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URL: http://www.bailii.org/ew/cases/EWCA/Civ/2016/459.html
Cite as: [2016] EWCA Civ 459, [2016] ICR 721, [2016] IRLR 628, [2017] ICR 83, [2016] WLR(D) 256

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Neutral Citation Number: [2016] EWCA Civ 459
Case No: A2/2014/3262

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM The Employment Appeal Tribunal
HHJ Peter Clark, Lady Drake and Mr Mallender

Royal Courts of Justice
Strand,
London, WC2A 2LL
12/05/2016

B e f o r e :

LORD JUSTICE JACKSON
LORD JUSTICE UNDERHILL
and
LORD JUSTICE LINDBLOM

____________________

Between:
SECRETARY OF STATE FOR JUSTICE
Appellant
- and -

WINDLE & ARADA
Respondents

____________________

Mr Clive Sheldon QC (instructed by the Government Legal Department) for the Appellant
Mr Mark Humphreys (instructed through the Free Representation Unit) for the Respondents
Hearing date: 26 January 2016

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    Lord Justice Underhill :

    INTRODUCTION

  1. The Claimants in these proceedings, Dr Windle and Mr Arada, are professional interpreters. Dr Windle is of Czech origin and Mr Arada Algerian. At the time with which we are concerned both worked for Her Majesty's Courts and Tribunals Service ("HMCTS"), though also for other institutions. Although both did a good deal of work for HMCTS, they did so only on a case-by-case basis. HMCTS was under no obligation to offer them work; nor were they under any obligation to accept it when offered. They were paid simply for work done, with no provision for holiday pay, sick pay or pension. They considered themselves self-employed and were so treated for tax purposes.
  2. In 2012 each of the Claimants brought proceedings against the Ministry of Justice ("the MoJ") in the Employment Tribunal complaining of racial discrimination contrary to Part 5 of the Equality Act 2010, which prohibits discrimination against "employees". In essence their claims were that in various specific respects their terms were less generous than those accorded to British Sign Language interpreters. The background to the claims was HMCTS's decision in 2011 to outsource the provision of interpreter services in the courts and tribunals under a "Framework Agreement" with a company called Applied Language Solutions ("ALS"); but that does not affect the legal issue.
  3. The MoJ took a preliminary point that the Claimants were not its employees within the meaning of the 2010 Act. The two claims were listed together before an Employment Tribunal sitting at Leeds (chaired by EJ Starr) for that issue to be determined. There was in fact a third claimant, Ms Szwarckopf, and Dr Windle also had a claim against the West Yorkshire police; but we are not concerned with those claims. By a reserved judgment dated 3 April 2013 the Tribunal decided the issue in the MoJ's favour and dismissed their claims.
  4. The Claimants appealed. By a judgment dated 3 July 2014 the EAT (HH Judge Peter Clark presiding) allowed their appeals and remitted the claims to the ET.
  5. The Secretary of State appeals to this Court with the permission of Hallett LJ. He is represented by Mr Clive Sheldon QC. The Claimants are represented by Mr Mark Humphreys of counsel, acting pro bono through the Free Representation Unit, as he also did in the EAT (though not in the ET, where the Claimants were unrepresented); the Court is most grateful to him for doing so, as I am sure the Claimants are also.
  6. THE BACKGROUND LAW

  7. As will appear, the issue raised by this appeal is a narrow one, and I need do no more than set out the legal background which is necessary to understand how it arises. Accordingly, what follows is not intended as a comprehensive analysis of the law in this field.
  8. Part 5 of the Equality Act, as I have said, prohibits discrimination against "employees": see section 39. Section 83 (2) defines "employment", so far as relevant for present purposes, as:
  9. "(a) employment under a contract of employment, a contract of apprenticeship or a contract personally to do work;
    (b)-(d) …"

    Section 83 (4) provides that a reference to an employee is to be read with sub-section (2). The same language appears in the predecessor legislation.

