APPEARANCES
| For the Appellants |
MR ANTHONY KORN
(of Counsel)
Direct Public Access Scheme |
| For the Respondent |
MR ADAM OHRINGER
(of Counsel)
Instructed by:
MGP Law Solicitors
Media House
4 Stratford Place
London
W1C 1AT |
SUMMARY
CONTRACT OF EMPLOYMENT – Whether established
The Claimants were engaged by the Respondent as caretaker/manager of a house and small farm estate, responsible for undertaking duties which included what might be described as estate management together with maintenance of the house and grounds, including housekeeping. The written agreement was avowedly an agreement to employ them. The ET held that they were workers, not employees, because the Respondent did not have sufficient control, having divested itself of day to day control.
Held: the ET erred in law. The true question for the ET was whether the Respondent retained a sufficient right of control, not whether it exercised day to day control. Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 discussed and applied. The Respondent retained a sufficient right of control: the Claimants were employees.
HIS HONOUR JUDGE DAVID RICHARDSON
- This is an appeal by Mr Gary White and Ms Katy Todd against part of a judgment of the Employment Tribunal ("the ET") sitting in London South (Employment Judge Baron sitting alone) dated 6 June 2011. The ET held that they were "workers" for the purposes of the Employment Rights Act 1996 and that their contractual relationship was with Troutbeck SA ("Troutbeck"). Both sides have accepted those findings. But the ET rejected their contention that they were employees. Against that part of the judgment they appeal.
- Section 230(1) and (2) of the Employment Rights Act 1996 provide:
"(1) In this Act "employee" means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.
(2) In this Act "contract of employment" means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing."
The background facts
- Starcross Farm in Surrey consists of a substantial farmhouse with an adjoining flat, a stable yard, two or three barns and about 88 acres of land. Since 1999 it has been owned by Troutbeck and another Panamian company also in the ownership of Mr Michael Ibru. His daughter is Miss Tejiro Ibru. The family is Nigerian.
- Mr White's family has been connected with Starcross Farm for many years. His grandfather was farm manager to predecessors in title of Troutbeck until 1986. Then his father took over. His father stayed on when the Ibru family companies took over. When his father became seriously ill in March 2005 Mr White and his partner Ms Todd moved in to look after him. They also started to deal with urgent practical matters. Mr White was a general builder with his own business premises. Ms Todd was employed at Surrey University. When his father died in June 2006 Mr White offered "to continue the upkeep ... on a more permanent basis". Negotiations started with Miss Ibru.
- In an email dated 7 September 2006 Mr White said that he and Ms Todd would provide the following services.
- "Overall management insuring tenant boundaries are maintained at all times
- All maintenance issues dealt with as they arise for house, stables and out buildings
- Improvements to the house that require building skills and tradesman tools
- Gardens and grounds kept in good condition
- House bill paid from a central account that you have internet access to
- Detailed accounts forwarded to you once a month
- Working with an agent regarding tenant issues"
- No agreement had ever been signed by Mr White's father. A draft agreement had evidently been prepared and served as a starting point for an agreement which was eventually signed by Mr White, Ms Todd and Miss Ibru dated 1 August 2009 after a process of negotiation. The ET found that they signed it voluntarily, though they may have been unhappy with some provisions, especially the remuneration. Neither side took professional advice.
The agreement
- Under the agreement "the owner" is Troutbeck. Mr White is said to be "the caretaker/manager" and Ms Todd "the caretaker", though these terms are not used consistently throughout the agreement.
- The agreement plainly envisaged that Mr White and Ms Todd would be employed. Clause 2 states:
"The owner shall employ the caretakers/managers as caretakers/managers of Starcross Farm."
- The commencement date of the agreement is said to be "the date of the beginning of the employment". It was a requirement of the agreement that the flat would be occupied "in order properly to perform his or her duties" and would be vacated after the caretaker "ceased to be employed". The period of "continuous employment" would continue until termination, which was to be on 3 months notice in writing on either side. There was provision for 30 days holiday "at such times as the owner considers convenient".
