Appeal No. UKEAT/0358/09/CEA

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 11 November 2009

Before
HIS HONOUR JUDGE McMULLEN QC
(SITTING ALONE)

ALSTOM TRANSPORT	APPELLANT

MR A TILSON	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MS ANYA PALMER
(of Counsel)
Instructed by:
Messrs Zatman & Co
1 The Cottages 
Deva Centre Trinity Way
Manchester  M3 7BE	
For the Respondent
	MR MARK SAHU
(of Counsel)
Instructed by:
Messrs Harold Benjamin Solicitors
Hill House
67/71 Lowlands Road
Harrow
Middlesex  HA1 3EQ

SUMMARY
JURISDICTIONAL POINTS:  Worker, employee or neither
The Employment Judge was wrong to decide a contractual document was bogus so opening the way for a finding in the Claimant’s favour that he had an implied contract of employment.  That ground was expressly eschewed by his counsel and the “employer” had no opportunity to address the point.  The judgment was set aside as the intention of the parties was that there was no employment relationship.

HIS HONOUR JUDGE McMULLEN QC
1.	This case visits yet again the complex relationships of agency workers.  I will refer to the parties as the Claimant and the Respondent, but further detail will be necessary.

Introduction
2.	  It is an appeal by the Claimant in those proceedings against the reserved judgment of Employment Judge Smail, sitting alone at Watford, registered with reasons on 28 May 2009.  The parties were represented respectively by Mr Mark Sahu and Ms Anya Palmer of counsel.  The Claimant claims unfair dismissal and a preliminary point was organised to determine at a PHR whether the Claimant was an employee.  In fact, the Judge went on to determine that he was an employee pursuant to an implied contract of employment, and that he was unfairly dismissed from that employment.

3.	The Respondent appeals.  I sent this case to a full hearing.  It has had a long history, for another interim appeal was determined by Elias J, President, UK/EAT/0532 some two years ago, in which the Respondent, Alstom, overturned a judgment of a different employment judge on the ground of the judge’s pre-judgment and his refusal to allow other parties to be joined.  The would-be parties were Morson Human Resources Limited, trading as Morson International (“Morson”) and Silversun Solutions Limited (“Silversun”), which has gone into liquidation.  Notwithstanding Alstom’s success before the President, no other Respondent was joined as a party.

The legislation
4.	Sections 940 and 230 of the Employment Rights Act 1996 provide for an employee to bring a claim of unfair dismissal and there are provisions against contracting out.  The judge referred to those sections.  The judge also referred to the leading authorities but there have been further developments in this area since his judgment.

The facts
5.	The Respondent, Alstom, is in the train business.  It operates, so far as is relevant, two depots in North West London, Wembley and Golders Green.  It provides maintenance services for a train operating company.  The Claimant is a technician.  In loose terms, he worked for the Respondent on two occasions.  Between 1 March 2003 and April 2004 he was a maintenance technician.  The judge was not asked to make any findings about that period, and it is necessary to say no more about it.  However, on 23 August 2004 he began work for the Respondent, this time at Wembley as a technical engineer.  In March 2006 he was promoted to a managerial position as Fleet Health Manager at Golders Green.  On 7 November 2006, this work was terminated after some complaint, and so the basis of the Claimant’s claim is that he was an employee unfairly dismissed on 7 November 2006.

6.	The Claimant’s work involved significant elements of integration into the Respondent’s business, of control by the Respondent, and of supervision exercised by him over the Respondent’s staff and plant.  If that were all, it looks like an employment relationship, but there is more to it.  The judge considered the documentation surrounding the relationship.  The first thing to note is that there was no documentation between the Claimant and Alstom.  The Claimant had a relationship with Silversun.  There were no documents attesting to this.  He was not a director or an employee of it.  Silversun received payments from Morson, which had been received from Alstom, and payments were made to the Claimant.  In simple terms, he was paid £20 for each hour he worked, but without the benefits which would attach to an employment relationship regulated by contract or by statute, such as holidays and sick pay.  Morson and Alstom had a relationship regulated by contractual terms, which are extraordinarily difficult to read, and so I will rely on the judge’s encapsulation of them as follows:

“Morson had an agreement for the Provision of Contract Workers with the Respondent.  Under that agreement the term ‘contractor’ was used to describe someone supplied by the supplier to work an hourly paid assignment at the Respondent.  Interestingly, under that agreement on pages 15-18 of the agreement Morson indemnifies Alstom as follows, ‘In the event that an employment tribunal determines that Alstom is the employer of any worker supplied by the Suppliers (Morson) and upon any such determination makes an award against Alstom in respect of any claim of unfair, constructive or wrongful dismissal or redundancy brought by any such worker then the Suppliers shall indemnity Alstom against the amount so awarded provided that such awards are not as a result of any action (whether direct or indirect) on the part of Alstom or any Associate’.  So the possibility of a finding of employment is expressly provided for.’” 

