Appeal No.	 EAT/55/97

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 27 November 1997

Before
HIS HONOUR JUDGE D PUGSLEY
MR K M HACK JP
MISS A MADDOCKS OBE

MR W SMITH	APPELLANT

GOODMAYES INSULATIONS LTD	RESPONDENTS

Transcript of Proceedings

JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR P DUNBAR
(Solicitor)
The Barretts Association
Solicitors
8 Cambridge House
Cambridge Road
Barking Essex
IG11 8EE	
For the Respondents	MR P ALDRIDGE
(Manager)	

	JUDGE PUGSLEY:     This is an appeal from a decision of the Stratford Industrial Tribunal promulgated on 28th November 1996, in which the tribunal held that the applicant was not an employee as defined by the Employment Rights Act 1996. 

	The day before this hearing, namely 26th November, a fax was received from the appellant’s solicitors asking for an adjournment.

	It seemed to me, and it now seems to us, a waste of public money to allow an application for an adjournment of a case which we consider is inevitably likely to lead to this matter being remitted. 

	We are grateful that Mr Aldridge, the respondent,  has in fact attended. He has no objection to our dealing with the matter. We have made it clear that this is not a case where we consider we can substitute our view of the matter. It must be remitted to the Industrial Tribunal. The course we have taken in refusing the application for an adjournment which we allowed to be made again today, means that he is spared another day away from his business.

	The issue in this case turns on that vexed question of whether or not the applicant was or was not an employee. The material facts as found by the tribunal are set out in paragraph 2 of their decision:

“2. The material facts are that Mr Smith was throughout a thermal insulations engineer. He started working for the Respondents in August 1975. There was no written contract nor have we been told of any memorandum of terms and conditions of contract. Mr Smith originally worked for 5 to 7 days each week on a particular site and was paid the union rate. Tax, national insurance and graduated pension contribution were deducted from his gross pay. He worked under the instruction of the foreman on the site who gave him job sheets each day setting out the specific tasks he had to do which he then carried out using his own skills. His work was checked by site engineers but not apparently by the Respondents themselves. When a task was finished Mr Smith asked for the next one and he worked a regular day from 7.30 a.m. to 4 p.m. although occasionally he started 30 minutes earlier. Mr Smith used his own tools but heavy tools and plant were provided for him as was safety clothing when required. Mr Smith was entitled to paid holidays and sickness pay although during the period in question Mr Smith stated that he was rarely sick. When Mr Smith wanted to go on holiday he asked for permission and the Respondents were flexible and never refused. He took 2 or 3 weeks holiday a year. Mr Smith could not take time off without permission of the Respondents. Mr Smith always carried out his duties himself and he did not work for any other concern. After some 18 months a fellow worker suggested to Mr Smith that he would be better off as self-employed. Mr Smith approached the Respondents and asked if he could change his status and they agreed. From then on Mr Smith was paid gross and he arranged for his own tax and national insurance contributions. He no longer received any pay for absences whether holidays or sickness and he received a higher wage than those the Respondents classified as employees. The Inland Revenue thereafter treated Mr Smith as a self-employed person. Apart from these changes and minor variations in working conditions on different sites things were as before until 17 April 1996 when the Respondents told Mr Smith there was no work for him that day or immediately thereafter. Mr Smith contends then or thereafter that he was dismissed and he seeks amongst other things compensation for unfair dismissal.”

Paragraph 3 of the original decision reads:

“3.	Mr Smith submitted that although he treated himself as self-employed for some purposes such as his dealing with the Inland Revenue he was by nature of what he did an employee in reality. Mr Aldridge appearing for the Respondents submitted that Mr Smith was not only classified as a self-employed person by the Respondents but was in fact one in law.”