- Clause 4 was headed "Duty to take care of the accommodation". It provided as follows:
"The manager/caretakers shall take reasonable care of the accommodation and grounds including
General Maintenance
- Maintaining garden machinery
- To uphold and maintain the leased portion of the property
- Fixtures, drains and gutters
Housekeeping
- Laundering of all bed linen
- Making up bedrooms prior to family visits
- Windows inside and out (excluding high hall windows)
- Floor areas and soft furnishing
Garden and grounds
- Indoor and outdoor plants
All maintenance that requires expenditure will be reported to the owner before any work commences"
- Clause 8 seems to overlap with clause 4. It was headed "Day to day management" and provided:
"The caretaker shall be primarily responsible for taking care of the premises and will devote such time and attention to the premises as is necessary for its efficient maintenance and management.
The duties of the caretaker shall include:
(i) Grounds keeping duties at the premises including watering of plants and flowers when needed, mowing the lawn, sweeping and raking as necessary, cleaning of all accessible parts, cleaning and maintenance of the swimming pool and other duties necessary to ensure the due performance of this agreement.
(ii) Housekeeping duties at the premises including keeping the house clean and tidy, ensuring the house and premises are secure at all times, monitoring the condition of the house and carrying out the duties necessary to ensure the upkeep of the house, grounds and premises."
- Clause 9 was headed "no fixed hours" and provided:
"The caretaker may be employed by or in any other work for any person if that work does not, in the opinion of the owner, in any way diminish or restrict the performance of his duties under this agreement."
- Clause 12 provided:
"In consideration of the premises the owner shall
(i) Pay a personal allowance of Net GBP 600 per month in total to the caretakers/manager. Reviewable annually. Be responsible for all rates, outgoings, including council tax for the caretakers/manager and expenditure for the upkeep of the premises as deemed fit by the owner.
(ii) Keep separate from this employment agreement any further business proposals generated by the caretaker/manager and will be considered in a separate agreement subject to approval by the owner.
Further facts
- The ET found that the Ibru family were in reality absentee owners who rarely visited the property. They did, however, visit on occasions and no doubt expected the house to be prepared for their visits. Miss Ibru in her witness statement accepted a description given by Ms Todd in a letter dated 12 December 2009 that her work included:
"cleaning, maintenance and gardening and preparation of the house for when the owners of the main house choose to visit for a few days once or twice a year"
- The ET also found that Miss Ibru's position was that Mr White should manage the farm so that it paid for itself, including any fee or wage for him and Miss Todd. How he did it, the ET said, was a matter for him.
"The dominant feature is that Miss Ibru wanted principally Mr White to husband her family's asset in Surrey, and it was to be left up to him largely how that was to be done."
- Notice to terminate the agreement was given on 11 March 2010. It was in terms a notice to terminate "employment". After this the parties fell into dispute.
The ET's reasons
- The ET was referred to, and set out, the definition of a contract of service in the judgment of MacKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497.
- It was expressly recorded that neither party suggested that the 2009 Agreement was a sham (in the sense that it was never intended to represent the true relationship between the parties): see paragraph 43 of the reasons.
- The ET found that there was a contract under which Mr White and Ms Todd were required to do work and were entitled to be paid for that work. There was "mutuality of obligation and the possibility of there being an employment contract". The sole employer was Troutbeck. Each was "at least a worker".
- The ET then turned to consider the question whether they were employees, saying:
"I have to look at the reality of the relationship, but taking the 2009 Agreement as the starting point."
- There then follow the three paragraphs which are critical to this appeal.
"48. Mr Korn submitted that there was a degree of control by the Ibru family over the work done. I do not accept that proposition if (as presumably it was) it was intended that the adjectives 'substantial' or 'significant' were to qualify the word 'control'. The whole essence of the relationship was that Miss Ibru wished to delegate principally to Mr White the running of the farm so as to ensure if possible that the buildings were maintained, and that there was sufficient income gained so as to meet most relevant outgoings. The method by which those ends were to be met was not specified. There were no hours of work specified and indeed clause 9 is headed 'No fixed hours'.
49. On the other hand, the 2009 Agreement used the word 'employ' and references to such a relationship were included in the termination letter of 11 March 2010. There was a provision for holiday to be taken and although not specifically stated it is clear that it was intended to be paid holiday.
