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HMRC internal manual

Employment Status Manual

Case Law: O'Kelly and Others v Trusthouse Forte plc

[1984] 1QB90

Point at issueMr O’Kelly and some other casual catering staff were claiming that Trust House Forte (“THF”) had unfairly dismissed them for an inadmissible reason. The preliminary issue in the case was whether they were employees working under contracts of service or independent contractors working under contracts for services.

FactsTHF kept a list of some 100 casual catering staff, known as “regulars”, who worked for them at the Grosvenor House Hotel in London. THF employed permanent staff but also engaged casuals to provide catering and other services in relation to their business of hiring out rooms in the hotel for private functions. The bar manager maintained a list of some 40 wine butlers and 60 food service waiters and waitresses - the “regulars”. Other casual staff numbering between 200 and 300 worked less regularly. Weekly rosters were published.

Mr O’Kelly was one of the wine butlers and he worked virtually every week for hours varying from as little as 3 in some weeks to as many as 57 in others. Some of the other factors taken into account by the industrial tribunal and which pointed to a contract of service were as follows:

  • Capital not invested
  • No opportunity to gain or lose
  • THF exercised control
  • Part of the THF organisation when working
  • Clothing and equipment provided by THF
  • Paid weekly in arrears
  • Disciplinary and grievance procedure in place
  • Holiday pay or incentive bonus.Factors not inconsistent with a contract of service included:

  • Paid only for work actually performed – no regular wage or retainer
  • No sick pay, not in pension scheme, no fringe benefits unlike regular employees
  • No regular or assured working hoursFactors inconsistent with a contract of service included:

  • Contract terminable without notice by either party
  • Applicants had right to decide whether or not to accept work
  • No obligation on THF to provide work
  • Mutual intention for self-employment
  • Custom in industry - casuals engaged under contract for services.

DecisionThe Industrial Tribunal found that because of the absence of mutuality of obligation the “regulars” were in business on their own account and were therefore working under contracts for services.

The EAT disagreed and allowed the applicant’s appeal on the basis that each individual contract was a separate contract of service and that the Industrial Tribunal had not considered this point. However, the Court of Appeal decided by a majority that the Industrial Tribunal had considered both the general and separate engagements points and consequently the EAT was not entitled to interfere with the decision. It therefore reinstated the Industrial Tribunal’s decision that the workers were engaged under contracts for services.

CommentaryThis case again illustrates the importance of mutuality of obligation in establishing the existence of an umbrella contract of service where there is a series of engagements. But it also confirms that, if there is no umbrella contract, the contracts for individual short-term engagements can be either contracts of service or contracts for services.

All the courts were agreed that there was no umbrella contract because of the absence of mutuality of obligation. The difficulties concerned the individual engagements and whether the Industrial Tribunal had considered whether the contract for each single engagement was a contract of service or a contract for services.

The EAT found that the individual short-term contracts were contracts of service.

However, whilst not disagreeing with this view, the Court of Appeal decided that the Industrial Tribunal had not erred in law and therefore the EAT had no jurisdiction to overturn their decision.

Ackner L.J. thought that the EAT erred in making a decision on the single contract point, which in his opinion had not been dealt with by the Industrial Tribunal, and the matter should have been remitted to that tribunal. But Sir John Donaldson M.R. and Fox L.J. both came to the conclusion that the Industrial Tribunal’s statement,

“It is our decision that the applicants were in business on their own account as independent contractors supplying services and are not qualified for interim relief because they were not employees who worked under a contract of employment”,indicated that they had considered not only whether there was an umbrella contract but also the nature of the individual contracts. The above statement was considered to be wholly sufficient reason for holding that the individual contracts were contracts for services.

Sir John Donaldson M.R. said in his judgment that “the industrial tribunal’s decision may have been surprising but it was certainly not perverse in the legal or any other sense”.

Consequently, even though a higher court may disagree with a lower court’s decision, it will only overturn that decision on a point of law or where it has reached a conclusion which no reasonable tribunal, properly instructed, could reach.