HMRC internal manual

Employment Status Manual

ESM7090 - Case Law: Narich Pty. Limited v The Commissioner of Pay-roll Tax

[1984] ICR 286

Point at issue

This is an Australian case that was decided by the Judicial Committee of the Privy Council. Judgments of the Judicial Committee in Commonwealth cases have no value to UK law where the points at issue only concern interpretation of statute of the Commonwealth country. However, they are of relevance where general law principles are considered.

The point at issue was whether lecturers engaged to conduct weight watching classes were employees or not.### Facts

Narich Pty. Limited (“Narich”) owned franchises throughout Australia of Weight Watchers International Inc. Under the terms of the franchises Narich organised weight watching classes. It chose and trained the lecturers for those classes and remunerated them for the lectures given. The lecturers had formal written contracts with Narich. The Privy Council also had regard to the terms of the Franchise Agreement between Narich and Weight Watchers and the terms of the Weight Watchers Lecturers’ handbook, which contained detailed instructions as to how various subjects were to be taught.

The lecturer’s contract and other documentation was comprehensive and the effect of the contract was to impose a number of obligations on every lecturer as to the manner in which the lecture was to be conducted. Coupled with the right to terminate, the court found that Narich was able to control not only the allotted task but also the manner in which it was performed.### Decision

The conclusion reached by the Privy Council was that lecturers were tied hand and foot by the contract with regard to the manner in which work is performed and, consequently, the lecturers were employees.### Commentary

In Lord Brandon’s judgment, he refers to three principles of law referred to in the case of Australian Mutual Provident Society v Chaplin and Another [1978] 18 ALR 385. The first principle referred to was

“that, subject to one exception, where there is a written contract between the parties whose relationship is in issue, a court is confined, in determining the nature of that relationship, to a consideration of the terms, express or implied, of that contract in the light of the circumstances surrounding the making of it: and it is not entitled to consider also the manner in which the parties subsequently acted in pursuance of that contract. The one exception to the rule is that, where the subsequent conduct of the parties can be shown to have amounted to an agreed addition to, or modification of, the original written contract, such conduct may be considered and taken into account by the court.”

The first principle mentioned in the case i.e. that you have regard only to the express or implied terms of a written contract in determining employment status, still applies.

However, the terms of many contracts are not in writing and, even if they are, they are not comprehensive. The agreed oral terms can only be discovered by speaking to the parties. Where the terms are not express (written or oral), then the courts will look to see whether any terms can be implied by the conduct of the parties, by custom and practice etc.

It should also be remembered that terms might well have been varied by agreement, either orally or in writing, at a later date. It should perhaps be added that one of the exceptions would be where a clause (or clauses) is ineffective or a sham (see ESM7210).

In relation to the second principle concerning control, the comment by Lord Brandon that control is “the most important, and in most cases, the decisive criterion for determining” status is an interesting one. It seems at first glance to be at odds with the views expressed by Cooke J in the Market Investigations case (see ESM7040). The facts in both cases were similar with the interviewers in the Market Investigations case being sent detailed instructions about each assignment including the questions to be asked.

A closer examination of Cooke J’s reasoning does however illustrate that he felt the control exercised was “so extensive as to be entirely consistent with Mrs Irving’s being employed under a contract of service”. He then went on to look at the contract as a whole but came to the view that the other factors were not sufficient to lead to the conclusion that she was in business on her own account.

The conclusion to be drawn is that, where there is scope for control over how work shall be done and the engager has such a right, then it is clear that it may well be considered to be a decisive factor but the other factors present must also be weighed.

The court also found that although the manual was noted as “for guidance only” it would have been impossible for a lecturer to use it only as a guide. Effectively, the lecturer was obliged to follow the manual in the way he or she worked. The conclusion to be drawn is that the practical effect of a manual or handbook can be to go beyond guidance and actually impose obligations as to how someone works. If so this will amount to control as to the manner in which the work is to be done.

The third principle was to reiterate the point made by Lord Denning in Massey v Crown Life Insurance Company (see ESM7070) that the label the parties put on their relationship does not determine the employment status.

Another point to come out of the case stems from the comments of Lord Brandon about how to interpret the terms of the lecturers’ contracts. Referring to Narich’s Franchise Agreement with Weight Watchers, to which the lecturers were not party, he said

“The Franchise Agreement forms a part, and in their Lordships view, an important and significant part, of the circumstances surrounding the making of both the earlier and the later contracts between Narich and its lecturers, and its terms are therefore relevant in interpreting the latter.”

In appropriate cases it may therefore be necessary to consider the terms and conditions set out in a third party contract where these are closely bound up with the working relationship you are concerned with.