Appeal No. UKEAT/0313/03/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 6 November 2003

Before
HIS HONOUR JUDGE RICHARDSON
MR D EVANS CBE
MR D J HODGKINS CB

ACCOUNTAX MARKETING LTD	APPELLANT

MISS N C HALSTEAD	RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR M BODDINGTON
(Representative)	
For the Respondent	No Appearance or Representation By or on Behalf of the Respondent	

HIS HONOUR JUDGE RICHARDSON

1	This is an appeal against the decision of the Employment Tribunal sitting in Bedford, promulgated on 25 February 2003.  The Employment Tribunal heard preliminary issues.  It decided that Miss Nadine Halstead was an employee of Accountax Marketing Ltd (“the Company”).  It decided that she was a worker within the meaning of the Working Time Regulations 1998.  It decided that it had jurisdiction to consider the claims that she had made in her Originating Application.  The Company appeals against this decision.

2	The Company today has been represented by Mr Boddington.  Miss Halstead has not attended or been represented today but she has put in a Skeleton Argument and then, more recently, a revised Skeleton Argument.  Her representative has sent a fax today informing the Appeal Tribunal that she will not be attending the hearing as she is unwell with asthma and relies on her written submissions.  No application for an adjournment was made.

The History

3	The Company provides marketing services to firms of accountants.  For this purpose it uses individuals called Telemarketers.  Miss Halstead was recruited as a Telemarketer in October 1998.  By letter dated 2 October 1998 the Company confirmed that it would use her services on a self-employed basis.  On 25 November 1998 both parties signed a contract.  It was headed “Self Employed Contract for Services”.  In it the parties declared their intention that their legal relationship should be one of contractor and independent marketing consultant.  We shall return later to the terms of the agreement.

4	From October 1998 until November 2001 Miss Halstead worked for the Company.  She always worked from their premises.  She was one of a team working under a team leader.  She invoiced for the hours she did using her own note paper for the invoice but a standard timesheet provided by the Company for the hours.  She paid tax and National Insurance as a self-employed person.  During that time, on 5 October 2000, she signed a further form of contract in the same terms as before except that it included two additional clauses; one concerned with claw-back of commission, the other with confidential information.

5	In November 2001 Miss Halstead ceased to work (to use a neutral phrase) for a while because she was expecting a baby.  In March 2002, now a mother, she saw an advertisement for the Company in the local press.  She applied to join them again.  She was taken back but, she says, at a lower rate of pay and in a less advantageous position.

6	There is, in our papers, an important letter.  The letter is dated 15 April 2002.  In it, Miss Davey-Hunt on behalf of the Company wrote to Miss Halstead:

“Further to our recent conversation I have pleasure in confirming that we would welcome you on to the telemarketing team on a self-employed basis.
As discussed, your start date will be Monday 29th April 2002.  May I suggest that you come in at 9.30am on that day and I will commence your training personally.
I confirm that your contract will be for between 35 and 40 hours per week.  The office hours are 9.00am until 5.30 and your hours can be worked within that time.
I am sure that you will be an asset to the team and the team will enjoy working with you.”

7	Miss Halstead began work again for the Company rather later than April.  On 23 October 2002 following trouble at work the Company wrote to her to say that it was unable “to continue your Self Employed Contract with this Company.”

The Issues before the Employment Tribunal

8	Miss Halstead’s Originating Application to the Employment Tribunal encompassed several claims.  There were explicit claims for unfair dismissal and wrongful dismissal.  There was a claim for underpayment on the basis that she was entitled to return to work at the same rate she had previously.  There was a claim for holiday pay which engaged the Working Time Regulations 1998.  There was a reference to sex discrimination which potentially engaged the Sex Discrimination Act 1975.

9	It is common practice for an Employment Tribunal at a preliminary hearing to work through all the potential issues which are raised by an Originating Application.  These may include issues as to time limits, continuity of employment and, of course, status as an “employee” or a “worker”.  It is, in our experience, helpful if an Employment Tribunal identifies the full range of issues which it may have to consider.  So far as we can see, although a preliminary hearing was ordered in this case, the full range of issues was not identified.

