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United Kingdom Supreme Court
You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Autoclenz Ltd v Belcher & Ors  UKSC 41 (27 July 2011)
Cite as:  ICR 1157,  WLR (D) 255,  IRLR 820,  UKSC 41,  4 All ER 745
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 UKSC 41
On appeal from:  EWCA Civ 1046
Autoclenz Limited (Appellant) v Belcher and others (Respondents)
Lord Hope, Deputy President
JUDGMENT GIVEN ON
27 July 2011
Heard on 11 and 12 May 2011
Thomas Linden QC
(Instructed by Pinsent Masons LLP)
Timothy Brennan QC
(Instructed by Thompsons Solicitors)
LORD CLARKE, with whom Lord Hope, Lord Walker, Lord Collins and Lord Wilson agree
"... 'worker' … means an individual who has entered into or works 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."
Materially identical definitions of employee and worker appear in various other statutes and regulations concerning employment rights and protection against unlawful discrimination in the employment field.
The proceedings to date
The written contract
"1. The Sub-contractor shall perform the services which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner.
2. The Sub-contractor hereby confirms that he is a self-employed independent contractor and that his tax affairs are handled by ... tax office under Schedule D ref No ...
3. The Sub-contractor and Autoclenz agree and acknowledge that the Sub-contractor is not, and that it is the intention of the parties that the Sub-contractor should not become, an employee of Autoclenz. Accordingly, the Sub-contractor is responsible for the payment of all income tax and national insurance contributions arising on or in respect of payments made to the Sub-contractor by Autoclenz and the Sub-contractor agrees that he shall indemnify Autoclenz in respect of any liability to tax and national insurance contributions for which Autoclenz may be held liable on or in respect of such payments."
That contract did not contain any clause permitting Mr Huntington to provide a substitute to perform the services he was contracted to perform. Nor did it state that he was not obliged to perform services or that Autoclenz was not obliged to provide work under the agreement.
"For the purpose of providing car valeting services to its client's garages, Autoclenz wishes to engage the services of car valeters FROM TIME TO TIME on a sub-contract basis.
We understand that YOU ARE AN EXPERIENCED CAR VALETER and might be prepared to offer your services to Autoclenz. If so would you please complete and return to us the form of agreement set out below, which is intended to confirm that any contractual relationship between Autoclenz and yourself is one of client and independent contractor and not one of employer/employee and to protect Autoclenz against any claim on Autoclenz for Income Tax and/or National Insurance contributions in respect of payments made to yourself.
For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenz's requirements of sub-contractors as set out in this agreement…'
Those requirements were, in short, that the individual was capable of providing the services, had been fully trained and held a current full UK driving licence which he would make available to Autoclenz, that he complied with health and safety guidance and that he had permission to work in the UK.
"If you wish to provide services to Autoclenz would you please sign and return to Autoclenz the form agreement attached.
YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO SUCH AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY OBLIGATION TO ENGAGE YOUR SERVICES ON ANY PARTICULAR OCCASION."
The legal principles
"A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service. … Freedom to do a job either by one's own hands or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be."
i) As Stephenson LJ put it in Nethermere (St Neots) Ltd v Gardiner  ICR 612, 623, "There must … be an irreducible minimum of obligation on each side to create a contract of service".
ii) If a genuine right of substitution exists, this negates an obligation to perform work personally and is inconsistent with employee status: Express & Echo Publications Ltd v Tanton ("Tanton")  ICR 693, per Peter Gibson LJ at p 699G.
iii) If a contractual right, as for example a right to substitute, exists, it does not matter that it is not used. It does not follow from the fact that a term is not enforced that such a term is not part of the agreement: see eg Tanton at p 697G.
"87. … Express contracts (as opposed to those implied from conduct) can be oral, in writing or a mixture of both. Where the terms are put in writing by the parties and it is not alleged that there are any additional oral terms to it, then those written terms will, at least prima facie represent the whole of the parties' agreement. Ordinarily the parties are bound by those terms where a party has signed the contract: see eg L'Estrange v F Graucob Ltd  2 KB 394. If a party has not signed a contract, then there are the usual issues as to whether he was made sufficiently aware of the clauses for a court to be able to conclude that he agreed to the terms in them. That is not an issue in this case.
88. Once it is established that the written terms of the contract were agreed, it is not possible to imply terms into a contract that are inconsistent with its express terms. The only way it can be argued that a contract contains a term which is inconsistent with one of its express terms is to allege that the written terms do not accurately reflect the true agreement of the parties.