  10. Section 83 (2) (a) identifies three kinds of contract. The first – "a contract of employment" – means a contract of service. The Claimants accept that they were not employed under such a contract. It is their case that they were employed under the third kind of contract listed, namely "a contract personally to do work". The best explanation of what that phrase refers to appears in Bates van Winkelhof v Clyde & Co. [2014] UKSC 32, [2014] 1 WLR 2047. In that case the Supreme Court was concerned with whether the claimant was a "worker" within the meaning of section 230 (3) of the Employment Rights Act 1996, but Lady Hale, who delivered the majority judgment, reviewed the field more widely. Limb (b) of section 230 (3) refers to employment under
  11. "… any other contract … 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".

    Lady Hale pointed out, at para. 25 (p. 2055 B-C), that that formulation distinguished between two kinds of self-employed people:

    "One kind are people who carry on a profession or a business undertaking on their own account and enter into contracts with clients or customers to provide work or services for them. The arbitrators in Hashwani v Jivraj (London Court of International Arbitration intervening) [2011] 1 WLR 1872 were people of that kind. The other kind are self-employed people who provide their services as part of a profession or business undertaking carried on by someone else. The general medical practitioner in Hospital Medical Group Ltd v Westwood [2012] EWCA Civ 1005[2013] ICR 415, who also provided his services as a hair restoration surgeon to a company offering hair restoration services to the public, was a person of that kind and thus a 'worker' within the meaning of section 230(3)(b) of the 1996 Act."

    She then, at paras. 31-32, went on to observe that the same distinction was recognised for the purpose of discrimination law, even though section 83 (2) (a) of the 2010 Act does not contain anything equivalent to the elaborate words of exception in the second half of section 230 (3) (b). She said:

