atiyah’s Vicarious Liability in the Law of Torts (1967), pp.59-61, and the cases cited by him.’
It would, for example, be easy enough to imagine a case where a person clearly to be taken to be an employee – say a schoolteacher employed by a local authority – might have in his or her contract a provision that if he or she was unable to take a class then he or she might arrange for another colleague from the local authority’s common room in the school to take it for him or her.  No one, surely, could say that the presence of such a clause would deny the teacher the label, otherwise appropriate, of being an employee.  As Ms Edgar points out, it is, at the lowest, improbable that Parliament would have intended that the employer-employee relationship could be so easily avoided.
13.    The relevant clause in Tanton was extreme.  The individual there, at his own choice, need never turn up for work.  He could, moreover, profit from his absence if he could find a cheaper substitute.  He could choose the substitute and then in effect he would be the master.  Properly regarded Tanton does not oblige the tribunal to conclude that under a contract of service the individual has, always and in every event, however exceptional, personally to provide his services.  The tribunal, in a passage we have already cited, said:
‘The last-mentioned case [Tanton] makes it clear that a contract of employment must necessarily contain an obligation on the part of the employee to provide his services personally.’
That citation is justified by Tanton as that very sentence appears in Tanton’s paragraph 30; but we have no reason to think that the Court of Appeal was there meaning to depart from the observation of MacKenna J in Ready Mixed Concrete as to limited delegation.  Indeed, that very passage had been quoted by Peter Gibson LJ only three paragraphs earlier in Tanton.  Tanton indicates that if a contract contains a provision that the individual need not perform any services personally then it cannot be a contract of service – see paragraph 32 – and, so regarded, it does not deal with a limited ability to delegate such as that in the case before us.  Tanton was a case where the individual could at his own will perform his contract by sending along someone else.  Our case, by contrast, is a case in which, in limited circumstances, it would not be a breach of the individual’s contract if, the individual being unable to attend, she arranged for another person approved by the employer to attend in her place.  The tribunal erred in law in regarding Tanton as driving them to the conclusion which they reached.  We are therefore entitled to, and do, set aside their decision.”

15	We agree with the Tribunal that the essential facts in the present case bring it within the ratio of MacFarlane rather than Tanton.  The power which the Applicants had under the contract to appoint a substitute is qualified and exceptional.

(2) BUSINESS UNDERTAKING

16	It may be convenient here to set out again the essential terms of  the definition

“ “ worker” means an individual who has entered into or worked under … -
 (a) …
(b)   any other 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”

The structure of limb (b) is that the definition prima facie extends to all contracts to perform personally any work or services but is then made subject to the clumsily-worded exception beginning with the words “whose status is not …”.   The question is whether the contract between the Applicants and Byrne Brothers falls within the scope of that exception.

17	We were referred to no authority giving guidance on that question; and we accordingly spell out our approach to it in a little detail, as follows:

(1)  We focus on the terms “[carrying on a] business undertaking” and “customer” rather than “[carrying on a] profession” or “client”.  Plainly the Applicants do not carry on a “profession” in the ordinary sense of the word; nor are Byrne Brothers their “clients”. 

(2) “[Carrying on a] business undertaking” is plainly capable of having a very wide meaning.  In one sense every “self-employed” person carries on a business.  But the term cannot be intended to have so wide a meaning here, because if it did the exception would wholly swallow up the substantive provision and limb (b) would be no wider than limb (a).  The intention behind the regulation is plainly to create an intermediate class of protected worker, who is on the one hand not an employee but on the other hand cannot in some narrower sense be regarded as carrying on a business.  (Possibly this explains the use of the rather odd formulation “business undertaking” rather than “business” tout court; but if so, the hint from the draftsman is distinctly subtle.) It is sometimes said that the effect of the exception is that the Regulations do not extend to “the genuinely self-employed”; but that is not a particularly helpful formulation since it is unclear how “genuine” self-employment is to be defined.

