Case No: A1/2002/1479& 1479/A

Neutral Citation Number: [2003] EWCA Civ 417

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MR MICHAEL SUPPERSTONE QC & JAMES WARD (instructed by Sternberg Reed Taylor & Gill, Solicitors, 12/18 Station Parade, Barking,Essex, IG11 8DN ) for the Appellant

MR PAUL ROSE QC (instructed by Latham & Co Solicitors, 15 High Street, Melton Mowbray, Leicestershire, LE 13 OTX ) for the Respondent

Hearing dates : Tuesday 11^th March 2003

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Lord Justice Mummery :

1. The issue on this appeal is whether the employment tribunal erred in law in holding that Mr Raymond Franks was not an employee of Reuters Limited (Reuters) within the meaning of the Employment Rights Act 1996. In section 230 an "employee" is defined as an individual, who has entered into or works under or worked under a contract of service. The contract may be expressed orally or in writing, or it may be implied.
2. Mr Franks went to work at Reuters on a temporary placement as a driver at the end of 1993. He found the work through an employment agency, First Resort Employment Limited (First Resort), which is now in liquidation. First Resort took no part in the appeal to the employment appeal tribunal or to this court.
3. After six months Mr Franks became a full time driver at Reuters. He remained so until November 1997. He was then selected to work as a back up at the Help Desk. In April 1998 he became permanent on the Help Desk. He also carried out new driving duties. His hourly rate of pay was increased. On 13 August 1999 he was told that his services were no longer required. He worked for another month and left on 10 September 1999.
4. The response of Reuters to the claims for unfair dismissal, redundancy pay and damages for breach of contract, which Mr Franks made in the belief that he was an employee, was that he was not employed by them, but by First Resort, who paid his wages, after deducting PAYE. First Resort denied that they employed him, but they were willing to continue to offer him available assignments.
5. On 12 May 2000 the employment tribunal held, after hearing evidence from Mr Franks, the Operations Manager of Reuters and a director of First Resort on a preliminary issue, that he was not an employee of either respondent. Mr Franks had no claim for anything against either of them. On 27 June 2002 the decision was upheld by the employment appeal tribunal.

Decision in Carmichael v. National Power plc

6. The employment tribunal’s reading of the decision of the House of Lords in Carmichael v. National Power plc [1999] 1 WLR 2042 on the importance of "mutuality of obligation" conditioned their characterisation of the relationship between Mr Franks and Reuters. The speeches of Lord Irvine LC and Lord Hoffmann also contain valuable guidance of the highest authority on the role of employment tribunals in finding facts relevant to the issue whether a tribunal applicant is, or is not, an employee.
7. In this case the tribunal cited Carmichael as authority for the proposition that mutuality of obligation is a necessary condition of an employment relationship. They applied that proposition to their findings of fact and concluded that they could not see, in the relationship between Mr Franks and Reuters, any mutuality of obligation which would override the other matters they had taken into consideration. In their view the point was that

"…he [Mr Franks] could have said that he did not wish to work for [Reuters] any longer and similarly [Reuters] could have said that they no longer wished to have him working for them." (Paragraph 8 of the extended reasons.)