	The tribunal after setting out the statutory definition went on in paragraph 5 and 6 thus:

“5.	We consider the right test to adopt is the so called multiple test which requires looking at all the relevant facts and then standing back and taking a considered view of the whole situation. However in this case there is one matter which we consider overrides other considerations and that is that Mr Smith himself requested a change of status. In the case of Massey -v- Crown Life Insurance Co. 1978 ICR 590 Mr Massey was advised by his accountant that he would be better off self-employed and he therefore approached his employers and they agreed that thereafter he should be regarded as self-employed. He later alleged that he was an employee and when it came before the Court of Appeal the court decided that he was in fact self-employed and Lord Justice Lawton said:
“Ferguson [a reference to Ferguson -v- John Dawson & Partners (Contractors) Limited 1976 1 WLR 1213] clearly established that the parties cannot change a status merely by putting a new label on it. But if in all the circumstances of the case, including the terms of the agreement, it is manifest that there was an intention to change status, then in my judgment there is no reason why the parties should not be allowed to make that change. In this case, there seems to have been a genuine intention to change the status, and I find that the status was changed. It follows that there having been a change of status, the applicant cannot now say that there was not one.”
6.	We conclude that Mr Smith was originally an employee of the Respondents but that when he requested a change in his status to which the Respondents agreed he became self-employed as far as the Inland Revenue were concerned and in other ways. Applying Massey -v- Crown Life Insurance Co. we do not think that Mr Smith can now resile from that agreement and we therefore conclude that he was self-employed thereafter.”

	It is perhaps not surprising that from that decision there was an appeal. The grounds of appeal drafted by Mr Magnus Egan assert that the tribunal have elevated the appellant’s request for a change of status a matter which overrides other considerations. The skeleton argument refers to a number of well-known cases, but in particular it adverts to the fact that the same Industrial Tribunal, not the same constituted Industrial Tribunal, on 20th November in the case of Humphrey -v- Goodmayes Insulations Ltd on the same facts, apart from the fact that the respondent company proposed the change of status to self-employed, the Industrial Tribunal held that Mr Humphrey was an employee of the respondent company. 

	The question of whether or not a person is employed or self-employed has been an issue that has concerned the courts for many years. There are many reasons why an employer should wish to ensure that as few of possible of the workforce are employees. It relieves an employer from having to pay National Insurance contributions, from the obligation of having to deduct income tax, the need to pay holiday or sick pay, or to make redundancy pay, or to be at risk of a finding of unfair dismissal. It also has the effect that the employer is not vicariously liable for the acts of that particular individual in the circumstances and would pertain that that individual was an employee. It is also true that employers wish to retain their power to control and to supervise those whom they are anxious to designate as self-employed. 

	The correct test is one that has been the subject of almost a theological debate. As long ago as 1952, Denning LJ, as he then was, in the case of Stevenson, Jordan & Harrison Ltd v MacDonald & Evans [1952] 1 TLR 101, said this:

“It is almost impossible to give a precise definition of the distinction. It is easy to recognise a contract of service when you see it, but difficult to say wherein the difference lies. A ship’s master, a chauffeur, and a reporter of the staff of a newspaper are all employed under a contract of service; but a ship’s pilot, a taximan, and a newspaper contributor are employed under a contract for services. One feature which seems to run through the instances is that under of contract service a man is employed as part of the business and his work is done as an integral part of the business; whereas under a contract for services his work, although done for the business, is not integrated into it, but is only accessory to it.”

There have been numerous cases since, and a more dominant question has emerged, is whether a person is in business on his own account. Perhaps the most pithy test is to ask what would the applicant’s honest answer be to the question “are you your own boss?” That was a test formulated by Bristow J in the case of Withers v Flackwell Heath Football Supporters’ Club [1981] IRLR 307. 

	We adopt the general approach adumbrated by Mummery J, as he then was, in the Inland Revenue case of Hall (Inspector of Taxes) v Lorimer [1994] ICR 218 where it was quoted with the approval of the Court of Appeal at 226C:

“In order to decide whether a person carried on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The process involves painting a picture in each individual case.”

It is, of course, in a borderline case always difficult for any practitioner or any employer or employee or employee representative, to know exactly what the position is. The reality is that often decisions of appellate courts or tribunals on close analysis show that all that is being said is that on the particular factual matrix it was possible for an Industrial Tribunal to reach the conclusion it did do, rather than seeking to presume to lay down in concrete a rule of law as to how persons carrying out that sort of work should be classified. That is little comfort to those who have to advise, and little comfort for those who like, if I may say so in this case, Mr Aldridge, have to live with the consequence of the decision.

	There is no comprehensive definition. It is a matter of impression, fact and degree. In Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 WLR 775; 1 All ER 433, MacKenna J set out the multiple test when he said at page 439H:

“A contract of service exists if the following 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 provision of the contract are consistent with its being a contract of service.”

