JUDGMENT
Autoclenz Limited (Appellant) v Belcher and others
(Respondents)
before
Lord Hope, Deputy President
Lord Walker
Lord Collins
Lord Clarke
Lord Wilson
JUDGMENT GIVEN ON
27 July 2011
Heard on 11 and 12 May 2011
Appellant Respondent
Thomas Linden QC Timothy Brennan QC
Patrick Green Peter Edwards
(Instructed by Pinsent
Masons LLP)
(Instructed by Thompsons
Solicitors)
Page 2
LORD CLARKE, with whom Lord Hope, Lord Walker, Lord Collins and
Lord Wilson agree
Introduction
1. The appellant (“Autoclenz”) provides car-cleaning services to motor
retailers and auctioneers. It has contracts with British Car Auctions (“BCA”) for
cleaning vehicles at a number of different places. The respondents (“the
claimants”) are 20 individual valeters who at the relevant time provided carcleaning services at BCA’s Measham site in Derbyshire. In these proceedings the
claimants say that they were workers within the meaning of the National Minimum
Wage Regulations 1999 (“NMWR”) (SI 1999/584) and of the Working Time
Regulations 1998 (“WTR”) (SI 1998/1833) and that, as workers, they were entitled
to be paid in accordance with the NMWR and to receive statutory paid leave under
the WTR. Their case is that they were paid neither.
2. The question is whether the claimants were workers within regulation 2(1)
of the NWMR, which adopted the definition in section 54(3) of the National
Minimum Wage Act 1998, and in regulation 2(1) of the WTR. The definition of
worker is in materially identical terms in both sets of regulations as follows:
“… ‘worker’ … means an individual who has entered into or works
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.”
Materially identical definitions of employee and worker appear in various other
statutes and regulations concerning employment rights and protection against
unlawful discrimination in the employment field.
Page 3
The proceedings to date
3. Proceedings were issued in the Employment Tribunal (“ET”) by the
claimants on 19 November 2007. The question whether the claimants were
workers as so defined was determined by the ET as a preliminary issue. In a
judgment sent to the parties on 1 March 2008 the ET (Employment Judge Foxwell)
held that the claimants were workers within the definition on the basis that they
were employed under contracts of employment within limb (a) of the definition
and that they were in any event working pursuant to contracts within limb (b).
Autoclenz appealed to the Employment Appeal Tribunal (“EAT”), which heard the
appeal on 4 June 2008. The EAT (Judge Peter Clark) held that they were not
within (a) but that they were within (b). Both sides appealed to the Court of
Appeal. The Court of Appeal (Sedley, Smith and Aikens LJJ) restored the
judgment of the ET, holding that the claimants were within both (a) and (b).
Autoclenz was granted permission to appeal by this Court.
The written contract
4. In each case there was a written contract contained in or evidenced by two
documents. I take as an example the position of Paul Huntington. His original
contract was dated 18 June 1991, in which he was described as a sub-contractor.
Clauses 1 to 3 of the contract provided:
“1. The Sub-contractor shall perform the services which he agrees to
carry out for Autoclenz within a reasonable time and in a good and
workmanlike manner.
2. The Sub-contractor hereby confirms that he is a self-employed
independent contractor and that his tax affairs are handled by … tax
office under Schedule D ref No …
3. The Sub-contractor and Autoclenz agree and acknowledge that the
Sub-contractor is not, and that it is the intention of the parties that the
Sub-contractor should not become, an employee of Autoclenz.
Accordingly, the Sub-contractor is responsible for the payment of all
income tax and national insurance contributions arising on or in
respect of payments made to the Sub-contractor by Autoclenz and
the Sub-contractor agrees that he shall indemnify Autoclenz in
respect of any liability to tax and national insurance contributions for
which Autoclenz may be held liable on or in respect of such
payments.”
Page 4
That contract did not contain any clause permitting Mr Huntington to provide a
substitute to perform the services he was contracted to perform. Nor did it state
that he was not obliged to perform services or that Autoclenz was not obliged to
provide work under the agreement.
5. In 2004 the Inland Revenue carried out a review of the arrangements
between Autoclenz and the valeters. On 20 May 2004 it said, somewhat
enigmatically, that “it is felt that the balance of probability leans more towards
self-employment than PAYE”.
