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SITTING AT THE ROYAL
COURTS OF JUSTICE,
Appeal No: EAT/489/01
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APPEARANCES
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For the Appellant |
MR
PAUL KILCOYNE |
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For the Respondents |
MR
COLIN BOURNE |
JUDGE D SEROTA QC
1 This is an appeal from a Decision of an
Employment Tribunal in
2 ECCS are caterers, providing what are sometimes referred to as "hostess
staff" or "stewarding staff" within the coach industry. At one time, and one
is now going back to the late 80s or early 90s, ECCS would employ directly the
stewards on the coaches, who would sell refreshments owned by ECCS. ECCS
found, however, that there was considerable fraud, and that stewards were
selling their own food to passengers rather than that of ECCS. So in 1991 or
1992, ECCS changed the format of their employment.
3 Stewards now became self-employed, they would carry out stewarding services,
such as safety, and the examination of tickets, but they were permitted,
indeed required, to sell refreshments. They would buy their own perishable
products, and unperishable products, and sell them
at a profit to bus passengers. The Inland Revenue was content with this
arrangement and insofar as the profits from the sale of refreshments by
stewards were concerned, taxed them under Schedule D; in other words, they
were treated as self-employed for these purposes.
4 On
5 ECCS was concerned at the impact of the National Minimum Wage Act and
having entered into communication with the Inland Revenue, it would seem that
some time in 1999, the Inland Revenue intimated that it intended to serve an
Enforcement Notice. As a result on 27 January of last year, ECCS terminated
its contracts with the stewards, the last payment
to them in fact was made on 14 February. We believe the Enforcement Notice is
dated 19 September - it matters not - and proceedings were commenced in the
Employment Tribunal at
6 On appeal, a number of issues are raised. The first issue is whether or not
the stewards could be regarded as workers within the meaning of Section 54(3)
of the Act. We shall come to this shortly.
7 Secondly, there is an issue as to whether certain payments should be treated
as part of the sums paid by the employers for the purposes of calculating the
minimum wage, in particular a shift bonus and, more importantly, the profits
made by the stewards from the sale of refreshments. The Employment Tribunal,
we would note, found that the stewards were, indeed, workers as contended for
by the Inland Revenue, but found in favour of ECCS
in relation to the shift bonus and profits which were to be treated as part of
the sums paid by the employers. At the request of the parties, we have dealt
with the first issue before considering submissions on the other issues, that
is to say, we have considered submissions as to whether the Employment
Tribunal was correct to categorise the stewards as
workers. We have already drawn attention to the fact that the contracts
between ECCS and its stewards were made in order to enable ECCS to comply with
its contract with Durham Transport Services and, no doubt, to enable Durham
Transport Services to comply with its obligations to National Express.
8 The Tribunal has found that the stewards were not employed by ECCS; there is
no appeal against that finding. Further, there is no issue that the contracts
between ECCS and the stewards were genuine. They were not sham contracts, and
they were not devised in order to evade compliance with the National
Minimum Wage Act. We refer to the contracts between ECCS and the various
stewards, known as Stewards' Agreements. There is a Stewards' Agreement a copy
of which can be found at page 3 of our supplemental bundle. We draw attention
to the following:
"(B) The Steward is an independent Contractor willing to provide services to the Firm as set out below."
The firm being ECCS.
"1.1 The Firm engages the Steward to provide services to the Firm relating to the sale of refreshments on board coaches and buses as rostered by the Firm on a non exclusive basis and the Steward AGREES to provide such services upon the terms and conditions set out below."
Paragraph 3.1 provides, in relation to services to be provided by the steward:
"During the period of this Agreement the Steward is retained on a non exclusive "when-needed" basis to provide and sell refreshments (including food and drink) on board National Express Coach Services and Private Hire Coaches and Buses including those travelling outside the United Kingdom for a minimum of four shifts during each week of this Agreement at such times and at such locations as the Firm and the Steward shall agree from time to time."
The steward is obliged by 3.4 to supply:
"Certificates of Approval from Environmental Health Officers in respect of all perishable foods obtained by the Steward from suppliers other than the Firm."
Stewards were obliged to hire a uniform at a charge of £5.00 per month which
was to be supplied by ECCS.
Clause 5 relates to the supply of stock and payment of stock, it being quite
clear that the stock of refreshments that were sold were the stewards'.
