Appeal No. UKEAT/0591/06/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 16 February 2007

Before
HIS HONOUR JUDGE PETER CLARK
(SITTING ALONE)

SECRETARY OF STATE FOR TRADE AND INDUSTRY	APPELLANT

1) MR E ALADE  2) P J PERSONNEL LTD IN LIQUIDATION	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR R KELLAR
(Of Counsel)
Instructed by:
The Treasury Solicitor (Employment Law Team
1 Kemble Street
London
WC2B 4TS	
For the First Respondent	NEITHER PRESENT NOR REPRESENTED	

SUMMARY

INSOLVENCY

Definition of employee

Insolvent employment agency – Whether Claimant employed by agency under contract of service – mutuality of obligation – control – decision of ETC/M that he was an employee reversed.  No claim against S of S out of Insolvency Fund.

HIS HONOUR JUDGE PETER CLARK

1.	This case illustrates, once again, the seemingly random consequences of the distinction drawn, in employment protection legislation, between an individual who works under a contract of service, an employee, and one who works under a contract for services, a worker; see Employment Rights Act 1996 (ERA), Section 230.

2.	The facts are simple.  Mr Alade, the Claimant, signed up with an employment agency, P J Personnel Ltd, the agency, to find him work.  The agency assigned him to work at Sainsburys’ warehouse in Charlton, South East London.  Sainsburys passed him competent to drive a fork-lift truck in their warehouse and he did so, working a 40 hour week from June 2005 until March 2006, when the agency ceased trading and later went into liquidation.  He was then owed £264 in unpaid wages.

3.	As against the agency he then had 2 potential causes of action; a claim for breach of contract under the 1994 Extension of Jurisdiction Order, provided he was an employee of the agency, that employment having ended, or a claim for unauthorised deductions from wages under Part II ERA, which covers workers as well as employees.  Thus, it mattered not whether he was employed by the agency or engaged by it under a contract of services; either way he would recover his unpaid wages.

4.	But the agency was insolvent.  A judgment against it would be of no value to him.  So he must look to the State to recover his outstanding pay.

5.	The European Insolvency Protection Directive 80/987/EEC requires member states to guarantee payment of certain outstanding claims which employees have against their insolvent employer.  That includes arrears of wages.

6.	The Directive has been implemented into our domestic law, currently in Part XII ERA.  But those provisions apply only to employees as defined in Section 230(1); they do not extend to workers as defined in Section 230(3).  This limitation appears to be permitted by Article 2(2) of the Directive.

7.	The Claimant lodged his claim for unpaid wages with the Insolvency Service.  The Service rejected it.  They accepted that the agency was insolvent, but they contented that the Claimant was not an employee of the agency.  Hence he could not rely on the protection afforded by Part XII of the Act.

8.	Mr Alade was unhappy with that decision.  He exercised his right under Section 188 ERA to present a complaint to the Employment Tribunal that the Secretary of State had failed to make a payment out of the fund representing his wages earned with but not paid by the insolvent agency.  The Secretary of State resisted the claim solely on the basis that the Claimant was not an employee of the agency.

9.	That contest came before a Chairman, Ms J Wade, sitting alone at the London (South) Employment Tribunal on 11 September 2006.  She was sympathetic to the Claimant’s cause; she found that he was an employee of the agency and directed the Secretary of State to pay to the Claimant his outstanding pay of £264.  Her judgment, with reasons, was promulgated on 21 September 2006.

10.	Dissatisfied with that outcome the Secretary of State appealed to this Employment Appeal Tribunal.  The appeal was considered on paper by Elias P, who directed a Full Hearing.  That is the hearing now before me.

11.	Mr Alade lodged his Answer to the appeal late.  He did not apply for an extension of time despite letters urging him to do so.  He is now in breach of an unless order made by the Registrar on 8 February 2007 and is strictly debarred from defending the appeal.  He has not attended today but has been contacted by a member of staff by telephone this morning and is content for the matter to proceed in his absence.

12.	That does not mean that the appeal succeeds by default.  It is for Mr Keller, appearing on behalf of the Secretary of State, to satisfy me that the Tribunal Chairman erred in law such that the appeal be allowed and either the case be remitted for rehearing or the Chairman’s decision be reversed.

Contract of Service 
13.	Section 230(1) of ERA provides:
“In this Act “employee” means an individual who has entered into or works under (or, where the employment has ceased, work under) a contract or employment.”

The House of Lords affirmed in Carmichael v National Power [1999] 4 All ER 897 that the irreducible minima for a contract of service included mutuality of obligation; there must also be the presence of control by the employer.  See Dacas v Brook Street Bureau [2004] IRLR 358, paragraph 49, per Mummery LJ.  

14.	In the present case the Claimant was issued with and signed the agency’s standard form contract, to which the Chairman refers at paragraphs 3 and 5 of her Reasons.  She did not set out its terms, so far as are material.  They appear to me to be these:

The document is headed:
‘Contract for Services for Temporary Workers (Terms of Engagement)

By Clause 2.2:  For the avoidance of doubt, these terms shall not give rise to a contract of employment between the Employment Business (the agency and the Temporary Worker) (the Claimant).  The Temporary Worker is engaged as a self-employed worker, although the Employment Business is required to make statutory deductions from the Temporary Worker’s remuneration in accordance with clause 4.1.

By Clause 2.3:  No variation or alteration to these Terms shall be valid unless the details of such variation are agreed between the Employment Business and the Temporary Worker and set out in writing or by electronic communication and a copy of the varied terms is given to the Temporary Worker stating the date on or after which such varied terms shall apply.