6. In 2007 Autoclenz decided to produce two new documents, which formed
the contract between it and the claimant in each case. The first document, which
was not itself signed by the claimant, included the following:
“For the purpose of providing car valeting services to its client’s
garages, Autoclenz wishes to engage the services of car valeters
FROM TIME TO TIME on a sub-contract basis.
We understand that YOU ARE AN EXPERIENCED CAR
VALETER and might be prepared to offer your services to
Autoclenz. If so would you please complete and return to us the form
of agreement set out below, which is intended to confirm that any
contractual relationship between Autoclenz and yourself is one of
client and independent contractor and not one of employer/employee
and to protect Autoclenz against any claim on Autoclenz for Income
Tax and/or National Insurance contributions in respect of payments
made to yourself.
For the avoidance of doubt, as an independent contractor, you are
entitled to engage one or more individuals to carry out the valeting
on your behalf, provided that such an individual is compliant with
Autoclenz’s requirements of sub-contractors as set out in this
agreement…’
Those requirements were, in short, that the individual was capable of providing the
services, had been fully trained and held a current full UK driving licence which
he would make available to Autoclenz, that he complied with health and safety
guidance and that he had permission to work in the UK.
7. The document asked the claimant to note the following. For security
reasons the valeter would be obliged to wear protective overalls which would
identify him as a contractor of Autoclenz and that such overalls could be
purchased from Autoclenz. The valeter would be required to provide cleaning
Page 5
materials for himself and those who worked for him. Given the nature of the work
it might be necessary for the valeter and those who worked for him to drive motor
vehicles. Accordingly the valeter would be required to hold a current valid driving
licence.
8. The document concluded:
“If you wish to provide services to Autoclenz would you please sign
and return to Autoclenz the form agreement attached.
YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES
ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO
SUCH AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY
OBLIGATION TO ENGAGE YOUR SERVICES ON ANY
PARTICULAR OCCASION.”
9. The second document was a contract which Mr Huntington signed on 21
May 2007. A copy of the contract is annexed to this judgment marked A. It can be
seen that Mr Huntington was described as a sub-contractor throughout. Moreover,
by clause 3 it was expressly agreed that it was the intention of the parties that the
sub-contractor was not and should not become an employee of Autoclenz. Further,
by clause 7(a) Mr Huntington promised that he would ensure that those who
worked for him in providing services to Autoclenz held a current driving licence as
set out in the clause.
10. The ET held that both documents were put in front of Mr Huntington and
that he signed the contract set out in Annex A, although he was not provided with
a copy. The judge said that he strongly suspected that Mr Huntington signed it
without reading it. It is common ground that both documents formed part of the
contract between the parties. If the relevant contract was, as a matter of law, solely
contained in those two documents, it would be impossible to bring the case within
limb (a) of the definition and very difficult to bring it within limb (b).
11. However, the ET made certain further findings of fact, including the
following. If the valeters had not signed the revised contracts, they would not have
been offered further work. The valeters had no input into the negotiation of the
terms, which were imposed by Autoclenz. However, as the ET put it at para 32, the
claimants “went into their agreements … with their eyes open as Autoclenz has
made no secret of the fact that it regards the claimants as self-employed”.
Page 6
The operation
12. The ET made further findings of fact in respect of the operation carried on
by Autoclenz as follows. There was a relatively low turnover of personnel among
the valeters. Mr Huntington started with Autoclenz in 1991 and continued right
through almost on a full time basis apart from a few weeks in 2002 and 2003 when
he tried working for a competitor. New valeters were recruited either by personal
recommendation and word of mouth or through advertisements placed in the local
press or at a job centre. Examples of such advertisements seen by the ET invited
applications for well paid full time work and emphasised that Autoclenz was
looking for “self-employed people”. The claimants all knew that they were being
offered a role which was described and intended by Autoclenz to be one of selfemployment.