In Clause 8.1 we find the following:
"It is hereby declared that it is the intention of the parties that the Steward shall have the status of a Self Employed person and shall not be entitled to any pension, bonus or other fringe benefits from the client other that those stated herein and it is agreed that the Steward shall be responsible for all income tax liabilities and National Insurance or similar contributions in respect of profits and Duty Allowances earned and the Steward hereby indemnifies the Firm in respect of any income tax, costs, penalties, interest and gross-up which may be found due from the Firm in respect of the Steward's Services hereunder."
By
paragraph 9 the steward offers an indemnity to ECCS in respect of breach of
any of the terms of the Agreement.
9 It is important we think to note the following: firstly, as is apparent from
paragraph 25 of the Decision of the Employment Tribunal, of the time actually
spent on the coach by stewards, 45% was spent on catering, 35% on their other
duties, and 20% when they were resting or doing nothing. It is clear therefore
that the majority of their working time was spent on catering. We also think
it a proper inference to draw that they would have to spend a certain amount
of time, when not on the coach, in relation to the purchase of supplies and
record keeping relating to their catering obligations.
10 Secondly, it is important to note that the Inland Revenue
were content to treat the stewards as
self-employed, although PAYE was deducted under Schedule E, in relation to
certain payments that were made. Those payments relate to a payment for each
shift and an additional payment if, for a given period of time, the steward
worked the rota that he had agreed to work. There
was no obligation on the part of the stewards to accept any work. If they did,
they were contractually obliged to work according to the roster that they
accepted.
11 It is accepted by Mr
Kilcoyne who appears on behalf of the Inland
Revenue, that the stewards were carrying on a business of buying and
selling refreshments. Although, as we have indicated, there is no direct
evidence on the point, we infer that the profits earned by the stewards from
the purchase and sale of refreshments were the major part of their income.
They agreed to provide services to ECCS in return for a number of payments:
the bonus payment, the shift payment and, most significantly, the right to
retain the profits from the sale of refreshments. As we have noted, they were
not obliged to work at all, but if they did agree to work, they were
contractually obliged to work to an agreed roster.
12 We now turn to deal with the statutory framework within which these
proceedings are brought. The National Minimum Wage Act 1998 provides,
by Section 1, that a person who qualifies for the national minimum wage must
be remunerated by his employer at a rate which is not less than the national
minimum wage. It is unnecessary for us to go into details as to the relevant
rates at this point in time. If those rates are not paid, Section 19 of the
Act entitles an officer to serve an Enforcement Notice requiring payment to be
made at the appropriate rate, and by virtue of Section 17, if there has been
an underpayment, a worker is entitled to receive the difference between that
which he has received and that which he should have received.
13 Section 54(3) provides as follows:
"In this Act "worker" ...............means an individual who has entered into or works under (or, where the employment has ceased, worked under) -
(a) a contract of employment; or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;"
The Employment Tribunal, having considered various documents to which we have
referred, and we note that we have not referred in any detail to the contract
between ECCS and Durham Transport Services, and having regard to the facts
which we have mentioned, came to the conclusion that the stewards were, in
fact, workers.
14 The crux of the Decision of the Employment Tribunal is to be found at
paragraph 40 of their Decision:
"We then considered the test under 54(3)(b). It seems to us that acid test is this. Were the stewards part of the appellant's work force or were the appellants customers of the stewards? The evidence is overwhelming. The stewards were held out as part of the appellants' workforce and regarded themselves as such. There was no evidence to suggest that the stewards regarded the appellants as their customer and no evidence to suggest that the appellants regarded themselves to be the customers of the stewards."
In his submissions, Mr
Kilcoyne, on behalf of the Inland Revenue seeking to uphold the finding
of the Employment Tribunal, submitted that if an employer
regards people as staff, that belief is inconsistent with their being
regarded as customers or clients. The view of the employer has
an inclusivity and is
quite different from the more arms-length relationship that the employer might
have with an independent contractor.
15 Mr Bourne, who appears on behalf of ECCS,
submitted that the Employment Tribunal failed to apply the correct test and
that its approach under Section 40 is flawed. He referred us to the Decision
of the Court of Appeal in the case of
Express & Echo
Publications Limited v Tanton
ICR 693.
He drew our attention to the judgment of Lord Justice Peter Gibson at page 697
F in which he criticised the Chairman of an
Employment Tribunal for failing to pay sufficient regard in determining
whether someone was an employee, to the terms of the material contract. He
said this:
"Clause 3.3 to my mind vividly illustrates the difficulty in approaching the identification of the terms of the agreement by concentrating on what actually occurred rather than looking at the obligations by which the parties were bound. Of course, it is important that the industrial tribunal should be alert in this area of the law to look at the reality of any obligations. If the obligation is a sham it will want to say so. But to concentrate on what actually occurred may not elucidate the full terms of the contract. If a term is not enforced that does not justify a conclusion that such a term is not part of the agreement."