More recent cases such as Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, at 187, affirmed by the Privy Council in Lee v Chung [1990] ICR 409, have emphasised the question of whether a person is on business in his own account. The surrounding circumstances are looked at. There is no exhaustive list of these, but the provision of large capital assets, the right to delegate work, the extent of the obligation to work for that particular person, the methods of payment, intention, power of selection, the power to dismiss or suspend, the fixing of times and places at work, and many aspects have all been considered. It is not appropriate in a decision to review all the decisions. As I have already adverted to in this decision, the most pithy question adumbrated by Bristow J was “are you your own boss?”

	It is in that context that one should look at the parties’ definition of the relationship. A degree of judicial irritation has been expressed in certain of the decisions, that a person had been anxious to assert the status of being self-employed when it comes to tax and National Insurance, but equally anxious to assert that for the purposes of employment protection legislation, he or she is an employee. That view was perhaps put with characteristic pithiness in the case of Massey v Crown Life Insurance [1978] ICR 590 at 596E, where Lawton LJ, said this:

“In the administration of justice, the union of fairness, common sense and the law is a highly desirable objective. If the law allows a man to claim that he is a self-employed person in order to obtain tax advantages for himself and then allows him to deny that he is a self-employed person so that he can claim compensation, then, in my judgment, the union between fairness, common sense and the law is strained almost to breaking point. The applicant is asking this court to adjudge he is entitled to make claims with two different voices”

	One can well understand the feelings of the learned Lord Justice in expressing that view, but if one may say so with the greatest respect, those decision to which the tribunal adverted such as Ferguson and Massey ignore one fundamental feature, a fundamental feature which was highlighted by the decision of Stephenson J in the case of Young &Woods Ltd v West [1980] IRLR 201, at page 207, where at paragraph 24 the learned Lord Justice says this:

	“I am satisfied that the parties can resile from the position which they have deliberately and openly chosen to take up and that to reach any other conclusion would be, in effect, to permit the parties to contract out of the Act and to deprive, in particular, the person who works as an employee within the definition of the Act under a contract of service of the benefits which this statute confers upon him. If I consider the policy of the Act I can see the dangers, pointed out by Lord Justice Ackner in the course of the argument, of employers anxious to escape from their statutory liabilities under this legislation or the Factories Act offering this choice to person whom they intend to employ, as Mr West was employed, as employees within the definition of the Act and pressing them to take that employment - it may be even insisting upon their taking that employment - on the terms that it shall not be called that employment at all, but shall be called a contract for services with a self-employed person.”

S.203 of the Employment Rights Act 1996 re-enacts the provisions hitherto of s.140 of the Employment Protection (Consolidation) Act 1978 in that:

	“(1) Any provision in an agreement (whether a contract of employment or not) is void in so far as it purports-
	(a) 	to exclude or limit the operation of any provision of this Act, or
(b) 	to preclude a person from bringing any proceedings under this Act before an industrial tribunal.”

	We are fortified in our view that that is a correct statement of the law from the Court of Appeal decision in McMeechan v Secretary of State for Employment [1997] IRLR 353, in which they upheld the decision of the Employment Appeal Tribunal in which Mummery J presided. In his judgment Waite LJ affirmed the position that even where it had been reduced to writing, the court could not abdicate its responsibility of construing what the document meant in the context of its factual matrix. Other aspects of that decision are unnecessary for us to consider at any length.

	The position quite simply is that this tribunal misdirected itself in saying that Mr Smith could not resile from the agreement and they therefore concluded that he was self-employed thereafter. 

	In our view that is a fundamental misdirection of the law because it is, in our view, clear from the authorities since Massey, that although the parties’ definition of the relationship may well be a factor to which the tribunal should have regard, it is not determining factor, but instead is part of the balancing exercise so well set out in judgment of Mummery J, as he then was, in Hall v Lorimer. We consider that that was a fundamental misdirection as to law. The appropriate course is for this case to be remitted to a differently constituted tribunal for them to reconsider the issue in the light of the guidance that this tribunal has given to them. 

	We say at once that in no way are we presuming which way they should decide the matter. They consider the matter afresh and in the light of such factual findings as they make applying the correct approach and that is entirely a matter for them.