13. The vehicles were required to be cleaned in accordance with a detailed
specification set by BCA. The valeters generally worked in teams of four, with one
valeter as team leader. Each team took a batch of six vehicles at a time and the
members shared the task between them. The more experienced valeters were able
to get through more batches than others. On most days there was enough work to
keep a group of 14 valeters busy. In the year before the hearing in the ET there was
more work, although the ET also found that because of the fluctuations in the level
of work there was occasionally no work to be done but that that was the exception
rather than the rule.
14. The payments to the valeters were calculated on a piecework basis. The
valeters kept records which were then passed to Autoclenz, first locally and then to
head office. The valeters rendered weekly invoices which, although nominally
from the valeters, were calculated and prepared by Autoclenz, being generated by
Autoclenz at head office based on the information provided by the valeters. The
valeters undertook responsibility for payment of tax and national insurance. This
was done on a self-employed basis.
15. The arrangements for the provision of equipment and materials varied
over the years but at the time the ET was considering, Autoclenz provided all the
equipment and materials used by the valeters including jet washers, vacuum
cleaners, sponges and chemicals. From 2007 Autoclenz introduced a 5 per cent
charge for materials, which was contained in a separate invoice. The valeters were
supplied with overalls bearing BCA’s logo for security reasons. The first two sets
of overalls were free of charge but the valeters had to pay for subsequent sets.
Page 7
16. The critical findings of fact are set out in paragraphs 34 to 40 of the ET’s
judgment. I will return to these after considering the correct approach in principle
to issues of this kind.
The legal principles
17. It is common ground that the issues are (1) whether the ET was correct to
find that the claimants were at all material times working under contracts of
employment and were therefore workers within limb (a) of the definition and (2)
whether in any event the ET was correct to find that they were at all material times
within limb (b). This involves consideration of whether and in what circumstances
the ET may disregard terms which were included in a written agreement between
the parties and instead base its decision on a finding that the documents did not
reflect what was actually agreed between the parties or the true intentions or
expectations of the parties.
18. As Smith LJ explained in the Court of Appeal at para 11, the classic
description of a contract of employment (or a contract of service as it used to be
called) is found in the judgment of MacKenna J in Ready Mixed Concrete (South
East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, 515C:
“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. … 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.”
19. Three further propositions are not I think contentious:
i) As Stephenson LJ put it in Nethermere (St Neots) Ltd v Gardiner
[1984] ICR 612, 623, “There must … be an irreducible minimum of
obligation on each side to create a contract of service”.
ii) If a genuine right of substitution exists, this negates an obligation to
perform work personally and is inconsistent with employee status: Express
Page 8
& Echo Publications Ltd v Tanton (“Tanton”) [1999] ICR 693, per Peter
Gibson LJ at p 699G.
iii) If a contractual right, as for example a right to substitute, exists, it
does not matter that it is not used. It does not follow from the fact that a
term is not enforced that such a term is not part of the agreement: see eg
Tanton at p 697G.
20. The essential question in each case is what were the terms of the
agreement. The position under the ordinary law of contract is clear. It was
correctly summarised thus by Aikens LJ in the Court of Appeal:
“87. … Express contracts (as opposed to those implied from
conduct) can be oral, in writing or a mixture of both. Where
the terms are put in writing by the parties and it is not alleged
that there are any additional oral terms to it, then those
written terms will, at least prima facie represent the whole of
the parties’ agreement. Ordinarily the parties are bound by
those terms where a party has signed the contract: see eg
L’Estrange v F Graucob Ltd [1934] 2 KB 394. If a party has
not signed a contract, then there are the usual issues as to
whether he was made sufficiently aware of the clauses for a
court to be able to conclude that he agreed to the terms in
them. That is not an issue in this case.
88. Once it is established that the written terms of the contract
were agreed, it is not possible to imply terms into a contract
that are inconsistent with its express terms. The only way it
can be argued that a contract contains a term which is
inconsistent with one of its express terms is to allege that the
written terms do not accurately reflect the true agreement of
the parties.
89. Generally, if a party to a contract claims that a written term
does not accurately reflect what was agreed between the
parties, the allegation is that there was a continuing common
intention to agree another term, which intention was
outwardly manifested but, because of a mistake (usually a
common mistake of the parties, but it can be a unilateral one)
the contract inaccurately recorded what was agreed. If such a
case is made out, a court may grant rectification of a contract.