Pausing there, there was no evidence of such written variation in this case.

3	ASSIGNMENTS
3.1	The Employment Business will endeavour to obtain suitable Assignments for the Temporary Worker.  The Temporary Worker shall not be obliged to accept an Assignment offered by the Employment Business.

3.2	The Temporary Worker acknowledges that the nature of temporary work means that there may be periods when no suitable work is available and agrees that the suitability of the work to be offered shall be determined solely by the Employment Business; that the Employment Business shall incur no liability to the Temporary Worker should it fail to offer opportunities to work in the above category or in any other category; and that no contract shall exist between the Temporary Worker and the Employment Business during the periods when the Temporary Worker is not working on an Asignment.

Pausing there again, it seems to me on an ordinary construction of the words of Clauses 3.1 and 3.2, that there was no obligation on the agency to provide work opportunities to the Claimant and no obligation on the Claimant to embark on assignments offered by the agency.

Clause 5 deals with his entitlement to paid leave under the Terms of the Working Time Regulations 1998, which regulations applied to workers as well as employees.

By Clause 8	CONDUCT OF ASSIGNMENT

8.1	The Temporary Worker is not obliged to accept any assignment offered by the Employment Business but if he does so, during every Assignment and afterwards where appropriate, he will:-

a)	co-operate with the Client’s reasonable instructions and accept the direction, supervision and control of any responsible person in the Client’s organisation.

b)	observe any relevant rules and regulations of the Client’s establishment (including normal hours of work) to which attention has been drawn or which the Temporary Worker might reasonably be expected to ascertain;

Clause 9 is headed ‘TERMINATION’
9.1	The Employment Business or the Client may terminate the Temporary Worker’s Assignment at any time without prior notice or liability.

9.2	The Temporary Worker may terminate an Assignment at any time without prior notice or liability.

15.	Before the Chairman the Secretary of State referred to Dacas for the proposition that the Claimant was not an employee of the agency; if he was an employee he was employed by Sainsburys under an implied contract considered by the majority, Sedley and Mummery LJJ, in Dacas.

16.	Notwithstanding Clauses 3.2 and 8 of the Contract the Chairman found (Reasons paragraph 7) that the necessary mutuality of obligation existed; further that there was sufficient control exercised by the agency (paragraph 6) in that the agency wrote to and texted the Claimant telling him and his colleagues that they needed to work harder and that he was the second hardest worker in the team.  Accordingly, held the Chairman, the irreducible minimum criteria for a contract of service were present.

17.	In this appeal the Secretary of State challenges the Chairman’s findings both as to mutuality of obligations and control.

Mutuality of obligation
18.	In Dacas the Claimant was engaged by Brook Street, an employment agency, on terms very similar to those in the present case.  She worked set hours, 5 days a week, for that agency’s client, the London Borough of Wandsworth for a number of years at the same premises owned and controlled by the Council.  An Employment Tribunal found that she was not an employee of the agency; the Employment Appeal Tribunal allowed her appeal against that finding.  The Court of Appeal restored the decision of the Employment Tribunal.  There was no mutuality of obligation under the express terms of the contract made between the Claimant and the agency.  There was only one contract, the Temporary Worker agreement in that case.  There was no basis for finding that the Claimant had a separate contract (of service) with the agency governing the specific assignment to the Council’s establishment where she worked for all those years.  The parallels between the facts of Dacas and the present case are self-evident.

19.	I confess that I find the Chairman’s reasons for reaching a different conclusion in this case less than compelling.  She appears to have accepted the point made by the Claimant that he was told that he had to give notice of leaving; however, that is inconsistent with the express term at Clause 9.2 of the Contract.  In the absence of any finding that the contract was a sham (see Tanton v Express and Echo [1999] ICR 693 CA)) it is not permissible to go behind the express term of the contract, particularly in circumstances where there is a whole-contract clause, as Mr Kellar points out, that is Clause 2.3.  Further, the deductions of tax and National Insurance by the agency do not necessarily point to a contract of service.

20.	In short, I accept Mr Kellar’s submission that in finding the necessary mutuality of obligation the Chairman has impermissibly disregarded the express terms of the contract made between the parties and failed to apply the law as explained by the Court of Appeal in Dacas and in Montgomery v Johnson Underwood Ltd [2001] IRLR 269, an earlier Court of Appeal decision considered by the Court in Dacas.

Control
21.	Although there may be cases in which it is possible to find, on the facts, sufficient exercise of control over the worker by an agency to satisfy that part of the test this is not, I accept, one of them.  Again Clause 8.1 is clear.  Day to day control resides with the client, here Sainsburys.  An argument that in such circumstances the agency delegates control to the client but, satisfies the irreducible minimum because such control by the client emanates from the agreement between the worker and the agency was considered and rejected by the Court of Appeal in Bunce v Postworth [2005] IRLR 557.  I am wholly unable to accept that text messages to the Claimant exhorting him to work harder are sufficient to satisfy the control test in this case.

Conclusion
22.	It follows, in relation to both mutuality of obligation and control, that I accept Mr Kellar’s submission that the Chairman fell into error for the reasons I have endeavoured to give.  The appeal is allowed.  This is a clear case; no remission for rehearing is necessary.  I shall substitute a finding that the Claimant was not an employee of the agency; consequently he is unable to recover the wages which he plainly earned from the Insolvency Fund.

23.	Finally, since Mr Alade was not present to hear this judgment it is right that he should know why he lost this appeal.  Accordingly I shall direct that there be a transcript of this judgment copies of which will be provided to the parties free of charge.