8. It will be necessary to examine the basis for the tribunal’s decision on that point. Before that, however, more should be said about Carmichael and the context of the key ruling on the requirement of mutuality of obligation.
9. The question for the employment tribunal in Carmichael was whether guides taking parties on tours of power stations on "a casual as required basis" were entitled to require a statement of the terms of their employment in accordance with s 1 of the Employment Protection (Consolidation) Act 1978. The tribunal held that they were not employees of National Power and dismissed their applications.
10. The employment tribunal found that the tour guides did not have contracts with National Power, "whether of service or otherwise": see p.2044H. In reaching that conclusion, the employment tribunal did not confine their consideration to the written correspondence passing between the guides and National Power, which was relied on by the guides as constituting a contract of employment. The tribunal also considered evidence of the surrounding circumstances, the way in which the tour guide system was operated by the parties, how the parties had conducted themselves subsequently and evidence of the parties as to how the engagement had been understood by them. The House of Lords held that to be the correct approach to the employee issue: see p. 2045F-H. On the material before them the tribunal found that the guides were only paid for the hours they worked. When they were not working as guides they had no contractual relationship of any kind with National Power. There was an absence of mutuality. There was no obligation on the company to provide casual work. The company was merely intimating that work might be offered. There was no obligation on the applicants to undertake it. The applicants did no more than intimate that they were ready to be invited to attend for casual work as station guides, as and when National Power required their services. The correspondence was not intended by the parties to constitute an exclusive or complete record regulating their relationship. So, the employment tribunal were entitled to make inferences from evidence of the surrounding circumstances and the subsequent conduct of the parties.
11. The House of Lords held that, on the findings of fact by the tribunal, there was no error of law in their conclusion that the tour guides had no contracts, that their engagement gave rise to no legal obligations at all and that they could not therefore be employees of the company. There was absent from the relationship the irreducible minimum of mutual obligation necessary to create a contract of service.
12. The notable point is that the employment tribunal did not reach their decision simply on the basis of construing the correspondence between the company and the tour guides. The tribunal correctly looked beyond and beneath the documents. They made their finding of lack of mutuality of obligation only after considering evidence of what the parties said and did, both at the time when they were engaged and subsequently, including evidence as to how the relationship had been understood by them: see the speech of Lord Irvine LC at 2045F-H and of Lord Hoffmann at 2049C-D, 2050C- 2051C.

Decision of employment tribunal

 

13. Mr Supperstone QC, who did not appear in the employment tribunal or in the appeal tribunal, submitted on behalf of Mr Franks that the tribunal had erred in their approach to the resolution of the preliminary issue of whether Mr Franks was an employee. They had failed to address the question whether there was an implied contract of service between him and Reuters. As a result they had failed to consider evidence, or to make the findings of fact, relevant to that issue. It would be necessary to remit the matter for re-hearing by a fresh tribunal.
14. His submissions centred on the tribunal’s findings of fact set out in paragraph 5 of the extended reasons sent to the parties on 12 May 2002:-

"1. The Applicant had entered into an Agreement with [First Resort] whereby they agreed to try to find him (described in the Contract as the Temporary Worker) work, and agreed to pay to the Temporary Worker wages calculated at an hourly rate for each hour worked. We also find that under the provisions of that Contract and from what Mr Hayes [a director of First Resort] told us that the Temporary Worker was not under an obligation to accept an offer and there was no obligation on [First Resort] to provide any work to the Temporary Worker.

2. [Reuters] did not pay the Applicant. They paid to [First Resort] a fee for their services which included an agreed sum which [First Resort] paid to the Applicant in respect of the hours which he worked.

3. [Reuters], while requiring the Applicant so long as he worked for them, to comply with the hours which they set for him, were under no obligation to continue to accept his services. The Applicant was under no obligation to continue to work for them, but could have informed [First Resort] that he no longer wished to perform work for [Reuters] and to have asked [First Resort] to find him other work.

4. The Applicant was not paid sick pay, and was only paid holiday pay because [Reuters] paid to [First Resort] a sum which included money to be set aside for when the Applicant took holidays, and which [First Resort] paid to him.

5. The Applicant had to arrange his holidays with [Reuters]."

15. Having regard to those findings, the tribunal then asked themselves what was the position of Mr Franks vis-a-vis Reuters? They concluded that he was not an employee within s 230 of the 1996 Act. They expressly dealt with two submissions. First, they rejected the contention of Mr Hayes, a director of First Resort who represented them at the hearing, that the matter was concluded by the provision in paragraph 8 of the Terms and Conditions of Business in respect of Temporary Workers, which read:

"Temporaries are supplied to the Client on the basis that each Temporary will be the Employee of the Client throughout the duration of the assignment."