See, generally, the discussion in the speech of Lord
Hoffmann, [48] to [66], in Chartbrook Ltd v Persimmon
Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 with whom
all the other law lords agreed. …”
Page 9
21. Nothing in this judgment is intended in any way to alter those principles,
which apply to ordinary contracts and, in particular, to commercial contracts.
There is, however, a body of case law in the context of employment contracts in
which a different approach has been taken. Again, Aikens LJ put it correctly in the
remainder of para 89 as follows:
“But in cases of contracts concerning work and services, where one
party alleges that the written contract terms do not accurately reflect
the true agreement of the parties, rectification principles are not in
point, because it is not generally alleged that there was a mistake in
setting out the contract terms as they were. There may be several
reasons why the written terms do not accurately reflect what the
parties actually agreed. But in each case the question the court has to
answer is: what contractual terms did the parties actually agree?”
22. In this context there are three particular cases in which the courts have
held that the ET should adopt a test that focuses on the reality of the situation
where written documentation may not reflect the reality of the relationship:
Consistent Group Ltd v Kalwak (“Kalwak”) [2007] IRLR 560 in the EAT (but cf
[2008] EWCA Civ 430, [2008] IRLR 505 in the Court of Appeal), Firthglow Ltd
(t/a Protectacoat) v Szilagyi (“Szilagyi”) [2009] EWCA Civ 98, [2009] ICR 835
and the Court of Appeal decision in the present case.
23. Those cases must be set in their historical context, which includes Snook v
London and West Riding Investments Ltd (“Snook”) [1967] 2 QB 786 and Tanton.
Although Snook was not an employment case but arose out of the hire purchase of
a car, I refer to it because of the statement of Diplock LJ, which has been often
referred to in the employment context. He said this at p 802 with reference to the
suggestion that the transaction between the parties was a sham.
“I apprehend that, if it [ie the concept of sham] has any meaning in
law, it means acts done or documents executed by the parties to the
‘sham’ which are intended by them to give to third parties or to the
court the appearance of creating between the parties legal rights and
obligations different from the actual legal rights and obligations (if
any) which the parties intend to create. But one thing, I think, is clear
in legal principle, morality and the authorities … that for acts or
documents to be a ‘sham’, with whatever legal consequences follow
from this, all the parties thereto must have a common intention that
the acts or documents are not to create the legal rights and
obligations which they give the appearance of creating.”
Page 10
I would accept the submission made on behalf of the claimants that, although the
case is authority for the proposition that if two parties conspire to misrepresent
their true contract to a third party, the court is free to disregard the false
arrangement, it is not authority for the proposition that this form of
misrepresentation is the only circumstance in which the court may disregard a
written term which is not part of the true agreement. That can be seen in the
context of landlord and tenant from Street v Mountford [1985] AC 809 and
Antoniades v Villiers [1990] 1 AC 417, especially per Lord Bridge at p 454, Lord
Ackner at p 466, Lord Oliver at p 467 and Lord Jauncey at p 477. See also in the
housing context Bankway Properties Ltd v Pensfold-Dunsford [2001] 1 WLR 1369
per Arden LJ at paras 42 to 44.
24. Those cases were examples of the courts concluding that relevant
contractual provisions were not effective to avoid a particular statutory result. The
same approach underlay the reasoning of Elias J in Kalwak in the EAT, where the
questions were essentially the same as in the instant case. One of the questions was
whether the terms of the written agreement relating to the right to refuse to work or
to work for someone else were a sham. Elias J referred to part of the judgment in
Snook quoted above at para 53. At para 56 he noted that in Tanton Peter Gibson LJ
had recognised (at p 697G) that such terms might be a sham. He also noted that the
Court of Appeal had emphasised that the question whether there was an obligation
personally to perform the work had to be determined by asking what legal
obligations bound the parties rather than by asking how the contract was actually
carried out. The employer’s appeal in Tanton was allowed on the ground that the
ET wrongly drew an inference from the way the contract was carried out.