(3)  The remaining wording of limb (b) gives no real help on what are the criteria for carrying on a business undertaking in sense intended by the Regulations – given that they cannot be the same as the criteria for distinguishing employment from self-employment.  Possibly the term “customer” gives some slight indication of an arm’s-length commercial relationship – see below – but it is not clear whether it was deliberately chosen as a key word in the definition or simply as a neutral term to denote the other party to a contract with a business undertaking. 

(4)  It seems to us that the best guidance is to be found by considering the policy behind the inclusion of limb (b).  That can only have been to extend the benefits of protection to workers who are in the same need of that type of protection as employees stricto sensu - workers, that is, who are viewed as liable, whatever their formal employment status, to be required to work excessive hours (or, in the cases of Part II of the Employment Rights Act 1996 or the National Minimum Wage Act 1998, to suffer unlawful deductions from their earnings or to be paid too little).  The reason why employees are thought to need such protection is that they are in a subordinate and dependent position vis-à-vis their employers: the purpose of the Regulations is to extend protection to workers who are, substantively and economically, in the same position.   Thus the essence of the intended distinction must be between, on the one hand, workers whose degree of dependence is essentially the same as that of employees and, on the other, contractors who have a sufficiently arm’s-length and independent position to be treated as being able to look after themselves in the relevant respects. 

(5)  Drawing that distinction in any particular case will involve all or most of the same considerations as arise in drawing the distinction between a contract of service and a contract for services – but with the boundary pushed further in the putative worker’s favour. It may, for example, be relevant to assess the degree of control exercised by the putative employer, the exclusivity of the engagement and its typical duration, the method of payment, what equipment the putative worker supplies, the level of risk undertaken etc. The basic effect of  limb (b) is, so to speak, to lower the pass-mark, so that cases which failed to reach the mark necessary to qualify for protection as employees might nevertheless do so as workers.

(6)  What we are concerned with is the rights and obligations of the parties under the contract - not, as such, with what happened in practice. But what happened in practice may shed light on the contractual position: see Carmichael (above), esp. per Lord Hoffmann at pp 1234-5.

(7)  We should add for completeness that, although the Regulations are of course based on the Working Time Directive, we were referred to no provision of the Directive nor any case-law of the E.C.J. which sheds any light on the present issue.  The Directive does not contain any definition of the term “worker”.

18	Self-employed labour only subcontractors in the construction industry are, it seems to us, a good example of the kind of worker who may well not be carrying on a business undertaking in the sense of the definition; and for whom the “intermediate category” created by limb (b) was designed.   There can be no general rule, and we should not be understood as propounding one: cases cannot be decided by applying labels.  But typically labour-only subcontractors will, though nominally free to move from contractor to contractor, in practice work for long periods for a single employer as an integrated part of his workforce: their specialist skills may be limited, they may supply little or nothing by way of equipment and undertake little or no economic risk.  They have long been regarded as being near the border between employment and self-employment: it is for this reason that their status has for many years been a matter of controversy with the Inland Revenue and has also given rise to a string of reported cases (see, e.g.,  Lee v. Chung and Shun Shing Construction and Engineering Co. Ltd. [1990] I.C.R. 409 and Lane v. Shire Roofing Company (Oxford) Ltd. [1995] I.R.L.R. 493).  Cases which “could have gone either way” under the old test ought now generally to be caught under the new test in “limb (b)”.   The fact that such a subcontractor may be regarded by the Inland Revenue as self-employed, and hold certificates to prove it, is relevant but not decisive.  (We note that in R.G. Carter Harleston Ltd. v. Jarvis (EAT/756/95; unreported, 28.2.96) this Tribunal accepted, though the contrary was not argued, that a group of self-employed carpenters, paying tax under Schedule D, were “workers” for the purpose of the Wages Act 1986 (where, as noted above, the identical definition is employed).)