10	On any view, it was important to determine whether Miss Halstead was an employee of the Company.  Status as an employee or ex-employee is the principal gateway to the claims which Miss Halstead sought to make.  An application for unfair dismissal is open to an employee: section 94 (1) of the Employment Rights Act 1996.  An application to an Employment Tribunal on the grounds of wrongful dismissal or in respect of any other contractual claim is available to an employee: see Employment Tribunal Extension of Jurisdiction (England & Wales) Order 1994, Article 3.  A complaint of sex discrimination may be brought to an Employment Tribunal in respect of discrimination in employment: see section 6 (2) and section 61 (1) of the Sex Discrimination Act 1975.  A complaint under the Working Time Regulations 1998 may be brought by a worker.  A worker includes “an individual who has entered into or works under (or, where the employment has ceased, worked under)… a contract of employment”: see Regulation 2, paragraph 1 of the 1998 Regulations.

11	We note, however, that employment under a contract of employment is not the only gateway into some of the remedies which Miss Halstead sought.  Thus, rights under the Working Time Regulations 1998 are also afforded to others who perform work or service personally, other than in the course of a business or profession: see Regulation 2, paragraph 1 of the 1998 Regulations and, by way of example, Byrne Brothers Ltd v Baird [2002] IRLR 96, concerning labour-only sub-contractors in the building industry.

12	The definition of employment under the Sex Discrimination Act 1975 extends not only to employment under a contract of service, but also to “a contract personally to execute any work or labour”: see section 82 (1) of the 1975 Act and Mirror Group Newspapers v Gunning [1986] ICR 145.

13	The Employment Tribunal did not concern itself with these extended definitions.  It dealt only with the question whether Miss Halstead was an employee under a contract of employment: see section 230 (1) and (2) of the Employment Rights Act 1996.

Contracts of Employment – The Employment Tribunal’s Task

14	When an Employment Tribunal has to decide whether there is a contract of employment, how should it approach its task?  First, it should ascertain the terms of the contract.  An Employment Tribunal will often be presented with a document said to be the contract governing the relationship between the parties.  There may, though rarely, be issues as to whether the document is genuine, or the signatures on it genuine.  Any such issue must be resolved.  There may, more frequently, be issues as to whether the document was shown to, seen or agreed by one party or the other, usually the employee.  Any such issues must be resolved.

15	The next question concerning such a document will be the following.  Did the parties intend all the terms of the contract, apart from any implied by law, to be contained in the document?  That is a question of fact for the Employment Tribunal.  If the parties did, then the interpretation of the document is a matter of law for the Employment Tribunal: see Carmichael v National Power Plc [2000] IRLR 43, at paragraphs 19 and 20.  This does not of course mean that the document is construed in isolation from its context.  Modern rules of interpretation apply.  The Employment Tribunal may take full account of the factual matrix when it construes such a document.

16	If, however, the Employment Tribunal finds that the intention of the parties objectively ascertained has to be gathered not only from a document or documents but also from oral exchanges and conduct, the terms of the contract will be a matter of fact: see, again, Carmichael v National Power Plc [2000] IRLR 43, at paragraphs 19 and 29.  It will be important for the Employment Tribunal to find those terms carefully and accurately.

17	One further point must be made concerning documents.  A document which is presented to an Employment Tribunal as containing, wholly or in part, the terms of a contract between two parties, may sometimes require careful scrutiny.  In employment law, as in other fields of law, it is not unknown for a document, or some terms in a document, to be divorced from the party’s real intentions.  In other words, to be a sham.

18	A document is not a sham merely because it orders the relationship of the parties so as to avoid, say, the relationship of employer and employee.  It is, however, a sham if it does not represent the real intentions of the parties objectively ascertained.  The law is set out in Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802.  In Antoniades v Villiers [1998] 3 WLR 139 at 147 Bingham LJ said 

“Put more shortly, a sham exists where the parties say one thing intending another.”

19	This does not mean that contracting parties must be held blameworthy before a document or part of a document is found not to express their true intentions.  Far from it; often one will produce the document.  The other may have no knowledge of the legal ramifications involved and may sign the agreement happily in the knowledge or belief that he understands perfectly well what is intended, regardless of the words.  The parties may not be equal in blameworthiness but the document they have signed will still say one thing when they mean another.

20	These principles apply to the question whether a purported contract for services is really a contract of employment and particularly to any term in a document which is inherently inconsistent with the existence of a contract of employment.  If that term is not a sham, in the sense which we have set out above, the contract will not be a contract of employment.