25. At paras 57-59 Elias J said this:
“57. The concern to which tribunals must be alive is that armies of
lawyers will simply place substitution clauses, or clauses
denying any obligation to accept or provide work in
employment contracts, as a matter of form, even where such
terms do not begin to reflect the real relationship. Peter
Gibson LJ was alive to the problem. He said this (p 697G)
‘Of course, it is important that the industrial
tribunal should be alert in this area of the law to
look at the reality of any obligations. If the
obligation is a sham it will want to say so.’
58. In other words, if the reality of the situation is that no one
seriously expects that a worker will seek to provide a
substitute, or refuse the work offered, the fact that the contract
expressly provides for these unrealistic possibilities will not
alter the true nature of the relationship. But if these clauses
Page 11
genuinely reflect what might realistically be expected to
occur, the fact that the rights conferred have not in fact been
exercised will not render the right meaningless.
59. … Tribunals should take a sensible and robust view of these
matters in order to prevent form undermining substance…”
26. There is in my opinion considerable force in the approach set out in those
paragraphs. Elias J dismissed the employer’s appeal from the ET but his decision
was reversed by the Court of Appeal, comprising May, Rimer and Wilson LJJ. The
differences between the reasoning of Elias J and that of the Court of Appeal were
discussed in some detail by the Court of Appeal in the later case of Szilagyi
(comprising Sedley, Keene and Smith LJJ) and indeed by the Court of Appeal in
this case. In Szilagyi the court was considering similar questions. The principal
question was whether written partnership agreements were a sham. The principal
judgment was given by Smith LJ.
27. Smith LJ referred to the dicta of Diplock LJ in Snook. She also referred in
detail to Kalwak in the EAT and in the Court of Appeal, and to Tanton. She quoted
para 58 from Elias J’s judgment in Kalwak which I have set out above. At para 48
she noted that in the Court of Appeal Rimer LJ scrutinised Elias J’s judgment and
was critical of the reasoning by which he had upheld the ET’s decision. However,
she added that the court allowed the appeal on the ground that the ET’s decision
was inadequately reasoned and remitted the case for rehearing. She then said that
it did not appear to her that the court was critical of Elias J’s test and added that it
seemed to her that Rimer LJ approved that test as being in compliance with
Diplock LJ’s definition of a sham.
28. For my part, I am not persuaded that that is so. It appears to me that the
reasoning of Rimer LJ and that of Elias J are not consistent. In this regard I agree
with the view of Judge Clark to that effect in the EAT. See also a valuable article
by Alan Bogg in (2010) 126 LQR 166, 167-168. Rimer LJ said at para 28 in
Kalwak that a finding that the contract was in part a sham required a finding that
both parties intended it to paint a false picture as to the true nature of their
respective obligations. He was there applying the approach of Diplock LJ in Snook
to this situation. In my opinion that is too narrow an approach to an employment
relationship of this kind. In this regard I agree with the views expressed by ACL
Davies in an illuminating article entitled Sensible Thinking About Sham
Transactions in (2009) 38 ILJ 318, which was a note on Szilagyi published before
the decision of the Court of Appeal in the instant case.
29. However, the question for this court is not whether the two approaches are
consistent but what is the correct principle. I unhesitatingly prefer the approach of
Elias J in Kalwak and of the Court of Appeal in Szilagyi and in this case to that of
Page 12
the Court of Appeal in Kalwak. The question in every case is, as Aikens LJ put it
at para 88 quoted above, what was the true agreement between the parties. I do not
perceive any distinction between his approach and the approaches of Elias J in
Kalwak, of Smith LJ and Sedley LJ in Szilagyi and this case and of Aikens LJ in
this case.
30. In para 57 of Kalwak (set out above) Elias J quoted Peter Gibson LJ’s
reference to the importance of looking at the reality of the obligations and in para
58 to the reality of the situation. In this case Smith LJ quoted (at para 51) para 50
of her judgment in Szilagyi:
“The kernel of all these dicta is that the court or tribunal has to
consider whether or not the words of the written contract represent
the true intentions or expectations of the parties, not only at the
inception of the contract but, if appropriate, as time goes by.”
