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Case Law: Autoclenz Ltd and Belcher & Ors

[2009] EWCA Civ 1046

Date of hearing 13 October 2009

Before Lord Justice Sedley; Lady Justice Smith and Lord Justice Aikens

Point at Issue

Whether car valeters engaged by Autoclenz Ltd (“Autoclenz”) were self-employed, employees or limb (b) workers within the meaning of section 230(3) of the Employment Rights Act 1996.

Facts 

A group of 20 car valeters brought a claim before the Employment Tribunal seeking a declaration that they were workers or employees and therefore entitled to statutory employment rights. Autoclenz contended that the valeters were self-employed and not entitled to any statutory rights.

All valeters had signed a written contract which had been revised in 2007. Any valeter who declined sign the new 2007 contract would not be offered future work.

The Employment Tribunal (“ET”) held that the valeters were employees adding that if he were found to be wrong then they were certainly limb (b) workers.

Autoclenz appealed the decision to the Employment Appeal Tribunal (“EAT”) who allowed the appeal but held that the valeters were limb (b) workers.

Autoclenz appealed to the Court of Appeal (“CoA”) against the EAT decision on the basis that the valeters were self-employed, The valeters cross-appealed contending they were employees.

CoA Judgment 

The CoA approved the judgment of MacKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions [1968] 2 QB 497 and the tests which must be applied in determining a contract of employment, describing it as “The classic description of a contract of employment …”.

Contract

Smith LJ concluded at paragraph 12 that the terms of the contract are often not clear and findings as to the true contractual terms must be made before applying the test laid down in the Ready Mixed Concrete case, going on to say written documents containing contractual terms may or may not cover all of the contractual terms. She recognised that one party may seek to rely on the written contract as accurately defining the contractual terms while the other party claim the written document does not represent the true agreement.

Smith LJ, at paragraph 14, went on to describe the correct approach to determining the true nature of an agreement by referring to her own judgment in the case Protectacoat Firthglow Ltd v Szilagyi [2009] IRLR 365 at paragraph 57:

“In a case involving a written contract, the Tribunal will ordinarily regard the documents as the starting point and will ask itself what legal rights and obligations the written agreement creates. But it may then have to ask whether the parties ever realistically intended or envisaged that its terms, particularly the essential terms, would be carried out as written…”.

Autoclenz implemented a new contract in 2007 which the valeters were required to sign. The contract it was contended was to clarify certain matters which, it was said, were unclear and did not alter the terms and conditions under which the valeters worked. Smith LJ sets out the full terms of the 2007 contract at paragraph 19.

In considering reality of the terms within the contract the ET referred to the approach as set out in the judgment of Elias P in Consistent Group Ltd v Kalwak [2007] IRLR 560:

“In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.”

ET Decision 

In considering the contractual documents the Employment Judge (“EJ”) observed at paragraph 27 that Autoclenz “…imposed all of the terms…” on the valeters and that “…there was no negotiation.”

The EJ concluded that on the basis of the evidence before him the true nature of the relationship was that the valeters were employees for the following reasons:

  • They were not businessmen on their own account;
  • They had no control over the way in which they did their work;
  • They had no control over the hours they work other than they could leave when their share of the work was completed;
  • They had no real economic interest in the way the work was organised other than the more work they do the more they earn;
  • They cannot source materials themselves;
  • They are subject to the direction and control of Autoclenz employees on site i.e. they have no say in the terms upon which they perform work; the contracts on which they work are devised entirely by Autoclenz and the services they supply are subject to a detailed specification;
  • Invoices they submit are prepared by Autoclenz;
  • Autoclenz determines the deductions applied to the invoices and the amount charged in respect of insurance and materials;
  • Rates of payment are determined by Autoclenz who can increase or reduce the rates unilaterally;
  • There is nothing the valeters can do to make their ‘business’ any more profitable in the way in which they organise themselves;
  • They are integrated into Autoclenz business;
  • They have no real other source of work;
  • They are required to provide personal service

EAT Appeal 

Autoclenz submitted 11 grounds of appeal but the EAT determined the appeal on only one, namely that the EJ had misdirected himself in Law by following the guidance of Elias P in the Kalwak case.

The Judge concluded that the EJ had misdirected himself by holding that the written contract did not represent the true relationship between the parties. The EAT Judge found that there was no evidence that both parties intended written terms in the contract to be misleading. He said that the guidance of Elias P had been wrong and had been overruled by the CoA, citing a passage from paragraph 40 of Rimer LJ’s judgment in Consistent Group Ltd and (1) Kalwak and Others (2) Welsh Country Foods [2008] EWCA Civ 430. The EAT judge considered the judgement of Rimer LJ entailed a fundamentally different approach from the guidance offered by Elias P.

The Judge set aside the ET decision that the valeters were employees but in deciding not to remit the matter back for a rehearing, agreed, on the facts found, the valeters to be limb (b) workers.

Appeal/Cross Appeal to the CoA 

Autoclenz appeal was on the basis the EAT was wrong to hold the valeters to be limb (b) workers and that the EJ had made various findings of fact which were inconsistent and/or perverse and the EAT had not correct these.