They pointed out that the nature of the relationship was determined by principles of law, not by what the parties chose to call it.

 

16. Secondly, the tribunal rejected the argument that the long service of Mr Franks with Reuters indicated that he was an employee of theirs.
17. After considering several authorities, from which they were unable to derive any assistance, the tribunal cited Carmichael for the emphasis placed on the importance of mutuality of obligation and concluded the preliminary issue in favour of Reuters and First Resort on that basis. They held (paragraph 8 of the extended reasons) that Mr Franks was "clearly able not to turn up for work if he so chose but to go back to [First Resort] and say that he required assignment to another post." They added that it was immaterial that he did not do so "because clearly he had security of work while continuing to work for [Reuters]." The appeal tribunal upheld this approach, saying that it did not involve any misdirection or error of law and that it was a complete answer to Mr Franks’ appeal and to his claims against Reuters.

The Legal Position Discussed

18. Drawing a line between those who are employees (and so have statutory employment rights) and those who are not entitled to statutory employment protection has become more, rather than less, difficult as work relations in and away from the workplace have become more complex and diverse. This development makes it all the more important that the employment tribunal, as the tribunal of fact, should consider all the relevant evidence about the dynamics of the work relationship between the person claiming to be an employee and the putative employer. Before characterising the relationship, the tribunal must make clear and comprehensive findings of fact on the relevant evidence.
19. Even if the work relations are documented, the documents do not necessarily present the complete picture. That is why the tribunal in Carmichael were held by the House of Lords to have acted correctly in examining not only the correspondence, but also the circumstances surrounding it, the subsequent conduct of the parties, and the way in which the parties operated and understood the situation. Unless and until the tribunal have conducted this exercise and obtained an overall picture of the work relationships between the parties, it is impossible in many cases for them to reach an informed and sound conclusion on whether there is mutuality of obligation in the form of an express or implied contract of service.
20. In some cases it may be unnecessary to look beyond or beneath the documents, which the parties have agreed should embody the exclusive record regulating their relations. As Lord Irvine LC recognised in Carmichael at p.2047A, where the case turns exclusively on the true meaning and effect of the documentation, further inquiry about what the parties said and did may not be appropriate.
21. The instant case does not turn exclusively on the construction of documents. The available documentation relates almost entirely to the regulation of the relations between (a) Mr Franks and First Resort and (b) First Resort and Reuters. The crucial relationship is that between Mr Franks and Reuters. It is the third limb of the tripartite work arrangements. It is hardly documented at all. It must be considered against the background of the other relationships which are documented, but the very lack of documentation of the work relations between Mr Franks and Reuters highlights the importance of considering all the evidence relevant to the possible formation of an oral or implied contract of service.
22. I agree with Mr Supperstone that the tribunal’s findings of fact do not appear to be based on a full and properly directed consideration of all the relevant evidence relating to the work relations between Mr Franks and Reuters between 1994 and 1999. As a result the findings are limited in extent and there are some uncertainties and omissions in the facts found in paragraph 5 of the extended reasons. In making such criticisms I am, of course, aware that the extended reasons must be read in a fair and reasonable way, without excessive concentration on the detail and not over-critically. I am also conscious that this court is indebted for the help from leading counsel on each side, which was not available to the tribunal.
23. In my judgment, a gap in the extended reasons is identified by Reuter’s own respondent’s notice, in which it is contended that the decisions of the employment tribunal and the appeal tribunal be upheld on the additional ground that

" a. There was no contractual relationship of any kind between the Appellant Mr Franks and Reuters. The absence of any contract results in the Appellant failing in his claim."