19	We turn to consider the Tribunal’s approach to the question in the present case.  Its factual findings were limited.  As set out above, it found that the Terms and Conditions of Engagement were incorporated into the Applicants’ contracts and it summarised some of the more important provisions in paragraph 15 of the Reasons.  Those, however, are mostly so general in their terms that they give little assistance on the factors which the Tribunal had to consider.  In the paragraph of the Reasons setting out the Tribunal’s specific findings of fact, there were findings that the Applicants submitted accounts to the Revenue and paid tax on a self-employed basis; that the three carpenters “exercised a high degree of independent judgment and skill in carrying out [their] day-to-day work”; but that all four were directed by the Respondents as to when to work and what to do, and were paid at a rate of pay fixed by the Respondents – it is common ground that this means that they were paid on a time basis rather than by reference to work performed.  As for the reasoning leading to its decision, that can be summarised as follows:

-    Paragraph 25 starts with the statement that “it is evident to the Tribunal that [the Applicants] would appear to be labour-only subcontractors in the building industry”.  (The reference is literally only to the Applicants other than Daniel McCarthy; but it is clear from the context that the Tribunal intended to include him too.)  There is no explanation of how that conclusion has been arrived at, but it can reasonably be inferred that the Tribunal had in mind the types of point which we have made at paragraph 18 above.

-     It is clear, though not expressly stated, that the Tribunal regarded that conclusion as giving rise to a prima facie case that the Applicants’ contracts fell within limb (b) of the definition of “worker”; and it proceeded to consider whether that presumption was rebutted either by the fact that they were not obliged to supply their services personally or because they fell within the scope of the exception.  In paragraph 26 it considered the former objection, with which we are not concerned at this stage.  Paragraph 27 reads as follows:

“Although it is clear that each of the Applicants submitted accounts to the Inland Revenue, and took advantage of their entitlement to set off business expenses, this did not of itself mean that they were in a “business undertaking” as distinct from being labour-only subcontractors.  Whilst their pattern of work was of going from site to site, each of them nonetheless worked for one principal contractor, to the exclusion of any other, for significant periods of time.  We are not satisfied that they are excluded from the definition of “worker” on that basis.”

20	That reasoning is very broad-brush.  There is no full review of the sorts of factor to which we refer at paragraph 17 (5) above; nor any consideration of the effect of the various provisions of the Terms and Conditions of Engagement.  It is certainly strongly arguable that, as Mr. Stafford urged on us, the Tribunal has simply not done enough to explain its thinking.

21	On balance, however, we take the view that the Tribunal’s reasoning is adequate.  The factors which the Tribunal had to assess – both generally and in their application to the building industry – are familiar and it is clear from paragraphs 13 and 15 of the Reasons that it had them well in mind.  Ultimately the question “worker or business undertaking ?” has, like the question “employee or self-employed ?”, to be decided as a matter of informed impression.  It is unrealistic to expect every ingredient to be nicely spelt out and measured in a Tribunal’s Reasons.  There is the additional point that the Tribunal here was – as mentioned above – handicapped by the way in which the case was presented to it: it is unclear whether it had the material to carry out a more sophisticated assessment.  It identified the facts that the Applicants worked (and, it may be inferred, that the contract intended that they should work) exclusively for Byrne Brothers at the Milton Keynes site for a significant, and indefinite, period (paragraph 26); that they worked under the close direction of Byrne Brothers (paragraph 13); and that they were paid on a time basis (paragraph 13).  Those were plainly the factors which it regarded as decisive, and as outweighing the fact that they were taxed as self-employed and the various points that might be made based on the provisions of the Terms and Conditions of Engagement.  That explains adequately why the Tribunal reached the decision which it did; and we believe that it was a conclusion which was open to it in law on the material before it. 