50. Standing back and looking at the relationship overall, I find that the Claimants were not employees of Troutbeck. The most important element is that Miss Ibru deliberately divested the Ibru family of day-to-day control during discussions with Mr White, and further the 2009 Agreement delegated responsibility to them. There was never any suggestion of actual control being exercised by the Ibru family, save for the point that if expenditure was to be incurred then that fact had to be reported to them. I note in that respect that the phrase is 'reported to' and not 'approved by'. Being absentee owners they wanted someone to be responsible for the maintenance and management and make the decisions himself. That is not employment."
- The ET's judgment was given prior to the decision of the Supreme Court in Autoclenz v Belcher [2011] IRLR 820. When the appeal was considered on paper by His Honour Judge McMullen QC he stayed the appeal to give to Mr White and Ms Todd an opportunity to apply to the ET for a review "so that the ET can consider the effects of Autoclenz v Belcher [2011] IRLR 820". The ET dealt with the matter on paper.
- The ET quoted from the judgment of Aikens LJ in Autoclenz (which was itself quoted with approval by Lord Clarke, giving the leading judgment):
"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?"
The ET continued:
"I agree entirely with Mr Ohringer that this is the test which I sought to apply at the pre-hearing review. Whether or not that is the correct test, and whether I applied that test correctly is a matter which ought properly in these circumstances to be the subject of an appeal, rather than a review.
I do not accept the proposition advanced by Mr White that it is only if the written agreement in some way disguises the truth of the relationship that it is appropriate to look at what terms were agreed between the parties is either accurate or material to these circumstances. In saying that I am assuming that the word 'disguises' imports some positive intent by one or other of the parties, or both of them, to create a document which does not truly represent the actual agreement. The passage from the judgment of Aikens LJ cited in paragraph 21 of the Supreme Court judgment which I have set out is the correct test."
Submissions
- On behalf of Mr White and Ms Todd Mr Korn's first submission was that the ET fundamentally erred in law in applying the Ready Mixed Concrete test. He submitted that the ET should have applied a multi-factorial test; he took me to cases in which such a test had been considered or applied; he sought to distinguish between those cases and the Ready Mixed Concrete test; and he submitted that it was an error of law to regard the "control test" as a determining factor.
- Mr Korn then submitted that the ET erred in law in respect of the "control" test. It was wrong to conclude that control had to be substantial or significant: this was not the modern law. It was only necessary that there should be a contractual right to exercise control to a sufficient degree ("a certain minimum degree", per Aiken LJ in Autoclenz [2010] IRLR 70 at para 74); and the cases (for example Cassidy v Ministry of Health [1951] 1 All ER 579 at 585) demonstrate that in some cases the control may in practice be notional. He further submitted that the ET restricted itself to considering whether the control concerned the manner in which the work was done, and to the question of day to day control. The test, however, was concerned with all aspects of control.
- Mr Korn submitted that, on a true understanding of the control test and a true interpretation of the agreement, Troutbeck had a sufficient right of control to be the employer. He took me to features of the agreement which (he submitted) showed that Troutbeck retained control over the key issues of income and expenditure; and he submitted that although Troutbeck may not have exercised day-to-day control, it retained sufficient right of control.
- Mr Korn thirdly submitted that the ET erred in law in looking at what it described as the "reality of the relationship". Mr Korn argued that, since the parties had reduced the terms of their agreement to writing, and the written agreement was not a sham, the task of the Tribunal was to determine the true meaning and effect of the document: see Carmichael v National Power [2000] IRLR 43 at paras 18-19. This was not a case such as Autoclenz v Belcher [2011] IRLR 820 where a clause was inserted into the agreement which did not reflect the true relationship.
- Mr Korn finally submitted that the ET's judgment on this question was perverse. He accepted that this test imposed a high burden on an appellant; but he took me to features of the evidence which, in his submission, demonstrated that this test was met.
- On behalf of Troutbeck Mr Ohringer submitted that the ET was correct to apply the principles in the Ready Mixed Concrete case, which (he pointed out) had since been cited with express approval by the Supreme Court in Autoclenz.