 

24. Unlike the tribunal in Carmichael, this tribunal did not clearly address the issue of whether, on the evidence, there was a contractual basis (whether express or implied) for the work done by Mr Franks at Reuters, apparently full time " complying with the hours they set for him" for over five years; whether, in particular, a contract between Mr Franks and Reuters could be implied from the circumstances of his work for Reuters and from what was said and done by the parties at the time when he started work or subsequently; and, if so, what were the rights and obligations of the parties under it in relation, for example, to the nature of the work to be done, the regularity and number of hours worked, the fixing of rates of pay, arrangements for payment, disciplinary matters and so on. It was necessary for the tribunal to undertake the exercise of ascertaining the obligations (if any) of the parties in order to determine whether mutuality of obligation existed between Mr Franks and Reuters.
25. The evidence summarised in the extended reasons and the documents referred to demonstrates that there was certainly a contractual background to the work done by Mr Franks for Reuters.
26. First, there was a written Temporary Worker Agreement made in 1988 regulating the relations between Mr Franks and First Resort. It is marked "CONTRACT FOR SERVICES." It expressly provided that First Resort would try to find work for him, though Mr Franks was under no obligation to First Resort to accept the assignment offered. The only express obligation of First Resort was, if he accepted the assignment offered, to see that he was paid out of the money paid to them for the work that he did. First Resort issued another "Temporary Workers" Contract in respect of Mr Franks when he was selected to be a Help Desk Operator in 1999. The express provisions in those documents were the basis of First Resort’s argument, which was accepted by the tribunal, that Mr Franks was not employed by them. That conclusion could not, of course, by itself be determinative of the issue of mutuality of obligation as between Mr Franks and Reuters. The First Resort documents do, however, form part of the factual matrix of the relations between Mr Franks and Reuters.
27. Secondly, there was a contract between First Resort and Reuters contained in a document called "Terms & Conditions of Business." This document appears to have been supplied by First Resort to Reuters when First Resort successfully tendered for the supply of contract personnel to Reuters under a "Vehicles Operations Contract." The "Conditions of Business-Temporary" set out the standard terms on which First Resort transacted business with a "Client", such as Reuters, by supplying "a Temporary" such as Mr Franks, "with a view to carrying out work for the Client." Those conditions regulated the relations as between First Resort and Reuters in respect of the work done by Mr Franks for Reuters. They provided for payment of "charges" to be made by the Client to First Resort based on hourly charges notified to the Client and for payments of NI contributions. Condition 8 was referred to in the extended reasons and has been quoted in paragraph 15 above. As in the case of the Temporary Worker Agreement, the Conditions of Business are not determinative of the question whether Mr Franks had an express or implied contract of service with Reuters, but it is part of the factual matrix of the relations between Mr Franks and Reuters. Although the tribunal were right in law to state that First Resort and Reuters could not determine by agreement in paragraph 8 of the Conditions that Mr Franks was an employee of Reuters, the tribunal should have considered the relevance of that paragraph and of the remaining conditions as some evidence of the understanding of First Resort and of Reuters on the work situation of Mr Franks. Having held that the Conditions of Business could not determine that question, the tribunal seem to have gone further and excluded it entirely from their consideration of the issue whether or not Mr Franks had been an employee of Reuters.
28. Thirdly, there is another document in the bundle, which does not feature in the extended reasons, but appears to have been associated with the tender documents. It set out various requirements concerning the drivers, such as Mr Franks: the holding of driving licences, the importance of punctuality and of starting work at 0700 every morning, standards of smart dress and good behaviour, the supply of vehicles for the drivers and provision for regular operational and price reviews of the arrangements.
29. The tribunal also excluded from their consideration evidence of the length of time for which Mr Franks worked at Reuters. The length of time in this case is unusual for a person, who is described in the documents as a "Temporary Worker." Most temporary workers are not entitled to the right not to be unfairly dismissed or to redundancy pay, because they have not served for the qualifying period of service. The question whether they are employees or not is usually irrelevant. Whilst I would agree that a person cannot become an employee simply by reason of the length of time for which he does work for the same person, the tribunal appear to have treated the evidence of length of service as irrelevant to the employment issue. In my judgment, it is not irrelevant evidence in the context of an individual who sought a temporary placement through an employment agency, but was then allowed to stay working in the same place for the same client for over five years, during which period he was re-deployed. Dealings between parties over a period of years, as distinct from the weeks or months typical of temporary or casual work, are capable of generating an implied contractual relationship. That possibility should have been addressed by the tribunal as part of its consideration of the overall situation in relation to his work, first, as a driver and then as Help Desk Operator.