    "31. As already seen, employment law distinguishes between three types of people: those employed under a contract of employment; those self-employed people who are in business on their own account and undertake work for their clients or customers; and an intermediate class of workers who are self-employed but do not fall within the second class. Discrimination law, on the other hand, while it includes a contract 'personally to do work' within its definition of employment (see, now, Equality Act 2010, s 83(2)) does not include an express exception for those in business on their account who work for their clients or customers. But a similar qualification has been introduced by a different route.
    32. In Allonby v Accrington and Rossendale College (Case C-256/01) [2004] ICR 1328: [2004] ECR–I873  the European Court of Justice was concerned with whether a college lecturer who was ostensibly self-employed could nevertheless be a 'worker' for the purpose of an equal pay claim. The Court held at para. 67, following Lawrie-Blum v Land Baden-Wurttemberg (Case C-66/85) [1987] ICR 483; [1986] ECR 2121: that 'there must be considered as a worker a person who, for a certain period of time, performs services for and under the direction of another person in return for which he receives remuneration'. However, such people were to be distinguished from 'independent providers of services who are not in a relationship of subordination with the person who receives the services' (para 68). The concept of subordination was there introduced in order to distinguish the intermediate category from people who were dealing with clients or customers on their own account. It was used for the same purpose in the discrimination case of Jivraj v Hashwani. [2011] 1 WLR 1872 "
  12. As Lady Hale there acknowledged, the qualification on the apparently broad scope of the phrase "a contract personally to do work" had in fact already been recognised in the decision of the Supreme Court in Hashwani v Jivraj [2011] UKSC 40, [2011] 1 WLR 1872, although the discussion is less explicit. In that case the issue was whether an arbitrator was an employee for the purpose of the Employment Equality (Religion or Belief) Regulations 2003, which had an identical definition. Lord Clarke, with whose judgment the other members of the Supreme Court agreed, emphasised that it was not enough that the putative employee should be a party to a contract personally to do work: he or she must be "employed under" such a contract (see para. 36, at p. 1887 B-C).
  13. It has become common to refer to persons employed under contracts falling within the terms of section 230 (3) (b) of the 1996 Act as "limb (b) workers". Because, inconveniently, the 2010 Act uses different language, it is inapt to refer to employees of the third kind listed under section 83 (2) (a) by the same label. I will refer to them as "employees in the extended sense".
  14. As to how the distinction is to be made between the two kinds of self-employment – that is, between employees in the extended sense and the "truly self-employed", as it is sometimes put – in Hashwani Lord Clarke said, at para. 34 (p. 1886 E-G):
  15. "... The essential questions ... are ... those identified in paras 67 and 68 of Allonby [2004] ICR 1328, namely whether, on the one hand, the person concerned performs services for and under the direction of another person in return for which he or she receives remuneration or, on the other hand, he or she is an independent provider of services who is not in a relationship of subordination with the person who receives the services. Those are broad questions which depend upon the circumstances of the particular case. They depend upon a detailed consideration of the relationship between the parties ... . The answer will depend upon an analysis of the substance of the matter having regard to all the circumstances of the case."
  16. It will be seen that both Lady Hale in Bates van Winkelhof and Lord Clarke in Hashwani refer to the decision of the ECJ in Allonby v Accrington & Rossendale College (Case C-256/01) [2004] ICR 1328. This concerned an equal pay claim by part-time lecturers at a further education college, who had initially been employed by the college but had been made redundant and required to offer their services through an agency. One of the issues was whether the claimants were "workers" within the meaning of article 141 of the EU Treaty. At paras. 64-72 (pp. 1359-60) the Court said this:
  17. "64. The term 'worker' within the meaning of article 141(1) EC is not expressly defined in the EC Treaty. It is therefore necessary, in order to determine its meaning, to apply the generally recognised principles of interpretation, having regard to its context and to the objectives of the Treaty.
    65. According to article 2 EC, the Community is to have as its task to promote, among other things, equality between men and women. Article 141(1) EC constitutes a specific expression of the principle of equality for men and women, which forms part of the fundamental principles protected by the Community legal order: see, to that effect, Deutsche Post AG v Sievers (Cases C-270 and 271/97) [2000] ECR I-929, 952, para 57. As the court held in Defrenne v Sabena (Case 43/75) [1976] ICR 547 , 566, para 12, the principle of equal pay forms part of the foundations of the Community.
    66. Accordingly, the term "worker" used in article 141(1) EC cannot be defined by reference to the legislation of the member states but has a Community meaning. Moreover, it cannot be interpreted restrictively.
    67. For the purposes of that provision, there must be considered as a worker a person who, for a certain period of time, performs services for and under the direction of another person in return for which he receives remuneration: see, in relation to free movement of workers, in particular Lawrie-Blum v Land Baden-Württemberg (Case 66/85) [1987] ICR 483, 488, para 17, and Martínez Sala, para 32.
    68. Pursuant to the first paragraph of article 141(2) EC, for the purpose of that article, 'pay' means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer. It is clear from that definition that the authors of the Treaty did not intend that the term 'worker', within the meaning of article 141(1) EC, should include independent providers of services who are not in a relationship of subordination with the person who receives the services (see also, in the context of free movement of workers, Meeusen v Hoofddirectie van de Informatie Beheer Groep (Case C-337/97) [1999] ECR I-3289, 3311, para 15).
    69. The question whether such a relationship exists must be answered in each particular case having regard to all the factors and circumstances by which the relationship between the parties is characterised.
    70. Provided that a person is a worker within the meaning of article 141(1) EC, the nature of his legal relationship with the other party to the employment relationship is of no consequence in regard to the application of that article: see, in the context of free movement of workers, Bettray v Staatssecretaris van Justitie (Case 344/87) [1989] ECR 1621, 1645, para 16, and Raulin v Minister van Onderwijs en Wetenschappen (Case C-357/89) [1992] ECR I-1027, 1059, para 10."
  18. Both Lord Clarke in Hashwani and the ECJ in Allonby refer to a "relationship of subordination". In Bates van Winkelhof Lady Hale warned against treating the presence or absence of "subordination" as the infallible touchstone for distinguishing between the two kinds of self-employed worker under section 230 (3): see para. 39 (pp. 2058-9). That term was, however, used by the ET in this case (loyally applying Hashwani) and neither party criticises it for doing so. I will occasionally use it myself, though bearing in mind Lady Hale's caveat.
  19. One other part of the legal background which it is necessary to refer to is the concept of mutuality of obligation. The position is most lucidly stated by Elias LJ in Quashie v Stringfellows Restaurant Ltd [2012] EWCA Civ 1735, [2013] IRLR 99, at paras. 10-12 (pp. 102-3), as follows:
  20. "10. An issue that arises in this case is the significance of mutuality of obligation in the employment contract. Every bilateral contract requires mutual obligations; they constitute the consideration from each party necessary to create the contract. Typically an employment contract will be for a fixed or indefinite duration, and one of the obligations will be to keep the relationship in place until it is lawfully severed, usually by termination on notice. But there are some circumstances where a worker works intermittently for the employer, perhaps as and when work is available. There is in principle no reason why the worker should not be employed under a contract of employment for each separate engagement, even if of short duration, as a number of authorities have confirmed: see the decisions of the Court of Appeal in Meechan v Secretary of State for Employment [1997] IRLR 353 and Cornwall County Council v Prater [2006] IRLR 362.
    11. Where the employee working on discrete separate engagements needs to establish a particular period of continuous employment in order to be entitled to certain rights, it will usually be necessary to show that the contract of employment continues between engagements. (Exceptionally the employee can establish continuity even during periods when no contract of employment is in place by relying on certain statutory rules found in section 212 of the Employment Rights Act.)
    12. In order for the contract to remain in force, it is necessary to show that there is at least what has been termed "an irreducible minimum of obligation", either express or implied, which continue during the breaks in work engagements: see the judgment of Stephenson LJ in Nethermere (St Neots) v Gardiner [1984] ICR 612, 623, approved by Lord Irvine of Lairg in Carmichael v National Power plc [1999] ICR 1226, 1230. Where this occurs, these contracts are often referred to as "global" or "umbrella" contracts because they are overarching contracts punctuated by periods of work. However, whilst the fact that there is no umbrella contract does not preclude the worker being employed under a contract of employment when actually carrying out an engagement, the fact that a worker only works casually and intermittently for an employer may, depending on the facts, justify an inference that when he or she does work it is to provide services as an independent contractor rather than as an employee [emphasis supplied]. This was the way in which the employment tribunal analysed the employment status of casual wine waiters in O'Kelly v Trusthouse Forte plc [1983] ICR 728, and the Court of Appeal held that it was a cogent analysis, consistent with the evidence, which the Employment Appeal Tribunal had been wrong to reverse."

