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HMRC internal manual

Employment Status Manual

Montgomery v Johnson Underwood Ltd

(9 March 2001 unreported)

Point at issueWhether a person who was engaged by an employment agency to provide her services as a receptionist/telephonist to a third party was engaged by the employment agency under a contract of service or by the third party under a contract of service.

FactsMrs Montgomery responded to an advertisement by an employment agency, Johnson Underwood (JU), and registered with that firm. Subsequently, JU telephoned to say there was a suitable vacancy with a local company, Orenstein & Kopple Ltd (O&K), and she started work with O&K on 1 June 1995. JU made payment for hours worked directly into her bank account. Payment was calculated in accordance with time sheets approved by O&K. There were two sets of relevant terms and conditions. One relating to the contract between Mrs Montgomery and JU and the other to the contract between O&K and JU. Mrs Montgomery worked on weekday afternoons until late 1997 when the engagement was terminated. Mrs Montgomery claimed compensation for unfair dismissal naming JU as the employer, subsequently adding O&K.

DecisionThe Employment Tribunal found that Mrs Montgomery was an employee of JU but not an employee of O&K. On appeal, the Employment Appeal Tribunal (EAT) dismissed appeals by both Mrs Montgomery and by JU, the latter being a majority decision. JU appealed against the EAT decision and the Court of Appeal upheld that appeal.

CommentaryThe Court of Appeal confirmed with approval the passage from the judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pension and National Insurance [1968] 2QB497relating to what is meant by a contract of service. Longmore LJ makes the position clear where he says “mutuality of obligation and the requirement of control on the part of the potential employer are the irreducible minimum for the existence of a contract of employment”. There was a clear finding by the Employment Tribunal that there was “little or no control, supervision or direction” by JU of Mrs Montgomery and that finding of fact was fatal to the Tribunal’s decision that Mrs Montgomery was an employee of JU.

Although the Court of Appeal did not consider the matter of mutuality of obligation in any detail because of the finding that sufficient control was absent, they did confirm the views of Stephenson LJ in the case of Nethermere (St Neots) Ltd v Gardiner and Another in relation to the irreducible minimum of obligation. In Mr Justice Buckley’s judgment, it appears that some sentences in MacKenna J’s judgment in the Ready Mixed Concrete have not been fully reproduced and this could lead to confusion. The relevant sentences of Stephenson LJ’s judgment in the Nethermere case, where he refers to MacKenna J’s judgment are:-

“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…”The irreducible minimum for the existence of a contract of employment should not be confused with the irreducible minimum of obligation.