Appeal No.	 EAT/0223/03/DM

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	                   At the Tribunal
	                On 10 June 2003
Judgment delivered on 14 July 2003

Before
HIS HONOUR JUDGE REID QC
MR B V FITZGERALD MBE
MRS M T PROSSER

1) MR J P McCARTHY 
2) MR P JACKSON 
3) MR M B SMITH	APPELLANTS

BLUE SWORD CONSTRUCTION LTD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellants	MR BRIAN GALLAGHER
(of Counsel)
Instructed by:
O H Parsons and Partners
Sovereign House
212-224 Shaftesbury Avenue
London WC2H 8PR	
For the Respondent	MR DAVID CAMP
(Representative)
Alliance HR Solutions
c/o Blue Sword Construction Ltd
41 Station Road
Frimley
Surrey
GU16 7HE	

HIS HONOUR JUDGE REID QC

1	In these three conjoined appeals Messrs McCarthy, Jackson and Smith appeal against a decision of an Employment Tribunal held at Brighton on 13 December 2002 before Mr J Simpson as Chairman sitting alone. The decision was entered and sent to the parties on 7 January 2003. By his decision the Chairman held that there had been an unlawful deduction of £180 from the wages of Messrs McCarthy and Jackson by the Respondent Blue Sword but dismissed all other claims. Those other claims were (1) for unlawful deduction of wages from the wages of Mr Smith, (2) accrued holiday pay and (3) payment in lieu of notice on dismissal. There was an appeal by Mr Smith against the dismissal of his claim for unlawful deduction of wages but the Appellants appealed against the refusal to award holiday pay and payment in lieu of notice.  The essential issues were whether the appellants were employed or self-employed subcontractors or “workers” in an intermediate category and whether their pay included a rolled up element in respect of holiday pay.

2	On the day the appeals were listed for hearing it emerged there were other cases relating to rolled up holiday pay listed for hearing before another division of the EAT. As a result, a direction was made by the President that this division of the EAT determine the issue of entitlement to pay in lieu of notice and the issue as to whether there was any agreement that part of  the Appellants’ earnings should be treated as rolled up holiday pay. The separate question as to whether any such agreed amount could be treated as discharging any liability of the Respondent for holiday pay under the Working Time Regulations 1998 was adjourned to be dealt with by the President so far as might prove necessary.

3	The facts as found by the Chairman were as follows:
3.1 The Appellants, who are shuttering carpenters, were each engaged individually by the Respondent, a small company which undertakes concrete frame and groundworks contracting to work, at a site in Trafalgar Street Brighton. When they reported for work on the first occasion after they had been engaged each Appellant was presented by the Respondent’s foreman with a form headed “Registration & Safety Induction Card” which he was required to sign before commencing work. These forms were retained by the Respondent and no copy was provided to any of the Appellants. The form was designed for use by both subcontractors and worker/employees.  In the case of employees it states

‘It is understood that I am employed on a temporary short term bases (sic) and that the agreed rates of pay have been enhanced to fully include any non-productive overtime, holiday pay, sickness benefit or any other statutory requirement, unless otherwise agreed in writing”

For subcontractors it says:

 “Under the CIS scheme a schedule of rates will prevale (sic) with a monthly measured account. Any faulty workmanship to be the responsibility of the subcontractor.”

These were the only documents ever produced to the Appellants and were not produced until after their engagement when they arrived on site.
3.2 The Respondent had agreed to pay the Appellants a daily rate of £135 for a working day from 7.30am to 5.30 pm Monday to Friday. Provided a full week was worked the Appellants also received a day’s pay of £135 for working 7.30am to 1.00pm. on Saturdays. This in effect was a loyalty bonus paid to ensure attendance throughout the week. The Appellants therefore were paid 6 days pay if they worked a full 5½ day working week. The payslips showed that this inducement was not entirely successful: the Appellants did not necessarily work the full week and so did not necessarily qualify for the extra payment.
3.3	At the time they commenced working for the Respondent, except for the reference in the “Registration” document, no mention was made to any Appellant that their wages included an element for holiday pay paid in advance.
3.4 The Appellants were always under the management control of the Respondent’s foreman who directed what work was to be done. Apart from hand tools the Respondent provided all other tools and equipment. 
3.5 It was an implied term of their contracts that they would perform the work personally. Further, the Appellants were not free to leave the job in order to go elsewhere to complete other work, it being expected by all parties that they would work the hours contracted.
3.6 Each Appellant worked under CIS terms.  This meant that the Respondent deducted income tax at 18% from their wages and thereafter each Appellant was responsible to the Inland Revenue for any balance of income tax due. They were not engaged on PAYE terms and although they could have asked for this none of them did.
3.7 The only financial risk to the Appellants was whether the Respondent would honour its agreement to pay their wages.
3.8 The Appellants were always paid on the basis of a daily rate and payment for their work was never made on a measurement basis. The weekly payments were not payments on account, subject to measuring the work and making any adjustments later. 
3.9. On Friday 6 September 2002, after concrete had been poured, the foreman told Smith that he (the foreman) had to ‘get rid’ of 2 carpenters and summarily dismissed Smith. On Monday 9 September two new carpenters appeared on site. McCarthy and Jackson were told that the contract was losing money and unless production was increased money would be withheld from their wages. The Appellants worked a week in-hand and therefore, at that stage, had not been paid for the previous week’s work. Mr McHale of the Respondent refused to confirm whether McCarthy and Jackson would be paid their wages for the previous week and also for the work done that Monday morning. Both McCarthy and Jackson regarded this as an anticipatory breach of contract by the Respondent, and, treated themselves as constructively dismissed, leaving the site at about 11am
3.10 The Appellants were not subjected to any formal written grievance or disciplinary procedure.
3.11 By letter dated 17 October 2002 the Respondent wrote to the Appellants alleging their work required making good and requesting them to attend site “within the next seven days” and stating that if they “fail to do this then we shall no alternative than to complete these works on your behalf.”
3.12 The Respondent admitted withholding wages from McCarthy and Jackson amounting to £163.42 each, being payment of £135 for work on the Saturday morning 7 September and not paying £28.42 for the work undertaken on the Monday morning. 