21	In Express and Echo Publications v Tanton [1999] IRLR 367 at paragraph 25 Peter Gibson LJ observed that a Tribunal should be alert in this area of law to look at the reality of any obligations.  If the obligation is a sham the Tribunal will want to say so.  He also cautioned that to concentrate on what actually happened may not elucidate the full terms of the contract.  If the term is not enforced that does not of itself justify a conclusion that such a term is not part of the agreement.  The obligation made, for example, be temporarily waived.
22	Having found the terms of the contract, the Employment Tribunal must then apply the law.  It is now established that in determining whether a contract of employment exists the starting point for Employment Tribunals is the guidance of McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497: see the decision of the Court of Appeal in Montgomery v Johnson Underwood Ltd [2001] IRLR 269 at paragraphs 23 and 47.  The guidance is well known, but we will set out the essential passage.  McKenna J said, at [1968] 2 QB 515:

“A contract of service exists if these three conditions are fulfilled.
(i) 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.  (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.  (iii) The other provisions of the contract are consistent with its being a contract of service.
…
As to (i).  There must be a wage or other remuneration.  Otherwise there will be no consideration, and without consideration no contract of any kind.  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
…
As to (ii).  Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done.  All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant.  The right need not be unrestricted.”

23	The whole of McKenna J’s judgment repays study.  It is a modern classic.  The first of the requirements which McKenna J set out is illustrated by the facts of Carmichael v National Power Plc [2000] IRLR 43.  Mrs Carmichael and her colleague were guides at a nuclear power station.  They were told that they were employed on a casual, as required basis.  They were paid after deduction of Income Tax and National Insurance at employed persons rates.  Work was generally available but they did not have to work.  They could and did decline work when it suited them to do so.  It was held that they were not employees for the purpose of the 1996 Act.  Their claimed floundered, as the Employment Tribunal put it, “on the rock of mutuality”.  There was no obligation to work.

The Role of the Employment Appeal Tribunal

24	An appeal lies to the Employment Appeal Tribunal only on a point of law.  Where an Employment Tribunal finds that the only relevant material is documentary, the question whether a contract is a contract of employment will be a question of law.  But where a contract is partly in a document and partly not different considerations apply.  In Clifford v Union of Democratic Mineworkers [1991] IRLR 518 at paragraph 7 Mann LJ said that in such a case:

7	“…the answer to the question is determined by the determination and evaluation of the relevant material.  This is the task of the Industrial Tribunal and is not for either the Appeal Tribunal or this Court.  Neither can interfere with the resolution of an issue of fact unless the resolution contains an explicit or implicit misdirection in law.  In the present case therefore the question is not whether the Industrial Tribunal were "wrong" but whether their conclusion betrays a self-misdirection."

The “Self Employed Contract for Services”

25	To this, we would only add that an Employment Tribunal errs in law if it does not give adequate reasons for its decision: see the well known case Meek v City of Birmingham District Council [1987] IRLR 250 at 251.

26	Before we return to the decision of the Employment Tribunal we come to the document entitled ‘Self Employed Contract for Services.”  It is clearly from first to last drafted with the intention of making it absolutely plain that the Company is contracting with an independent contractor rather than entering into a contract of employment.

27	By clause 2 of the contract, it is provided that the Marketing Consultant agrees to provide marketing services to the Company.  There is no definition anywhere of what services might be entailed; these have to be found outside the four corners of the document.

28	By clause 4 of the contract it is provided that the Company:

“…shall not control or have any right of control as to how the Marketing Consultant is to perform the Marketing Contract.”

This clause, if it is to be taken at face value, strikes at the second requirement laid down by McKenna J in the Ready Mixed Concrete case.

29	By clause 7 of the contract it is provided that the Marketing Consultant may, at her absolute discretion, send a substitute or delegate to perform the Marketing Contract.  The right to send a delegate is expressed to be unfettered and unlimited.  It is provided that the Company’s agreement is not required in any circumstances, nor does notice of sending the substitute or delegate need to be given to the Company.  This clause, if it is to be taken at face value, strikes at the first requirement laid down by McKenna J in the Ready Mixed Concrete case.

30	Clause 21 provides:

21	“[The Company] is not obliged to offer ongoing contracts to the Marketing Consultant nor is the Marketing Consultant obliged to accept such contracts if offered.  The Marketing Consultant is not obliged to make her services available.  Specifically both parties accept that they do not wish to create or imply any mutuality of obligations whatsoever.”

This provision, again, strikes at the first requirement set out by McKenna J in the Ready Mixed Concrete case.

