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The London Employment Appeal Tribunal (EAT), in a majority decision given on 23 November 2005 in the case Bly Construction Ltd v Cochrane, has ruled that a self-employed subcontractor was not a "worker" and not, therefore, entitled to holiday pay under the Working Time Regulations 1998 (WTR).
The Regulations state:
'Worker' means an individual who has entered into or works under (or, where the employment has ceased, worked under) -
- a contract of employment; or
- 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.
The terms of the contract between the parties appear to have been written specifically to avoid the situation described in what is generally called "limb (b)" of this definition arising. The relevant terms of the contract are as follows:
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7. The Sub Contractor may send a substitute at his absolute discretion but such substitute may be rejected by AD BLY Construction if AD BLY Construction is reasonably satisfied that the substitute does not possess the necessary skills, qualifications and experience required.
18. The Sub Contractor will not be entitled to receive holiday pay or Bank Holiday pay or special absence pay in any circumstances.
21. The contract for services can be immediately terminated by either party for whatever reason and no notice is required to be given. The Sub Contractor is not entitled to partake in any grievance procedure offered by AD BLY Construction.
23. AD BLY Construction is not obliged to offer contract or Works to the Sub Contractor nor is the Sub Contractor obliged to accept such contracts or Works if offered. The Sub Contractor is not obliged to make his services available. Specifically both parties accept that they do not wish to create or imply any mutuality of obligations whatsoever, at any time, either during or in between any individual Contract for Services".
30. The Sub Contractor is free to undertake other Contracts for Services for other parties at any time, before, after, or concurrently with this Contract for Services.
31. AD BLY Construction acknowledges and agrees that he does not have first call on the services of the Sub Contractor and cannot require the Sub Contractor to give him, AD BLY Construction any priority over another contractor.
32. The Sub Contractor may advertise his services in any way he sees fit and AD BLY Construction shall not raise any objection.
33. The Sub Contractor may sign write his own vehicle and equipment with his own business name in any way he sees fit and AD BLY Construction shall not raise any objection.
34. The Sub Contractor may use his own business name and AD BLY Construction will not object.
35. The Sub Contractor agrees that as an independent person in business on his own account is responsible for his own tax and national insurance".
Mr. Cochrane was a labourer and was treated by Bly Construction as a self-employed subcontractor. He had a CIS4 registration card and Bly Construction deducted tax from payments made to him. An employment tribunal, following decisions made in a number of similar situations, decided that Mr. Cochrane was a "worker" on the basis that, although he frequently did not work a full week, he always accepted the work offered and, in practice, he always performed the assigned work personally. As a result, the tribunal decided that he was entitled to the statutory period of paid holiday leave set out in the WTR.
As an important matter of principle, the EAT made it clear that, in considering the terms of a written agreement made between the parties, including workers' contracts, the court or tribunal must look at the overall circumstances in being astute to detect and frustrate sham devices and artificial transactions. If an employment tribunal finds as fact that the words of a written contract do not truly reflect the intentions of the parties when entering into the contract, they may say so and go on to find that the claimant is a worker as defined in the Regulations.
In the circumstances of the case, two members of the EAT agreed with the finding of the employment tribunal that, as defined in clause 23 of the contract, the company was not obliged to offer work and Mr. Cochrane was not obliged to do the work if offered. The third EAT member disagreed, taking the view that the simple existence of the contract meant that there was "mutuality of obligation" between the parties and that this was sufficient for the limb (b) conditions to be met.
In connection with the requirement under limb (b) for work to be performed personally, the EAT affirmed the point made in the 2004 Court of Appeal decision in the case Wright v Redrow Homes, that it is the "intention" of the parties that is important, not their "expectation". Even if the contract states that an equally skilled substitute can be sent to do the job, a tribunal is entitled to look at the employer's intentions and consider whether there is, in practice, a requirement that the work be performed personally.
The EAT did not make any comment as to whether it felt that the carefully worded clauses of the Bly Construction's contract were "sham devices and artificial transactions". There was no suggestion that the company did not intend to apply the clauses as defined. However, in any such case, a tribunal is entitled to determine whether, despite the contract wording, the intentions are principally to avoid the application of limb (b).
...back to 15 December 2005
Source:
A D Bly Constructions Ltd v Mr A T Cochrane
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