4	On these facts the Chairman found, so far as material for the purposes of this part of this appeal, that (1) the Appellants were workers for the purposes of regulation 16(1) of the Working Time Regulations 1998 (and so entitled to holiday pay) but not employees (and so not entitled to the notice periods provided for employees by section 86 of the Employment Rights Act 1996). He referred to, and relied on, Byrne Brothers (Formworks) Ltd v Baird and Others [2002] IRLR 96, regarding the Appellants as falling within the so-called intermediate category between employees and independent contractors. He did not go on to consider whether as “workers” they were entitled to reasonable notice when their services were dispensed with. He said:

 “13. The present circumstances are, however, different. Workers such as the applicants move from job to job as and when it suits them. They do not expect to remain with the same ‘employer’ on a long-term basis and move with him from site to site The relationship has a transient element to it and in this respect is akin to that of a self-employed sub-contractor. This position was considered in Byrne Brothers where different types of workers were identified being ‘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’ The EAT referred to such a worker as creating an “intermediate category” being between the position of employee and self-employed contractor.
14.	I conclude that these applicants fall within the definition of “worker” as they provided personal services and predominantly were under the control of the Respondent who supplied all tools and equipment apart from basic hand tools. Their method of payment was by reference to time worked and included an element of overtime. I reach this conclusion despite the fact that they were paid under the CIS scheme As stated in Byrne “the fact that such a worker may be regarded by the Inland Revenue as self -employed and hold certificates to prove it, is relevant but not decisive to determining their status. I find they fall into the “intermediate category” referred to in Byrne and therefore are not employees.
15 As the Applicants are “workers” but not “employees” they are not entitled to statutory notice on termination of their employment but they are entitled to holiday pay. I conclude that as these applicants were in the intermediate category referred to in Byrne Brothers they should be treated as being able to look after their own interests when it comes to holiday pay. As participants in the CIS scheme they have to keep accounts sufficient to be able to satisfy the Inland Revenue as to their individual tax liability which marks them out as different from PAYE employees. With the transient nature of their employment it would, in my opinion, place an unwarranted accounting duty on the Respondent to keep precise records of the time they worked and to calculate holiday pay as and when each such worker left the Respondent’s employment. In the circumstances of these Applicants. I therefore prefer the reasoning in Gridquest and find the Respondent was entitled to ‘rolled-up’ holiday pay which I find as a fact it did. No further entitlement is therefore due.”

5	On behalf of the Appellants it was submitted that on the findings of fact the Chairman was in error in holding that they were not employees and that even if they were in an intermediate category of “workers”, they were entitled to reasonable notice before being dismissed from an indeterminate contract, such reasonable notice being one week. Counsel referred to Lane v Shire Roofing [1995] IRLR 493 to support the proposition that the Appellants were employees and Richardson v Kofoed [1969] 1 WLR 1812 to support the proposition that they were entitled to reasonable notice. It was further submitted that the Chairman was wrong in his implicit finding that there was an agreement for rolled up holiday pay by the reference in Registration & Safety Induction card. 

6	On behalf of the Respondent it was argued that there the Chairman reached a reasoned conclusion that the men were not employees but workers, that they had agreed to rolled up holiday pay, and that the terms of their engagement were such that either side could terminate the hiring without notice, as was evidenced by the fact that McCarthy and Jackson had exercised their right to leave. They were therefore entitled to neither holiday pay nor notice pay.
7	In these circumstances we first have to determine whether the Chairman was in error in law in characterising these Appellants as workers but not employees. Under section 203 of the Employment Rights Act 1996 a worker means:
 "an individual who has entered into or works under ( or, where the employment has ceased, worked under) (i) a contract of employment or (ii) 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 is concerned not with a distinction between non-employee and employee but between those who genuinely have their own business and those who simply work for another . 