- He further submitted that the ET was not restricted to considering the terms of the written agreement when deciding if the contract was a contract of employment. If and only if the written agreement was intended to be an exclusive record of the parties' relationship would the EJ be so restricted, and then the question whether the written agreement created a contract of employment would be a question of law for the ET. He cited Carmichael and Ministry of Defence HQ Dental Service v Kettle [2007] UKEAT/0308/06/LA. He submitted that the ET plainly did not find that the written agreement was intended to be an exclusive record of the parties' relationship. Accordingly the ET was entitled to look at the wider picture.
- Mr Ohringer submitted that the ET's finding – that the requisite element of control was lacking – was open to it, and contained no error of law.
Discussion and conclusions
- Contrary to Mr Korn's first submission in my opinion the ET was correct to take the Ready Mixed Concrete test as its point of departure. The recent Supreme Court decision in Autoclenz v Belcher [2011] IRLR 820 confirmed that it remains the "classic description of a contract of employment": see the judgment of Lord Clarke (with which all other Justices agreed) at paragraph 18.
- It is convenient, before passing on, to set out the central passage from the judgment of MacKenna J:
"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."
- I would emphasise that this is a multi-factorial test. The so-called "control test" is not the only test applicable in determining whether a contract is a contract of employment. The third element of MacKenna J's judgment makes it plain that a wide range of factors may be taken into account in deciding whether the arrangement is properly to be classified as a contract of employment or some other recognised form of contract: see 516B-517B of his judgment.
- Further, in so far as Mr Korn put forward a free-standing argument that the ET's decision was perverse, I reject that argument. If the ET directed itself correctly in law, its decision would not be impeachable on the grounds set out in such cases as Yeboah v Crofton [2002] IRLR 634 (see paragraphs 93-95). To my mind the real question in this case is whether the ET directed itself correctly in law.
- It is, I think, plain that the ET decided the case principally upon a finding about control. It said that Miss Ibru "specifically divested the Ibru family of day-to-day control during discussions with Mr White"; and that there was "never any suggestion of actual control being exercised by the Ibru family, save for the point that if expenditure was to be incurred then that fact had to be reported to them". The ET did not accept the proposition that the Ibru family exercised control if by that was meant "substantial" or "significant" control.
- It is to my mind important to look in rather more detail at what the law requires in respect of control.
- In Ready Mixed Concrete MacKenna J said the following:
"Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when, and the place where it shall be done. All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted.
'What matters is lawful authority to command, so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.' Zuijus v Wirth Brothers Pty Ltd ((1955), 93 CLR 561 at p 571.).
To find where the right resides one must look first to the express terms of the contract, and if they deal fully with the matter one may look no further. If the contract does not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication."
- This passage, which the ET did not cite, seems to me to be of real importance to the resolution of this case. It makes the following points clear.
- Firstly, the key question is whether there is, to a sufficient degree, a contractual right of control over the worker. The key question is not whether in practice the worker has day to day control of his own work.
- It has often been observed that in modern conditions many workers – especially the professional and skilled – have very substantial autonomy in the work they do, yet they are still employees. But this has, I think, always been the case. There have always been great houses and estates left for long periods in the practical care and stewardship of servants while the owners and masters have been away. The fact that these servants have been left in charge has never prevented the law – and the parties – from regarding them as being retained under contracts of service. There would be no doubt that the owners retained the right to step in and give instructions concerning what was, after all, their property. It does not follow that, because an absentee master has entrusted day to day control to such retainers, he has divested himself of the contractual right to give instructions to them.
- Secondly, all aspects of control are relevant to this question. It was once thought that for a contract of employment to exist the master must be empowered to direct not only what is to be done but also the manner in which it is to be done. But many kinds of employee – such as the surgeon, the captain and the footballer discussed by Somervell LJ in Cassidy v Ministry of Health [1951] 1 All ER 574 at 579 – are engaged to exercise their own judgment as to how their work should be done.
- Thirdly, the starting point lies in the express terms of the contract between employer and employee. If the express terms of the contract do not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication.
- I would add, from Autoclenz, one further point. Lord Clarke said (paragraph 19):
"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."