7.	There were other forms of contract between Morson and Alstom, but it seems to me that the one described by the judge is the one relevant to these proceedings.  Given what the judge subsequently says about Morson’s contracts, it is important to note that there was no attack on the Morson/Alstom contract.  The judge, however, focussed on a contract between Morson and Silversun and he found this contract to contain a clause which was bogus, and therefore set aside all reliance upon this contract.  The clause was:

“3.1 Neither the Company nor the Client shall be entitled to or seek to exercise any supervision, direction or control over the Contractor or the operatives in the manner of performance of the Project.” 

Also relevant to these proceedings are the following clauses:

“8.1 	The Company is an employment business and nothing herein shall constitute the relationship of employer and employee or a partnership between the Company and the Contractor or the Operatives, or between the Client and the Contractor or the Operatives. 
 8.2 	None of the Operatives has (in relation to the Company or the Client) any of the statutory or common law rights or protections of an employee.  In particular neither the Contractor nor the Operatives is entitled to any payment from the Company whilst services are not being performed due to illness or holidays or has (in relation to the Company or the Client) any protection under the legislation relating to unfair dismissal and redundancy.  None of the Operatives are subject to the rules or procedures or will receive the benefits applicable to employees of the Client or the Company.”

8.	The judge made clear that this was an attempt to engineer a structure so as to avoid any employment relationship.  In at least six passages in paragraph 26 of his judgment, he sets out his view in strong terms.  He says that the clause is bogus and is a mechanism to avoid employment, and described as “senseless” certain aspects of the relationship.  Since that clause infected the contract, the judge was prepared to pay no attention to the contract, found it necessary to imply a contract, and said this:

27.	Accordingly, the contract between Silversun and Morson may not be relied upon as genuinely determining or reflecting the relationship between the Claimant and the Respondent in this case.  However, the Claimant was absorbed in the Respondent’s organisation as described in paragraph 16 above and there is plainly a need to imply some sort of contract as regulating the relationship because the relationship was not gratuitous.  There was mutuality of obligation in terms of the provision and performance of work.  there will have been implied duties of fidelity and mutual trust and confidence.  It would be possible to determine a statement of employment particulars under section 1 of the Employment Rights Act 1996.  The nature of the relationship was entirely consistent within the Ready Mixed Concrete sense.  The relationship was not consistent with the Claimant being in business on his own account.  Accordingly, in my judgment it is necessary to imply a contract of employment as defining the relationship between the parties and giving business efficacy to it”.

The cross-reference in the judgment is to paragraph 16, which summarised the judge’s findings as to the integration of the Claimant into the Respondent’s organisation.  On the basis of that finding, therefore, the Claimant was an employee of Alstom, and the judge went on to find that he was unfairly dismissed.

The Respondent’s case

9.	The primary argument of Ms Palmer is that the judge should not have made findings that the contract was bogus.  This is to say that it was a sham, the language used throughout the jurisprudence, starting with Snook v London & West Riding Investments Ltd [1967] 2 QB 786 and reflected in recent judgments of the Court of Appeal: James v London Borough of Greenwich [2008] ICR 545; Consistent Group Limited v Kalwak [2008] IRLR 505; Firthglow Limited (trading as Protectacoat) v Szilagyi [2009] ICR 835; Autoclenz Limited v Belcher [2009] EWCA Civ 1046.  Her depiction of bogus as a sham is not resisted by Mr Sahu.  The judge has made a decision upon a matter which was not live before him.  He should have given the Respondent the opportunity to deal with this matter either by additional evidence or by additional submission, if he were, on the evidence, of a view that notwithstanding a sham had been expressly eschewed by Mr Sahu when asked, he was himself considering that.

10.	Secondly, Ms Palmer contends that this is an unusual case, in what is now a densely populated sector of employment law, that of atypical agency working.  This is not a case of an exploited, underpaid worker.  The Claimant himself asserted that he was not an employee, and when invited twice to become an employee refused to do so.  The intention of the Claimant was to remain an independent contractor, and the intention of the Respondent was to change that so as to bring him onto the staff.  Thus, if the intention of the parties was looked at, the relationship was only one of independent contractor.

11.	The Claimant obviously had benefits in terms of tax as being an independent contractor and he was paid at a rate per hour far more than an employee was because of course an employee had other benefits.

The Claimant’s case
12.	Mr Sahu accepts that he did not allege that the contract between Morson and Silversun was bogus or a sham.  Nevertheless, he contends that the judge was correct to make a finding if that were the evidence before him.  The judge was looking at what the reality of the relationship was and it was not reflected in the documents.  Mr Sahu acknowledges what the judge described as the irony in this case, which is that the Claimant, who had throughout his career asserted to destruction his wish to remain an independent contractor, now came before the Tribunal arguing the opposite.  Nevertheless, of particular importance, in my judgment, is the statement by HHJ Peter Clark in Heatherwood v Kulubowila & Ors UK/EAT/0633/06:

“29. It follows also that I accept Miss Chudleigh’s submission that the Chairman, in understating the hurdle which the Claimant must pass in showing an implied contract, then failed to answer the correct question.  In my judgment it is not enough to form the view that because the Claimant looked like an employee of the Trust, acted like an employee and was treated like an employee, the business reality is that he was an employee and the ET must therefore imply a contract of employment.