8	The contracts required the employees to do the work personally, with all but hand tools provided by the Respondent, under the direction of the Respondent's foreman. It was, to look to the factors mentioned in the Lane case at paragraphs 16 to 18 by Henry LJ, giving the only substantive judgment, the Respondent who laid down what was to be done, the way in which it was to be done, and the time when it was to be done. It was the Respondent who hired and fired the individuals who went to make up the team by which the work was done, and who (subject to personal hand tools only) provided the materials plant and machinery used by the team. As a matter of economic reality the Appellants were employees. They bore no risk (beyond the failure of their employer to be able to pay them). Their pay was on a time basis with a bonus for attending all week in the form of the (almost) double pay on Saturday provided they had attended all week. They were not paid by output (eg measuring their work). Clearly the overall responsibility for the men's safety on site rested with the Respondent. 

9	Whilst the Appellants were accepted by the Revenue under the CIS scheme, it does not automatically follow that the men were not employees in respect of any particular contract. This is a factor which must be accorded proper weight in the circumstances of each case. In this case the employer was no doubt glad not to have the additional paperwork required in dealing with acknowledged employees and the Appellants glad to have less tax deducted at source. There is no indication that any real thought was given by either side to the Appellants status. We do not regard the fact that the men were working under the CIS scheme as being of any great significance in this case. When all the other factors are taken into account we take the view that properly analysed the relationship between the Respondent and the Appellants was one of employer and employees. Accordingly we make an award of one week's pay in lieu of notice on this basis (the amount being agreed at £775 in respect of each Appellant). 

10.	If the Appellants were (as the Chairman found) workers, but not employees, their claim would have failed for want of jurisdiction because such a claim is not a claim falling within sections 18 and 23 of the Employment Rights Act 1996 (see Delaney v Staples [1992] AC 687, nor is it one over which the Employment Tribunal has jurisdiction by virtue of the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 (which extends jurisdiction only in the case of claims by employees).  The substance of this claim is not dealt with in the Chairman's reasons no doubt because of the jurisdictional problems and it must be very doubtful whether this way of putting the claim was properly drawn to his attention. However it was not suggested to us on behalf of the Respondent that, if jurisdiction existed, the point was not open to the Appellants before us. In these circumstances we feel we should express our view on the point that was argued. 

11	When a worker is taken on for an indefinite period to work on a job, it is implicit in his engagement that the engagement will not be terminated without cause except on reasonable notice. What amounts to reasonable notice will depend on the circumstances of the case. A worker must be able to organise his life with some degree of certainty and it is, in our view, an implied term of agreements such as those in the present case when they do not amount to contracts of employment that the contract will not be terminated without proper cause except on reasonable notice. In the present instance this is reinforced by the way in which the men were to be paid. They were paid weekly at a rate expressed to be a daily rate but with a bonus payable for a full week's work. It would be remarkable if the employer could have avoided payment by discharging the Appellants without any notice at half past noon on the Saturday. In our view, had the Appellants been workers but not employees, the reasonable period of notice in these case was one week, and they would have been able to recover an amount equal to one week's wages by way of damages for breach of contract. But that recovery would have had to be done by action in the County Court. 

12	 In respect of the holiday pay claim we differ from the Chairman for a short reason. It seems to us that there was no agreement that the Appellants' pay (whether as employees or as workers) included any provision for rolled up holiday pay. The only reference to it was in the document headed "Registration & Safety Induction Card". That document was produced after the Appellants had been engaged and their terms fixed (at which time there is no evidence that any mention was made or agreement reached as to rolled up holiday pay). It was not produced to them when they were engaged but only on their attendance on site. Even then they were not given copies of it. In our view it could not be taken to vary the previously agreed terms. It is a document which refers to holiday pay only in the most general of terms. We do not accept, as was asserted on behalf of the Respondent, that because the minimum statutory holiday is four weeks, the Appellants could have deduced that one thirteenth (or 8.33%) of the year is the minimum holiday period and so 8.33% of the pay was referable to rolled up holiday pay and such a term was a part of their contracts.  In those circumstances, the question whether an attempt to roll up holiday pay in a contract of employment or in a contract with a worker, is permissible does not arise because no such term was incorporated in the contracts in the present case.  
13	 It follows that the appeals relating to holiday pay must also be allowed. Again the parties have helpfully agreed the figures: £405 in respect of each appellant.

14	The conjoined appeals will therefore be allowed and awards made to each of the Appellants for notice pay and holiday pay in the sums indicated above.