Reuters’ Submissions

30. Mr Rose QC for Reuters rightly reminded the court that the decision of the employment tribunal can only be appealed on questions of law and not on the facts. The question whether an individual is an employee is, in a case such as this, one of mixed law and fact. He submitted that there was no error in the extended reasons as to the facts or the law relevant to the issue whether Mr Franks was an employee of Reuters. The self-direction of law on the requirement of mutuality of obligation was impeccable. It was in accordance with Carmichael. The tribunal had correctly applied it to the facts. The tribunal had taken into account the facts concerning his placement and its duration and the continuing part played by First Resort under their agreements with Mr Franks and Reuters, such as the payment of Mr Franks by First Resort for the work done by him. Although all parties had an economic interest in the relationship between Mr Franks and Reuters, it was not a contractual relationship. Mr Franks was at no time able to identify the existence of an agreement between him and Reuters, let alone one under which he was under an obligation to work for Reuters or under which Reuters were obliged to provide him with work.
31. As for the duration of Mr Franks’ placement with Reuters he cited Hewlett Packard v. O’Murphy [2002] IRLR 4 as a case in which an individual who had hired himself out through an agency to work for a company for six years or so was held not to be an employee, as there was no contract and no mutuality of obligation with the company. The company had been happy to have him working for them as long as he was not a permanent employee. Mr Rose also cited the observations of Buckley J sitting in this court in Montgomery v. Johnson Underwood Ltd [2001] IRLR 269 at paragraph 43 as a reminder that the confusion that may exist about the protection of those who work through an employment agency is a matter for the consideration of the legislature, the implication being that it is not a matter for the courts.
32. Mr Rose complained, with some justification in my view, that the appeal had been argued differently by Mr Supperstone than it had been argued below or in the skeleton argument submitted before Mr Supperstone was brought into the case at a very late stage. In particular, he pointed out that, even now, it was not argued on behalf of Mr Franks that there was no evidence to support the finding of lack of mutuality. That finding alone was sufficient to dispose of the contention that Mr Franks was not an employee of Reuters. The other findings of fact, which Mr Supperstone submitted the tribunal should have made, would not have altered the position in the absence of mutuality. If Mr Franks claimed to be an employee, the burden was on him to establish that there was a contract. He had failed to prove that he had a contract of any kind with Reuters.

Conclusion

33. In my judgment, it is right to allow the appeal, even though the emphasis of the arguments now advanced on behalf of Mr Franks is different from that in the appeal tribunal. A question of law arises from the decision of the tribunal. That question is whether it is legally correct for a tribunal to conclude that an individual is not an employee without first determining as a fact whether, on a consideration of all the relevant evidence (including what was said and done, as well as any relevant documents), there was an implied contract of service between Mr Franks and Reuters. If there was not, Mr Franks was not their employee. If there was, then it is necessary to determine his claims for unfair dismissal, redundancy pay and damages for breach of contract. In this case the tribunal failed to address clearly the question whether there was an implied contract and so failed to give full and proper consideration to all the evidence relevant to that issue.
34. When the implied contract issue is properly addressed the tribunal may again reach the conclusion that Mr Franks was not an employee, because, like the tour guides in Carmichael, he had not entered into any contract at all with Reuters, whether of service or otherwise. It is not, however, possible for this court to decide the implied contract point. The Court of Appeal is not a fact-finding court. There needs to be a proper consideration by the fact-finding tribunal of all the relevant evidence directed to the issue whether there was an implied contract of service between Mr Franks and Reuters.
35. The appeal should be allowed and the matter remitted for re-hearing by a fresh tribunal.

Lord Justice Thorpe

 

36. I agree.

The President

37. I also agree.