31. She added in paras 52, 53 and 55:
“52. I regret that that short paragraph [ie para 51] requires some
clarification in that my reference to ‘as time goes by’ is
capable of misunderstanding. What I wished to say was that
the court or tribunal must consider whether or not the words
of the written contract represent the true intentions or
expectations of the parties (and therefore their implied
agreement and contractual obligations), not only at the
inception of the contract but at any later stage where the
evidence shows that the parties have expressly or impliedly
varied the agreement between them.
53. In my judgment the true position, consistent with Tanton,
Kalwak and Szilagyi, is that where there is a dispute as to the
genuineness of a written term in a contract, the focus of the
enquiry must be to discover the actual legal obligations of the
parties. To carry out that exercise, the tribunal will have to
examine all the relevant evidence. That will, of course,
include the written term itself, read in the context of the whole
agreement. It will also include evidence of how the parties
conducted themselves in practice and what their expectations
of each other were. Evidence of how the parties conducted
themselves in practice may be so persuasive that the tribunal
can draw an inference that that practice reflects the true
obligations of the parties. But the mere fact that the parties
conducted themselves in a particular way does not of itself
mean that that conduct accurately reflects the legal rights and
Page 13
obligations. For example, there could well be a legal right to
provide a substitute worker and the fact that that right was
never exercised in practice does not mean that it was not a
genuine right.
…
55. It remains to consider whether the EJ directed himself
correctly when he considered the genuineness of the written
terms. I am satisfied that he directed himself correctly in
accordance with, although in advance of, Szilagyi. In effect,
he directed himself that he must seek to find the true nature of
the rights and obligations and that the fact that the rights
conferred by the written contract had not in fact been
exercised did not mean that they were not genuine rights.”
32. Aikens LJ stressed at paras 90 to 92 the importance of identifying what
were the actual legal obligations of the parties. He expressly agreed with Smith
LJ’s analysis of the legal position in Szilagyi and in paras 47 to 53 in this case. In
addition, he correctly warned against focusing on the “true intentions” or “true
expectations” of the parties because of the risk of concentrating too much on what
were the private intentions of the parties. He added:
“What the parties privately intended or expected (either before or
after the contract was agreed) may be evidence of what, objectively
discerned, was actually agreed between the parties: see Lord
Hoffmann’s speech in the Chartbrook case at [64] to [65]. But
ultimately what matters is only what was agreed, either as set out in
the written terms or, if it is alleged those terms are not accurate, what
is proved to be their actual agreement at the time the contract was
concluded. I accept, of course, that the agreement may not be
express; it may be implied. But the court or tribunal’s task is still to
ascertain what was agreed.”
I agree.
33. At para 103 Sedley LJ said that he was entirely content to adopt the
reasoning of Aikens LJ:
“recognising as it does that while employment is a matter of contract,
the factual matrix in which the contract is cast is not ordinarily the
same as that of an arm’s length commercial contract.”
I agree.
Page 14
34. The critical difference between this type of case and the ordinary
commercial dispute is identified by Aikens LJ in para 92 as follows:
“92. I respectfully agree with the view, emphasised by both Smith
and Sedley LJJ, that the circumstances in which contracts
relating to work or services are concluded are often very
different from those in which commercial contracts between
parties of equal bargaining power are agreed. I accept that,
frequently, organisations which are offering work or requiring
services to be provided by individuals are in a position to
dictate the written terms which the other party has to accept.
In practice, in this area of the law, it may be more common
for a court or tribunal to have to investigate allegations that
the written contract does not represent the actual terms agreed
and the court or tribunal must be realistic and worldly wise
when it does so. …”
35. So the relative bargaining power of the parties must be taken into account
in deciding whether the terms of any written agreement in truth represent what was
agreed and the true agreement will often have to be gleaned from all the
circumstances of the case, of which the written agreement is only a part. This may
be described as a purposive approach to the problem. If so, I am content with that
description.
The facts
36. With characteristic clarity and brevity Sedley LJ described the factual
position as follows:
“104. Employment judges have a good knowledge of the world of
work and a sense, derived from experience, of what is real
there and what is window-dressing. The conclusion that
Autoclenz’s valeters were employees in all but name was a
perfectly tenable one on the evidence which the judge had
before him. The elaborate protestations in the contractual
documents that the men were self-employed were odd in
themselves and, when examined, bore no practical relation to
the reality of the relationship.
