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HMRC internal manual

Employment Status Manual

Case Law: Nethermere (St Neots) Ltd v Gardiner and Taverna

[1984] IRLR 240

Point at issueThe Industrial Tribunal had to consider as a preliminary issue whether the applicants were “employees” employed under contracts of service or whether they were self- employed under contracts for services.

FactsMrs Gardiner was one of a number of outworkers engaged by a company, Nethermere (St Neots) Ltd, which manufactured trousers and also employed full- time staff in its factory. These outworkers were part-time and sewed trouser flaps and pockets using machines provided by the company. There were no fixed hours and they were paid according to the work that they did and were not obliged to accept any particular quantity of work.

Mrs Gardiner had previously worked in the factory as an employee up to 1976. In 1979 she began to do home work at first using her own machine but after a month or so the company supplied a machine. In general work was delivered to her and collected twice a day or daily. Mrs Gardiner worked all remaining 15 weeks of the 1979/80 financial year and worked all but 5 weeks of the next two years.

DecisionThe Industrial Tribunal found that Mrs Gardiner was engaged under a single contract of service. There had been a course of dealing over several years and mutual obligation had built up. The company appealed.

The EAT dismissed the appeal holding that whether a person worked under a contract of service or a contract for services was a question of law and not of fact. Since the particular circumstances of the case supported their view that they were not in business for themselves, the Industrial Tribunal had correctly concluded that the applicants were employed under contracts of service. The Court of Appeal in upholding the decision of the Industrial Tribunal decided that it could not interfere with the Tribunal’s decision because it had not misdirected itself in law or reached a perverse decision.

CommentaryThe Court reasoned that a contract of service had the irreducible minimum obligation between the parties whereby the individual was paid for the work done and was obliged to provide his own work and skill in the performance of a service for the employer.

Referring back to the words of MacKenna J in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (see ESM7030), Stephenson LJ said

“I do not quote what he says of (i) and (ii) except as to mutual obligations:

“There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill.”

There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service. I doubt if it can be reduced any lower than in the sentences I have just quoted…”A contract of service could arise where a course of dealing continued over several years and mutual obligation had built up.

In summing up Dillon L.J. stated:

“There was a regular course of dealing between the parties for years under which garments were supplied daily to the outworkers, worked on, collected and paid for. If it is permissible on the evidence to find that by such conduct a contract had been established … I see no necessity to conclude that the contract must have been a contract for services and not a contract of service.”In this case the argument prevailed that the conduct over the years established mutuality of obligation. As regards the nature of the contract, the provision of machinery by the company and the absence of financial risk by the individuals, were more conclusive than the loose arrangements regarding hours of work and holidays.

It is often difficult to establish the necessary ongoing mutuality of obligation to change a series of short-term contracts into a single “umbrella” contract. By contrast see the case of Carmichael v National Power plc (see ESM7200).