22	That analysis assumes that the issue is one of fact rather than pure law.  In our view that must be the correct approach.  It is true that when the characterisation of a contract as a contract of service or a contract for services depends wholly on the construction of a written document the issue will be one of law.  But in the more typical case where the characterisation depends not on the meaning of the written contract but on the kind of multifactorial assessment familiar from a long line of authorities from Ready Mixed Concrete onwards, the exercise is one of “mixed fact and law” and reviewable only on Edwards v. Bairstow principles: see, e.g.,  Lee v. Chung (above).  The position must be the same in relation to a ‘limb (b) issue’.

23	Mr. Stafford also submitted that paragraph 27 of the Reasons shows that the Tribunal put the burden on Byrne Brothers to satisfy it that the Applicants contracted as a business undertaking, and that it should not have done so.  It is right that its thinking appears to have been “the Applicants look to us overall like “workers” – is there any reason why they are not ?”.  The structure of the Regulations does not require such an approach, and we doubt if it is generally the most useful way of looking at the question.  But we do not read the Reasons as suggesting that the Tribunal imposed any formal burden of proof on Byrne Brothers and we can see no error of law.

(3) MUTUALITY OF OBLIGATION
24	Mr Stafford submitted that the “contract” comprised by the Sub-Contractor’s Agreement and the Terms and Conditions of Engagement gave rise to no mutuality of obligation.  He drew attention in particular to clauses 1, 10, 11 and 14, which for convenience we set out below
“1.   The Contractor will from time to time offer the Sub-contractor assignments on a self-employed basis under the terms of this Agreement.
10.   The Sub-contractor accepts that the Contractor will incur no liability should it fail to offer an assignment to the Sub-contractor.
11.   The Sub-contractor has the right to refuse to accept an assignment and shall incur no liability to the Contractor.
14.   The Contractor and the Sub-contractor shall be entitled to terminate this Agreement forthwith and without notice.”
He developed this submission as part of his submissions in relation to the obligation of personal service.  In our view, however, it raises a distinct point.

25	We accept that mutuality of obligation is a necessary element in a “limb (b) contract” as well as in a contract of employment.  The basis of the requirement of mutuality is not peculiar to contracts of employment:  it arises as part of the general law of contract.  But in our view that does not assist Byrne Brothers.  Neither counsel was able to give us any help about the meaning of the term “assignment” in the paragraphs which we have set out above.  It could in principle have a very wide meaning, so as to apply to the entirety of the work available at a particular site, or a very narrow meaning, so that every distinct task represented a separate assignment – or something in between, e.g. to denote the work required for a particular building.  It may indeed be that there is no way, even with the fullest possible reference to the factual matrix, to choose between the possible meanings – in which case the paragraphs in question might have to be treated as of no effect. However, we are content to proceed on the basis that the Applicants’ work for Byrne Brothers could in principle be divided into “assignments” at the end of each of which either party was free to walk away.  But neither party here took advantage of that right.  Over the entire period with which we are concerned – spanning the Christmas/New Year holiday in respect of which they claim - the Applicants worked continuously.  Throughout that period, and specifically over the holiday period, there was in force a contract under which they were working for Byrne Brothers.  It does not matter whether that contract was a single overarching contract of employment or merely one of several successive “assignment contracts”.  It might perhaps be different if it had been contended, and proved, that the beginning of the Christmas break coincided with the end of a particular assignment; but no such case was advanced here.

26	That deals with Mr Stafford’s submission based on clause 10 and 11 of the Terms and Conditions.  In so far as he makes a separate point on clause 14, which provides that the contract can be terminated without notice on either side, we do not believe there is anything in this point.  A contract is nonetheless a contract so long as it subsists even though it may be terminated forthwith by either party.

(4)  REG 35

27	In view of our conclusions on the other three issues, it is unnecessary for us to express a view on whether the paragraphs in the Terms and Conditions of Engagement on which Mr Stafford relies are affected by the anti-contracting out provisions of reg 35 of the Regulations.  We are reluctant to do so since the point does not appear to have been argued before the Tribunal, nor is it raised in the Respondent’s Answer.  
CONCLUSION

28	We accordingly dismiss this appeal.