105. The contracts began by spelling out that each worker was
required to ‘perform the services which he agrees to carry out
for Autoclenz within a reasonable time and in a good and
workmanlike manner’ – an obligation entirely consistent with
Page 15
employment. Notwithstanding the repeated interpolation of
the word ‘sub-contractor’ and the introduction of terms
inconsistent with employment which, as the judge found,
were unreal, there was ample evidence on which the judge
could find, as he did, that this was in truth an employment
relationship.
106. His finding did not seek to recast the contracts: it was a
finding on the prior question of what the contracts were.
Rightly, it was uninfluenced by the fiscal and other
consequences of the relationship, which were by no means all
one way.”
37. I entirely agree with those conclusions. They are in my opinion justified
by the critical findings of fact in paras 35 to 38 of the judgment of Employment
Judge Foxwell in the ET. They were these:
“35. In my judgment these claimants are employees. I do not think
it can be said that Mr Huntington and his colleagues are
businessmen in business on their own account. They have no
control over the way in which they do their work. They have
no real control over the hours that they work, save and except
that they can leave when their share of the work on site has
been completed. They do not have any real economic interest
in the way in which the work is organised, other than the fact
that the more work they do the more they earn. They cannot
source materials for themselves. They are subject to the
direction and control of the respondent’s employees on site.
They work in teams and not as individuals. It crossed my
mind that each team might constitute a partnership, but it has
never been suggested that these claimants are partners running
businesses together and, whilst the makeup of each team
seems to be fairly static, they can be adjusted to meet the
respondent’s needs. The claimants have no say in the terms
upon which they perform work, the contracts which are
placed before them are devised entirely by the respondent and
the services they provide are subject to a detailed
specification. The invoices which they submit are prepared by
the respondent. The respondent determines the deductions
which are applied to those invoices and the amounts charged
in respect of insurance and materials. There has been no
evidence to confirm that these deductions bear any real
relation to the actual cost of the services to which they refer.
Rates of pay are determined by the respondent and the
respondent has felt able to increase or reduce those rates
Page 16
unilaterally. Really there is nothing that these claimants can
do to make their putative businesses any more profitable by
the way in which they organise themselves.
36. I have noted that the claimants are required to wear company
overalls and some of these are supplied free. I have also noted
that they are provided with some training by the respondent. I
do not think that either of these factors is determinative in this
case. I accept that training must be provided to people who
handle chemicals whatever their status for the purposes of
health and safety. Equally I accept that requiring some badge
of identification, in this case a uniform, is simply an incident
of the fact that valeters are permitted to drive high value
goods, motorcars and vans. That said, I accept the claimants’
evidence that they are fully integrated into the respondent’s
business and that they have no real other source of work. I
accept that occasionally individual claimants might work
elsewhere but only on days when the respondent has no work
for them to do. In Mr Huntington’s case, for example, this
occurred once in 17 years of service.
37. I am satisfied that the claimants are required to provide
personal service under their agreements with the respondent
notwithstanding the substitution clause that was introduced in
2007. I do not find that this clause reflects what was actually
agreed between the parties, which was that the claimants
would show up each day to do work and that the respondent
would offer work provided that it was there for them to do.
Mr Hassell confirmed in evidence that this was the true nature
of the agreement between the parties and that his work could
not have been done without an understanding that the valeters
could be relied on to turn up and do the work put in front of
them. I have of course noted that in 2007 the respondent
introduced a clause saying that there was no obligation on it to
offer work or on the claimants to accept work. I find that this
clause was wholly inconsistent with the practice described in
paragraph 18 of Mr Hassell’s witness statement where he
refers to a requirement for valeters to notify him in advance if
they were unavailable for work. This indicates that there was
an obligation to attend for work unless a prior arrangement
had been made. In my judgment these factors place these new
clauses within the proposition identified at paragraph 58 in the
judgment [of Elias J] in Consistent Group Ltd v Kalwak
(supra) and I find that the substitution clause and the right to
refuse work were unrealistic possibilities that were not truly in
Page 17
the contemplation of the parties when they entered into their
agreements.