31	Other clauses emphasise the business independence of the Marketing Consultant, who is permitted to advertise her services, responsible for her own Income Tax and National Insurance, responsible for her own business stationery and business card.  Lest there be any doubt as to the effect which this document is intended to convey, clause 30 provides:

30	“Both parties agree and intend that this legal relationship is one of Contractor and independent Marketing Consultant and specifically is not a relationship of master and servant or employer and employee.”

The Employment Tribunal’s Decision

32	The Employment Tribunal found that Mrs Halstead had signed the self-employed contract, to which we have referred.  The Tribunal went on to say:

5	(iii)	“However, merely because the Applicant, without taking legal advice, entered into that particular contract, does not mean that in reality the relationship between the Applicant and the Respondent was one of a contract for services.  We must look at the reality and the actual facts as far as this Applicant and this Respondent is concerned.”

33	The Employment Tribunal went on to make findings of fact.  They found that Miss Halstead had been paid for her training, was provided with all the equipment she needed, worked only from the premises of the Company, was paid an hourly rate determined by the Company from time to time and commission determined by the Company from time to time.  She was supervised by team leaders.

34	The Employment Tribunal say that when she returned to work in September 2002 she was “expected to work a minimum of 35 hours up to a maximum of 40 hours each week.”  They record that she indicated that she would try to work 37½ hours per week, though her hours were in fact irregular, among other reasons for absence.

35	The Employment Tribunal does not spell out with precision what terms it says existed.  In particular, subject to that finding about September 2002, it does not say whether the Company undertook any obligation to provide the employee with work or required any mutual obligation from the employee.

36	The Employment Tribunal reminded itself of leading cases, succinctly, by reference including the Ready Mixed Concrete case and Carmichael v National Power Plc.  It then concluded:

7	“We are not satisfied, for the reasons we have set out above, that there was anything other than mutuality of obligation and a requirement of control on the part of the Respondent.  We believe on the facts there was sufficient control and sufficient mutuality of obligation to conclude that there was between the Applicant and the Respondent a contract of service.  The Applicant therefore was an employee of the Respondent for the entire period, i.e. October 1998 until 23 October 2002.  It follows therefore that the Tribunal has jurisdiction to hear the Applicant’s claims for unfair dismissal, wrongful dismissal and breach of contract.”

37	It went on to find that Miss Halstead was a “worker” within the meaning of the 1998 Regulations, not under the extended definition (which the Tribunal did not consider) but by virtue of her status as an employee.  The Tribunal also found that a claim under the Sex Discrimination Act 1975 had been sufficiently pleaded and her status as an employee entitled her to bring that claim.

Submissions

38	In written submissions, which he has developed orally before us, Mr Boddington attacks the decision.  He says that there was no mutuality.  The fact that work was in fact offered and accepted is a consequence of commercial prudence and not contractual obligation.  He says that the written contract agreed by the parties should be taken to govern the relationship between them unless the Employment Tribunal found that the contract was a sham or had been varied.  He says similarly that there was no requirement for personal service.  A substitute under the contract could be engaged.  That is sufficient to negate a contract of employment.  It is unclear whether the Employment Tribunal considered that point at all in its decision.  He also submits that the Employment Tribunal erred in law in finding a contract of employment because there was no evidence on which it could have found there was a control or right of control.  On behalf of Miss Halstead it was submitted that the Employment Tribunal’s Decision was correct and contained no error of law.

Our Conclusions

39	The fundamental difficulty in our view with the decision of the Employment Tribunal is that it has not found what the terms of the contract between the Company and Miss Halstead actually were.

40	We begin with the first issue which McKenna J set out in the Ready Mixed Concrete case: mutuality of obligation.  The first point which required the Employment Tribunal’s careful consideration was the express provision in the contract document (to which we have referred) which provided that there was no obligation on the Company to provide work and no obligation on Miss Halstead to do it.  If this provision, signed by her, expressed the party's intention then the contract between them was not a contract of employment.  The decision of the House of Lords in Carmichael would be apposite.  The necessary mutuality would be missing.

41	The Employment Tribunal, if it found the necessary mutuality existed, ought to have been able to identify the term.  There is no relevant finding at all prior to September 2002.  The Chairman’s notes of evidence have been obtained.  There is little that deals directly with the period before October 2001.  However, Miss Halstead is recorded as saying that she would “come and go as she pleased” and hours “varied considerably”.