    As will appear, the words which I have italicised are central to the argument before us.

    THE REASONING OF THE ET

  21. The ET considered the issue of whether the Claimants were employees of the MoJ with great clarity and thoroughness, but I can summarise most of its reasoning quite shortly.
  22. After some introductory matter, the Tribunal made its findings of fact at paras. 6-85. I have already noted at para. 1 above the only facts that are necessary for our purposes. Paras. 86-87 identified the parties' written submissions and the authorities referred to. At paras. 88-117 the Tribunal set out the relevant parts of section 83 and summarised the applicable case-law. Bates van Winkelhof had not at that point been decided, but the Tribunal quoted the relevant passages from Hashwani and Allonby.
  23. The Tribunal's discussion of whether the Claimants were employees within the meaning of section 83 (2) (a) is at paras. 118-170. For our purposes the key points are as follows:
  24. (1) At para. 121 it found that a contract was entered into on each occasion that the Claimants accepted a specific assignment from HMCTS. At para. 122 it found that each such contract was, literally, a contract personally to do work, but – correctly – it did not regard that as the end of the question, for essentially the reasons explained at paras. 8 and 9 above.

    (2) At paras. 123-166 it set out the factors relevant to the question of whether the Claimants should be regarded as what it described as "Equality Act employees". These were wide-ranging, but it is unnecessary that we itemise them here.

    (3) As part of that review, it considered at paras. 157-162 whether there was an "umbrella contract" between the Claimants and the MoJ. It held, inevitably in the light of the absence of any obligation on the MoJ to offer assignments or the Claimants to accept them, that there was not. Having reached that conclusion, it said, at paras. 163-165:

    "163. As Lord Justice Elias said in the Stringfellow case, the fact that there is no umbrella contract does not preclude the individual from being employed under a contract of employment (or, in our view, under a contract personally to do work) when actually carrying out each assignment. We therefore return to that question for the purposes of determining whether the individual assignments constituted Equality Act employment for the Claimants.
    164. In our view, the absence of mutuality of obligation between assignments points away from employee status under the rubric of section 83 (2) for the times when these Claimants were engaged on assignments.
    165. The assignments of Dr Windle and Mr Arada could not be described as intermittent. In our view, they were casual, in the sense that there was no obligation to accept any next assignment. That was also true for Ms Szwarckopf. That is a factor which, in this case, does suggest a lack of direction and subordination at the hands of the Respondents or, put another way, supports the conclusion that these Claimants were independent providers of services."