- In my judgment what was required was to analyse the terms of the agreement between the parties to see whether, expressly or by implication, Troutbeck – in practice Miss Ibru – retained a right of control to a sufficient degree. I do not think this process is really to be found in paragraphs 48 to 50 of the ET's reasons. Moreover, for the reasons I have given, it is not inconsistent with the concept of employment for an absentee owner to want someone to be responsible for maintaining and managing their property. The question is not by whom day to day control was exercised but with whom and to what extent the ultimate right to control resided. I therefore conclude that the ET's approach was wrong in law.
- In my judgment there are strong indications in the written agreement that Troutbeck indeed retained a sufficient right of control.
- Clause 4 provided that all maintenance which required expenditure would be reported to the owner before any work commenced. There would be little point in such a provision unless the owner had the right to give instructions concerning maintenance involving expenditure. It would also be very surprising if the owner of the property did not retain the right to give such instructions. The property belonged to Troutbeck; the responsibility for meeting any expenditure lay with Troutbeck; clear words would be required before it could be found that Troutbeck had divested itself of a right to give instructions concerning such expenditure.
- Clause 11 also makes it plain that the owners retain the right to make the final decision on any improvements. I do not think much weight can be attached to clause 11, since (so far as I can see) the duty of Mr White and Ms Todd was to maintain rather than improve. I doubt whether clause 11 would have enabled Troutbeck to instruct Mr White to make improvements, as opposed to taking care of the premises, without further remuneration. But it shows that there was no intention to place Mr White, still less Ms Todd, in the position where they could resist Troutbeck's right to control any works of improvement.
- It is, I think, also relevant to keep in mind that, although the Ibru family were rare visitors, the house and part of the grounds was available for their use and they occasionally visited. Given the many routine duties which Mr White and Ms Todd undertook, it would be particularly surprising if there was no right to give them instructions concerning ground-keeping and house-keeping in connection with a visit. Clear words would, in my judgment, be required to divest Troutbeck, the owners of what was in part a home for them to visit, of the right to give reasonable instructions about the house and grounds during the period of a visit. I see nothing in the agreement to suggest that Troutbeck lacked the right to give such reasonable instructions. This right is a normal incident of the engagement of a caretaker or housekeeper.
- Two other respects in which Troutbeck retained a right of control are (1) the employment of the caretaker in any other work, to which the owner might object if "in the opinion of the owner" it diminished or restricted the performance of the caretaker's duty (clause 9), and (2) the taking of holidays by the caretaker "at such dates as the owner considers convenient".
- Looking at the written agreement in the round, I have no doubt that, while substantial day-to-day responsibility was placed on the shoulders of Mr White and Ms Todd, Troutbeck retained a sufficient right of control. Mr White and Ms Todd were, when all is said and done, the manager, caretaker and housekeeper of a substantial asset belonging to Troutbeck. It would be surprising indeed if Troutbeck had divested itself of the right to control, and I see no reason to suppose that it did so.
- In reaching these conclusions, I have not forgotten that the ET did not restrict itself to the terms of the written agreement. The point, however, which the ET drew from the oral discussions between Ms Ibru and Mr White and Ms Todd is that Ms Ibru "divested the Ibru family of day to day control". This, as I have endeavoured to explain, is not the point. The question is whether Troutbeck retained a sufficient right to control what Mr White and Ms Todd did in the course of their duties. This is a question of contract; it was no-one's case that the written provisions were a sham; and the oral exchanges to which the ET referred related to the delegation of day to day duties rather than the owner's ultimate right to exercise control.
- The question then arises whether the EAT is in a position to substitute its own conclusion - which, on established principles, it should only do if (once the law is applied correctly) it is plain what the correct answer must be. To my mind it is indeed plain, once the law is applied correctly, that Mr White and Ms Todd agreed to be subject to a sufficient degree of control for Troutbeck to be their employer.
- In my judgment it is then also plain that Mr White and Ms Todd were employed by Troutbeck. To my mind the other provisions of the contract are consistent with Mr White and Ms Todd being employees. I would add that, if I had thought there was any real doubt or ambiguity about the matter, I would have regarded the label so clearly placed by the parties upon the relationship as decisive: see Massey v Crown Life Insurance [1978] IRLR 31 at paragraph 13 (Lord Denning MR).
- For these reasons the appeal will be allowed; and a finding will be substituted that Mr White and Ms Todd were employees of Troutbeck.