For our part, therefore, we think the Chairman went wrong at that point in
concentrating on what occurred rather than seeking to determine what
were the mutual obligations.
16 Mr Bourne also drew our attention to the
passage at page 700 B-D, where Lord Justice Peter Gibson had this to say:
"In my judgment, on the facts this is a plain case. One starts with the common intention of the parties that the applicant should not be an employee but should be a self-employed contractor. The terms which the chairman found to be pointers to a contract of service are in no way inconsistent with a contract for services, and, as the chairman himself recognised, some of the facts which he found are pointers to the relationship being one of contractor and client, for example, the absence of holiday pay and sickness pay. But, for the reasons which I have given, clause 3.3, entitling the applicant not to perform any services personally, is a provision which is wholly inconsistent with the contract of service which the chairman found the contract to be. In my judgment, therefore, both the chairman and the appeal tribunal erred in law. The only conclusion which they could properly have reached was that this was a contract for services. Thus, despite the considerable sympathy which I have for the applicant, I am satisfied that this appeal must be allowed."
Mr
Bourne submitted that the Employment Tribunal in this case has fallen into the
error, referred to by Lord Justice Peter Gibson, of failing to concentrate
sufficiently on the terms of the relevant contract, that
is the terms of the Stewards Agreement, to which we have referred.
17 Further, he submits that the Employment Tribunal, having found correctly
that the stewards were, in fact not employees, failed to apply its mind as to
why they were treated differently from other employees who were on wages, and
that the Employment Tribunal failed to have sufficient regard of the fact that
the stewards were not simply providing services, but were responsible for the
purchase and sale of their own refreshments. It is true that the contract did
require a degree of rostering and
organisation of work, but this, as it seems to us,
is necessary for the efficient fulfilment of the
contracts, and throws little light on the question as to whether or not the
stewards could properly have been regarded as workers within the meaning of
the section.
18 The Employment Tribunal, it was submitted and we agree, should have
concentrated not on the appearance but the substance and in particular, the
terms of the contract. It was submitted to us, and we again agree, that the
acid test referred to by the Tribunal in paragraph 40 was flawed.
The fact that there was overwhelming evidence that the
stewards may or may not have been held out as part of the Appellants'
workforce and regarded themselves as such, and the absence of evidence that
they regarded ECCS as their customer, or that ECCS regarded itself as its
customer, is irrelevant to the issue of construction of the contract.
Furthermore, it is quite clear that the stewards did not regard themselves as
employees in the strict sense, as they were perfectly content to represent
themselves to the Inland Revenue as being self-employed. Furthermore, if they
were held out to the public as employees of anyone, it would probably have
been National Express or Durham Transport Services, whose uniform they wore.
19 In our opinion, the Tribunal should have asked itself whether the stewards
were providing services, and if so, what was the contractual relationship
between themselves and ECCS. It is clear that the Tribunal found, and indeed
was bound to find, that the stewards were providing services. What they were
doing was providing the catering services and stewarding services that ECCS
had contracted to supply to Durham Transport Services and which Durham
Transport Services was contracted to supply to National Express. Prima facie,
when someone purchases services from another, in common parlance, he can be
regarded as a customer of the other. The terms 'customer' and 'client' in
Section 54 of the Act are not used as terms of art. In our opinion, ECCS is a
customer or client of the stewards, as it receives the benefit of the service
provided by the stewards' business, and is described as such in the Stewards
Agreement. They provided, as we have said, the stewarding and catering
services to ECCS, which ECCS was itself bound to supply to Durham Transport
Services. On that analysis, as it seems to us and having regard to the fact
that the major part of the contract, both in terms of time and in terms of
remuneration related to the catering, and having regard to the facts that the
stewards were performing, personally, catering services for ECCS pursuant to a
business undertaking carried on by the stewards, that ECCS was a client or
customer of that business undertaking. As such, it seems to us on the material
findings, the Tribunal should have held that the stewards were not workers
within the meaning of Section 54(3)(b) of the Act,
by reason of the fact that they were outside Section 54(3)(b). They were
carrying on, as we have said, a business undertaking for reward for ECCS, and
were clients or customers of ECCS. In those circumstances, as it seems to us,
this appeal must succeed.
This is not a case in which the contract with the stewards was a device to
avoid the effect of the minimum wage legislation.
The case therefore should not be understood as laying down any general
principle, but applies to the specific