    (4) The Tribunal then proceeded to its conclusions. At para. 167 it found that Dr Windle and Ms Szwarckopf were not employees of the West Yorkshire police (who were the First Respondent) but "self-employed professionals". It then turned to the Claimants' relationship with the MoJ. It said, at paras. 168-170:

    "168. In Dr Windle's case, we reached the same conclusion in respect of her relationship with the Second Respondent. Although there were many more indicia of employment in her relationship with the Second Respondent than with the First Respondent, when viewed overall, it was clear that she was self-employed and not employed under her contracts with the Second Respondent.
    169. Mr Arada's relationship with the Second Respondent was closer than the other relationships arising for consideration in these cases. He was recruited to the Tribunals Service and subject to a number of aspects of control found in employment relationships. On the other hand, at no stage before the Framework Agreement and ALS came on the scene had Mr Arada (or any of these Claimants or, as far as our evidence suggested, any interpreters) challenged the commonly held view that he was (or they were) self-employed. The Claimants had all organised their affairs as self-employed people. Mr Arada was quite clear in the witness box that he was free. Whilst recognising that none of the Claimants was free to disregard certain instructions in the performance of an assignment after accepting it, nonetheless it would be wrong in our view to conclude on the totality of the evidence that Mr Arada was employed under each contract he had with the Second Respondent or that Dr Windle or Ms Szwarckopf were employed under any of their contracts.
    170. Strong relationships existed between the Respondents and these Claimants. Their contribution to police stations, courts and tribunals was valued. One way or another, the Respondents needed and continue to need such services, suggesting a level of integration. In our view those factors do not suffice to render the Claimants Equality Act employees in these cases either before or after the implementation of the Framework Agreement in November 2011. They were not in a relationship of subordination with those Respondents and were, in the ultimate analysis, independent providers of services."

    THE DECISION OF THE EMPLOYMENT APPEAL TRIBUNAL

  25. The essential point taken by Mr Humphreys on behalf of the Claimants in the EAT was that the ET erred in law by taking into account, as it explicitly did at para. 164 of the Reasons, the fact that there was no umbrella contract operating between assignments. In particular, it had been wrong to rely on the passage from the judgment of Elias LJ in Quashie to which I have drawn attention at para. 14 above.
  26. The EAT accepted that contention. Judge Clark held that while Elias LJ's observations in Quashie were correct in the context in which they were made, which was a case concerned with unfair dismissal, they had no application to the case of a "limb (b) worker" under section 230 of the 1996 Act or an employee in the extended sense under the 2010 Act. He said, at para. 54:
  27. "In the course of argument Mr Sheldon maintained his position that a lack of mutuality between engagements was relevant not only to the contract of employment question but also the separate question of employment under a contract personally to do work.  We disagree.  In our judgment that lack of mutuality is relevant to the former and not to the latter.  In rejecting Mr Sheldon's submission we have concluded that the Employment Tribunal fell into error, taking into account, at paragraph 164, an irrelevant factor when considering the category (b) employee question.  It was relevant to the contract of employment question, as to which the Employment Tribunal correctly found that these Claimants were not employed under contracts of employment."

    Mr Sheldon submitted that although the distinction being made by the EAT in that passage is clear no reasons are given for why it is made – that is, why the absence of mutuality of obligation should be relevant to the question whether a claimant is employed under a contract of employment but not to the question whether he or she is an employee in the extended sense. However, it may be fair to refer to an earlier passage in the judgment, at paras. 15-18, where Judge Clark is setting out the background law. He observes there that issues about the mutuality of obligation have arisen in the unfair dismissal cases because of the need to show a qualifying period of continuous employment, and he says at para. 18 that that is not a problem which arises in the context of "limb (b) worker" or employees in the extended sense.