42	Contrariwise she is recorded as saying that from September 2002, when she returned after having her baby, she was told that she had to do 35 to 40 hours per week, agreed to do 37½ hours per week and, had she not agreed, she would have been dismissed.

43	The Employment Tribunal’s task was to find what term of the contract governed Miss Halstead’s obligation to work and the Company’s obligation to provide her with work.

44	The Company’s case is that, notwithstanding the letter dated 15 April 2002, clause 21 of the contract was still applicable.  So, when she turned up irregularly for work no complaint was made of her or could be made of her.

45	The Employment Tribunal make no finding as to the contractual position before September 2002.

46	The Employment Tribunal’s finding as to the contractual position in September 2002 is nicely ambiguous.  It says she was expected to work a minimum of 35-40 hours per week.  It does not say whether it finds that this was a term of the contract.  We have to say that there was plenty of material on which the Employment Tribunal could have reached such a finding.  The letter dated 15 April 2002, coupled with Miss Halstead’s evidence as to what occurred in September 2002, would have been sufficient for the Employment Tribunal to have found such a term to exist.  But the Employment Tribunal seems to have considered that it was enough simply to state the facts it did.

47	If such a term of the contract existed requiring Miss Halstead to work, then clause 21 of the contract would be, if it remained in place at all, a sham.  Alternatively, it could be regarded as varied.  But what was required of the Employment Tribunal was to find the relevant term.  It did not do so.

48	Still on mutuality of obligation, McKenna J’s definition requires consideration of whether the employee was expected to work personally.  Again, the self-employed contract negatives this intention.  Since the employee was trained and working as part of a team, it would not at all be surprising if there were a term of the contract that she would work personally.  In skeleton submissions on her behalf a number of factors are set out which would indicate that in reality neither party could possibly have anticipated the use of a substitute.  If so, the term permitting it in the self-employed contract would be a sham.  Again, proper findings on this issue, as to what the terms and intention of the parties were, were required.  There are none.  It is not sufficient to state conclusions without underlying findings.

49	On the question of control, it again would not be difficult to draw the conclusion that whatever the self-employed contract said there was an obligation to follow instructions and accept supervision as a team member.  This would be sufficient control for the purpose of McKenna J’s second test.  The Employment Tribunal found that Miss Halstead worked as part of a team.  It would have been a short step to find that she undertook an obligation to accept the Company’s control as part of her contract.  The Employment Tribunal does not make this finding.  Such a finding would demonstrate that the provisions to the contrary in the self-employed contract had been overtaken by events or were a sham.  If this had been the only difficulty in the case we might have been prepared to conclude that without expressly saying so the Employment Tribunal had drawn such a conclusion.  Since there is the more fundamental difficulty over mutuality which we have outlined above, it would make no difference if we were to do so.

50	It follows, in our judgment, that the Employment Tribunal fundamentally erred in law in its approach to the case.  It needed to make findings of fact as to the terms of the contract.  It did not adequately do so.  It needed to consider expressly whether the contract for services, assuming it still to govern the relationship by 2002, was in all or any respects a sham.

51	None of this has been done.  We are not in a position in the Appeal Tribunal to say one way or the other whether this case demonstrates that there was a contract of employment.  The matter must be remitted to a fresh Employment Tribunal for that Employment Tribunal’s consideration.

52	When the matter is remitted, we think the Employment Tribunal would be wise to undertake the exercise which we mentioned earlier in this judgment, i.e. to identify, with some care, all the relevant issues, including issues as to extended definitions in the Working Time Regulations 1998 and the Sex Discrimination Act 1975, including any issues as to continuity of employment or time limits.  If it undertakes that task it will identify more carefully the ambit of any preliminary hearing that it holds.

53	We mention one final matter.  There was a submission addressed to us by Mr Boddington, that in the light of the Employment Tribunal’s finding of mutuality there could be no finding that Miss Halstead was a worker for the purpose of the extended definition in the Working Time Regulations 1998.  He relied on Byrne Brothers (Formwork) Ltd v Baird [2002] IRLR 96 and in particular on a passage in the judgment of Mr Recorder Underhill QC at paragraph 25 where he says that the Employment Appeal Tribunal accepted that mutuality of obligation is a necessary element in a contract to which the extended definition applied.  It is not necessary for us to deal with that submission in this judgment.

54	It follows that the appeal will be allowed.  The matter will be remitted to a fresh Employment Tribunal to consider the matter again in accordance with our judgment.