30.	When the correct question is asked the answer, in my view, is quite different.  On the primary facts found the position was at least as consistent with there being no contract between the Trust and the Claimant; the affairs of the parties were as consistent with the express arrangements, that is the contract for services made between the Claimant and Short Term and the contract made between Short Term and the Trust for the supply of the Claimant’s services.  It cannot be said that it is necessary to infer a contract of service between the Trust and the Claimant, developing at some unspecified time during the triangular relationship, in circumstances where the Claimant applied for a permanent post and was rejected by the Trust.  That, it seems to me, is wholly inconsistent with an inferred intention by the Trust to contract with the Claimant.”

13.	That citation follows an account of the law given by Judge Clark, which I adopt in full.  

Discussion and conclusions
14.	An employment judge is required to make decisions on issues which are put before him or her by the parties.  That task should be easy where the parties are represented by experienced counsel.  Where an allegation that a document is a sham is made, that must be put expressly and there must be evidence and an opportunity to put that point in cross-examination.  A judge who makes a decision on an important and pejorative issue such as sham when it is not live goes beyond his jurisdiction and is wrong in law.  If there were evidence which provoked him into considering that the documentation was a sham, he would be entitled to come to that view, but only after canvassing it with the parties.  We know that Mr Sahu (when asked specifically) said that he was not making that allegation, and so the Respondent could comfortably sit back and address the issues which were live.  Without an opportunity to deal with this, unfairness occurred.  

15.	In any event, in my view, the submission of Ms Palmer is correct, for the judge focused only on one clause in the Morson/Silversun contract.  Deciding whether a document accurately reflects the reality or is on the other hand a complete sham involves a holistic approach to the document, and the judge did not take that.  It was wrong to pick out just one clause for the rest of the document does not point to bogusness.  Indeed, since the judge’s finding is centred entirely upon clause 3.1, it must be assumed that there is nothing bogus about the other clauses which I have cited, 8.1 and 8.2.  On that ground too this judgment cannot stand.

16.	I will, however, take a broader view in deference to the arguments which have been put to me by both counsel.  The task of a judge is to consider the reality of the relationship, starting with what the parties put down in writing at the commencement of the relationship.  A feature of this case is that there are no documents as between the Claimant and the Respondent, Alstom, nor between the Claimant and his most contiguous employer, Silversun.  The intention of Alstom and the Claimant has to be divined in some way.  Since the Alstom/Morson agreement has not in any way been impugned is there any reason to consider that it did not reflect the intention of those two contracting parties?  I think not.  As the Court of Appeal said in Protectacoat, the words of the parties are to be the starting point, and there is no reason why parties cannot make an agreement to establish an independent contractor relationship for persons supplied.  That was the intention.  Standing back, Alstom agreed with Morson that Morson would supply the labour and that they would not become employees of Alstom.

17.	Also significant, following the judgment of the Court of Appeal in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] ICR 1183, is to examine the conduct of the parties after the relationship began to see how it reflects upon the would-be contract.  In my judgment, two significant events occurred.  These were the Claimant’s flat refusals of invitations to join the Respondent’s workforce.  It is axiomatic that since the Respondent was offering a contract of employment, it was its view hitherto that the Claimant was not in the workforce, but it wanted him in.  It also follows from the Claimant’s refusal to join that he regarded himself as an independent contractor.  As I indicated earlier, unusual in this case is the fact that the would-be employee has at all times asserted the opposite, with his eyes wide open and articulately understanding the advantages to be gained from remaining as an independent contractor.

18.	Why should the law not give effect to the outlook of both Alstom and the Claimant as to what he was doing when he worked with them?  The Claimant knew exactly what he was doing; so did Alstom.  The Claimant did not wish to change.  Alstom did, but knew of course that a change was required in status to bring the Claimant within the workforce and this never happened.  Although there are indicia in this judgment which might on their own point to an employment relationship, such as integration into the organisation of Alstom, supervision and control, the starting point has to be what documents there are or are not, and then the conduct of the parties once the relationship had started.  All of those point firmly against an employment relationship.

Disposal
19.	Having found that the judge erred in law, I canvassed with counsel the disposal of this case.  Ms Palmer submits that since there has been no intention to create a legal employment relationship as between Alstom and the Claimant, I could substitute my judgment to that effect without remission.  Mr Sahu contends that I should send this back to an employment judge.  There is force in Ms Palmer’s submission nothing more could be gained from this case.  All the evidence is here.  Once a sham contract is taken out of the picture, there is only the evidence which the judge saw.  I am in as good a position as the judge to use his findings to determine that there was no intention as between Alstom and the Claimant to set up an employment relationship, and so I will allow the appeal and reverse the judgment.  The Claimant was not an employee and so was not unfairly dismissed.