  28. On that basis the EAT found that the ET had misdirected itself. Applying the guidance in Jafri v Lincoln College [2014] EWCA Civ 449, [2014] ICR 920, it did not feel able to decide for itself whether the Claimants were employees within the meaning of the Act and remitted the case to the ET to reconsider the issue on the correct basis in law.
  29. THE APPEAL

  30. The single question on this appeal is whether the EAT was right to find that the ET had misdirected itself by treating the absence of an umbrella contract as a relevant factor in the assessment of the Claimants' employment status.
  31. The principal submission of Mr Humphreys in seeking to uphold the decision of the EAT was that in determining whether a claimant is an employee in the extended sense the essential question is to what extent he or she is acting "under direction", or is in a "subordinate" position, while at work. As he put it in his skeleton argument:
  32. "This will require an enquiry, founded on the contract, into the scope of that direction and the extent of any limitation on the putative employee's independence in that context. The absence of mutuality of obligation between engagement can add nothing to that enquiry … . "
  33. I do not accept that submission. I accept of course that the ultimate question must be the nature of the relationship during the period that the work is being done. But it does not follow that the absence of mutuality of obligation outside that period may not influence, or shed light on, the character of the relationship within it. It seems to me a matter of common sense and common experience that the fact that a person supplying services is only doing so on an assignment-by-assignment basis may tend to indicate a degree of independence, or lack of subordination, in the relationship while at work which is incompatible with employee status even in the extended sense. Of course it will not always do so, nor did the ET so suggest. Its relevance will depend on the particular facts of the case; but to exclude consideration of it in limine runs counter to the repeated message of the authorities that it is necessary to consider all the circumstances.
  34. That would be my view even without any reference to Quashie. But I do not in fact think that what Elias LJ said in the passage which I have italicised can properly be disregarded on the basis that the issue in that case was whether the claimant was employed under a contract of service. The underlying point is the same. The factors relevant in assessing whether a claimant is employed under a contract of service are not essentially different from those relevant in assessing whether he or she is an employee in the extended sense, though (if I may borrow the language of my own judgment in Byrne Bros (Formwork) Ltd v Baird [2002] ICR 667: see para. 17 (5), at p. 678H), in considering the latter question the boundary is pushed further in the putative employee's favour – or, to put it another way, the passmark is lower. I would add for completeness that I do not think that Judge Clark's point that continuity of employment is not an issue in Equality Act cases (see para. 19 above) affects the analysis. The question is whether the claimant is an employee at all; and it was that which was the issue in Quashie.
  35. Mr Humphreys attempted to draw support from para. 72 of the judgment of the ECJ in Allonby (see para. 12 above), in which the Court said that the fact that the lecturers in that case had no obligation to accept an assignment "is of no consequence in that context [viz. in the context of deciding how much independence they enjoyed while at work]". But the paragraph starts by making clear that the Court is concerned with the particular case before it ("in the case of teachers who … [etc.]"), and I do not think that what is said there can be elevated into universal proposition: indeed Mr Humphreys accepted as much in his oral submissions. It is clear from the Opinion of the Advocate-General that the claimants continued to work very much as they had when they were employees (see para. 46, at p. 1341 F); and they were evidently not being engaged on a lecture-by-lecture basis.
  36. Mr Humphreys also submitted that it was wrong in principle that a person who would otherwise satisfy the criteria to be treated as an employee during a particular engagement should fall out of protection only because there was no "umbrella contract"; and, by the same token, that where there were two people who were in substantially the same position at work but one of them was working on a casual basis and one was not it was wrong in principle that they should not enjoy the same protection. But that is an Aunt Sally. The absence of an umbrella contract is relevant only if and to the extent that it contributes to the conclusion that the claimant is not in fact in a "subordinate" relationship characteristic of an employee – in which case he or she will not be in the same position as their comparator. Whether that is so in any particular case will depend on the circumstances of that case.
  37. For those reasons I do not believe that the ET misdirected itself, as the EAT held. I would allow the appeal and restore the decision of the ET to dismiss the claims.
  38. Lord Justice Lindblom:

  39. I agree.
  40. Lord Justice Jackson:

  41. I also agree.


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