38. Accordingly, I find that the claimants entered into contracts
under which they provided personal service, where there were
mutual obligations, namely the provision of work in return for
money, that these obligations placed the contracts within the
employment field and that the degree of control exercised by
the respondent in the way that those contracts were performed
placed them in the category of contracts of employment.”
Mr Hassell was the Autoclenz manager at the Measham site.
38. These are findings of fact which Autoclenz cannot sensibly challenge in
this Court. In short, they are findings which were open to the ET. It is true that, as
Smith and Aikens LJJ both observed, the reasoning of the ET could have been
fuller, but I also agree with them (and Sedley LJ) that the ET was entitled to hold
that the documents did not reflect the true agreement between the parties and that,
on the basis of the ET’s findings, four essential contractual terms were agreed: (1)
that the valeters would perform the services defined in the contract for Autoclenz
within a reasonable time and in a good and workmanlike manner; (2) that the
valeters would be paid for that work; (3) that the valeters were obliged to carry out
the work offered to them and Autoclenz undertook to offer work; and (4) that the
valeters must personally do the work and could not provide a substitute to do so.
See in particular, per Aikens LJ at para 97. It follows that, applying the principles
identified above, the Court of Appeal was correct to hold that those were the true
terms of the contract and that the ET was entitled to disregard the terms of the
written documents, in so far as they were inconsistent with them.
CONCLUSION
39. For the reasons given above, I agree with the Court of Appeal that the ET
was entitled to hold that the claimants were workers because they were working
under contracts of employment within the meaning of regulation 2(1) of each of
the NWMR and the WTR. They were within limb (a) of the definitions set out in
para 2 above. Since the question whether the claimants were workers within limb
(b) would only arise if the claimants had not entered into a contract of
employment, that question does not arise, although, like the ET, I would have held
that they were in any event working under contracts within limb (b). It follows that
I would dismiss the appeal.
Page 18
ANNEX A
Agreement
“Autoclenz … and
PAUL HUNTINGTON (Name of Sub-contractor)
HEREBY AGREE as follows:
1. The Sub-contractor shall perform the services, which he agrees to
carry out for Autoclenz within a reasonable time and in a good and
workmanlike manner.
2. The Sub-contractor hereby confirms that he is a self-employed
independent contractor and that he is responsible for payment of his
National Insurance contributions and for making his returns to HM
Inspector of Taxes paying his Income Tax under schedule ‘D’.
3. The Sub-contractor and Autoclenz agree and acknowledge that the
Sub-contractor is not, and it is the intention of the parties that the
Sub-contractor should not become, an employee of Autoclenz.
Accordingly, the Sub-contractor is responsible for payments of all
Income Tax and National Insurance contributions arising on or in
respect of payments made to the Sub-contractor by Autoclenz and
the Sub-contractor agrees that he shall indemnify Autoclenz in
respect of any liability to Income Tax and National Insurance
contributions for which Autoclenz may be held liable on or in
respect of such payments.
4. Sums agreed to be paid by Autoclenz to the Sub-contractor shall be
net of VAT (if any). For as long as the Sub-contractor is, or becomes
or remains liable to be, registered for VAT then Autoclenz shall, in
addition, pay VAT on such sums.
5. Autoclenz shall, if requested by the Inland Revenue or the
Department of Social Security, provide to those government
departments details of payments made to the Sub-contractor.
6. The Sub-contractor confirms that he is not suffering and has never
suffered from back trouble, skin rashes, eczema, dermatitis, asthma
or epilepsy and has never been refused work or been terminated from
work due to ill-health.
7. EITHER:
Page 19
(a) The Sub-contractor confirms that he holds a current
valid Driving Licence, free of endorsements…
And that he will ensure that those who work
for him, in providing services to Autoclenz,
hold the same.
OR:
(b) The Sub-contractor confirms that he DOES
NOT hold a current valid Driving Licence.
PLEASE DELETE AS NECESSARY”
Although no deletions were made, details of Mr Huntington’s driving licence were
included in clause 7(a). The agreement was signed by both Autoclenz and Paul
Huntington. An agreement in the same or substantially the same form was signed
between Autoclenz and each of the other claimants.