The valeters cross appeal was that the EJ had correctly considered the genuineness of the written clauses and that without the EJ’s notes of evidence it was not possible to consider whether any of the findings were perverse.

Smith LJ accepted that it was not possible to mount a perversity challenge unless the Court is provided with the evidence which was before the fact finder [EJ].

The principal complaint by Counsel for Autoclenz was that the EJ had not been justified in finding that there was a contractual obligation on the valeters to turn up for work. Smith LJ rejected this submission on the basis that the EJ had based his findings on the evidence of an Autoclenz depot manager who said a valeter was required to give adequate notice of his intention to take time off, a days advanced notice at slack times and up to 7 days advanced notice at busy times. Also, evidence from one of the valeters was that Autoclenz would not tolerate a valeter simply choosing whether to turn up or not. Smith LJ concluded this evidence was sufficient to justify the EJ’s conclusion that the valeters were under an obligation to attend work unless a prior arrangement had been made.

The fundamental point in the appeal related to the correctness of the approach of the EJ and EAT to the question of whether an express term in a contract should be disregarded because it does not represent the true intentions of the parties.

Smith LJ said the CoA had considered the correct approach in the Szilagyi case and in particular the tension between the approaches of Elias P and Rimer LJ in the Kalwak case. The Szilagyi case concluded that where one party was relying on the genuineness of an express term and the other party was disputing it, there was no need to show that there had been a common intention to mislead. Smith LJ went on to say at paragraph 49:

“That was particularly so in a contract in the employment field where it was not uncommon to find that the ‘employer’ was in a position to dictate the written terms and the other party was obliged to sign the document or not get the work. In such a case, there was no need to show an intention to mislead anyone; it was enough that the written term did not represent the intentions or expectations of the parties.”

Szilagyi was summarised by Smith LJ:

“The kernel of all these dicta is that the court or tribunal has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties, not only in the inception of the contract but, if appropriate, as time goes by.”

“As time goes by” was clarified by Smith LJ as “…at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.”

Smith LJ said in her judgment the true position is that where there is a dispute over the genuineness of a written term in a contract the enquiry must discover the actual legal obligations of the parties by examining all relevant evidence, including the written term itself and will also include evidence of how the parties conducted themselves in practice and what the expectations of each other were. Evidence of how the parties conducted themselves in practice may be so persuasive that the tribunal can draw an inference that that practice reflects the true obligations of the parties.

Smith LJ was satisfied that the EAT misdirected itself and set aside its decision. She was also satisfied that the EJ had directed himself correctly when he sought to find the true nature of the rights and obligations.

Right to refuse work and substitution clauses 

Submission from Counsel for Autoclenz was that the EJ had misdirected himself by deciding the substitution and right to refuse work were not genuine because that right had not been exercised in practice.

Smith LJ said she would accept that view if that had been the approach of the EJ. The EJ had not erred in holding the right to refuse work was not genuine because it had not occurred in practice as the valeters had always turned up for work as the evidence from the depot manager was that he expected the valeters to turn up for work each day and unless adequate notice was given they were under an obligation to do so.

Smith LJ concluded the EJ was entitled to infer that the substitution clause did not genuinely reflect the rights and obligations on the basis of the evidence of the depot manager who did not know of a single example of true substitution among the valeters and the fact that evidence from a valeter, who had 17 years experience, was that he did not know he had the right to bring in a substitute. Smith LJ said the fact that a valeter could work for Autoclenz for so long and not know he had a right to send a substitute is evidence that no one intended or realistically expected the right should ever be exercised.

Conclusion 

Smith LJ concluded there was clearly an obligation for the valeters to carry out the work personally. The EJ was clearly entitled to find that the obligation to carry out the work personally did not arise in the context of the valeters being in business on their own account who were providing their services for a customer.

Smith LJ was satisfied the control test was satisfied concluding that Autoclenz’s customer wanted the job doing in a particular way using particular products so to satisfy the customer Autoclenz had to control the way in which the valeters did the work.

The only possible term which might be inconsistent with a contract of employment was the one which entitled Autoclenz not to provide work to the valeters but it was found by the EJ that the true agreement was that Autoclenz would provide work if any was available as that was the effect of the evidence from the depot manager which, was not inconsistent with a contract of employment.

Smith LJ held that the EJ was entitled to hold that the valeters were employees of Autoclenz. For that reason she would dismiss the appeal from Autoclenz, and in allowing the cross appeal from the valeters restored the EJ’s decision.

Aikens LJ and Sedley LJ both agreed with the judgment of Smith LJ.

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Addendum

Supreme Court - Autoclenz Ltd v Belcher & Ors [2011] UKSC 41.

The case was heard on appeal to the Supreme Court on 11 and 12 May 2011.

The Supreme Court judgment dismissed the appeal in agreeing with the Court of Appeal that the Employment Tribunal was entitled to hold that the claimants were workers because they were working under contracts of employment within the meaning of regulation 2(1) of each of the National Minimum Wage Regulations and the Working Time Regulations.