89. Generally, if a party to a contract claims that a written term does not accurately reflect what was agreed between the parties, the allegation is that there was a continuing common intention to agree another term, which intention was outwardly manifested but, because of a mistake (usually a common mistake of the parties, but it can be a unilateral one) the contract inaccurately recorded what was agreed. If such a case is made out, a court may grant rectification of a contract. See, generally, the discussion in the speech of Lord Hoffmann,  to , in Chartbrook Ltd v Persimmon Homes Ltd  UKHL 38,  1 AC 1101 with whom all the other law lords agreed. …"
"But in cases of contracts concerning work and services, where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties, rectification principles are not in point, because it is not generally alleged that there was a mistake in setting out the contract terms as they were. There may be several reasons why the written terms do not accurately reflect what the parties actually agreed. But in each case the question the court has to answer is: what contractual terms did the parties actually agree?"
"I apprehend that, if it [ie the concept of sham] has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."
I would accept the submission made on behalf of the claimants that, although the case is authority for the proposition that if two parties conspire to misrepresent their true contract to a third party, the court is free to disregard the false arrangement, it is not authority for the proposition that this form of misrepresentation is the only circumstance in which the court may disregard a written term which is not part of the true agreement. That can be seen in the context of landlord and tenant from Street v Mountford  AC 809 and Antoniades v Villiers  1 AC 417, especially per Lord Bridge at p 454, Lord Ackner at p 466, Lord Oliver at p 467 and Lord Jauncey at p 477. See also in the housing context Bankway Properties Ltd v Pensfold-Dunsford  1 WLR 1369 per Arden LJ at paras 42 to 44.
"57. The concern to which tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship. Peter Gibson LJ was alive to the problem. He said this (p 697G)
'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.'
58. 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 the 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.
59. … Tribunals should take a sensible and robust view of these matters in order to prevent form undermining substance…"
"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 at the inception of the contract but, if appropriate, as time goes by."
"52. I regret that that short paragraph [ie para 51] requires some clarification in that my reference to 'as time goes by' is capable of misunderstanding. What I wished to say was that the court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.
53. In my judgment the true position, consistent with Tanton, Kalwak and Szilagyi, is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. To carry out that exercise, the tribunal will have to examine all the relevant evidence. That will, of course, include the written term itself, read in the context of the whole agreement. It will also include evidence of how the parties conducted themselves in practice and what their 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. But the mere fact that the parties conducted themselves in a particular way does not of itself mean that that conduct accurately reflects the legal rights and obligations. For example, there could well be a legal right to provide a substitute worker and the fact that that right was never exercised in practice does not mean that it was not a genuine right.
55. It remains to consider whether the EJ directed himself correctly when he considered the genuineness of the written terms. I am satisfied that he directed himself correctly in accordance with, although in advance of, Szilagyi. In effect, he directed himself that he must seek to find the true nature of the rights and obligations and that the fact that the rights conferred by the written contract had not in fact been exercised did not mean that they were not genuine rights."
"What the parties privately intended or expected (either before or after the contract was agreed) may be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffmann's speech in the Chartbrook case at  to . But ultimately what matters is only what was agreed, either as set out in the written terms or, if it is alleged those terms are not accurate, what is proved to be their actual agreement at the time the contract was concluded. I accept, of course, that the agreement may not be express; it may be implied. But the court or tribunal's task is still to ascertain what was agreed."
"recognising as it does that while employment is a matter of contract, the factual matrix in which the contract is cast is not ordinarily the same as that of an arm's length commercial contract."
"92. I respectfully agree with the view, emphasised by both Smith and Sedley LJJ, that the circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed. I accept that, frequently, organisations which are offering work or requiring services to be provided by individuals are in a position to dictate the written terms which the other party has to accept. In practice, in this area of the law, it may be more common for a court or tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and the court or tribunal must be realistic and worldly wise when it does so. ..."
"104. Employment judges have a good knowledge of the world of work and a sense, derived from experience, of what is real there and what is window-dressing. The conclusion that Autoclenz's valeters were employees in all but name was a perfectly tenable one on the evidence which the judge had before him. The elaborate protestations in the contractual documents that the men were self-employed were odd in themselves and, when examined, bore no practical relation to the reality of the relationship.
105. The contracts began by spelling out that each worker was required to 'perform the services which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner' - an obligation entirely consistent with employment. Notwithstanding the repeated interpolation of the word 'sub-contractor' and the introduction of terms inconsistent with employment which, as the judge found, were unreal, there was ample evidence on which the judge could find, as he did, that this was in truth an employment relationship.
106. His finding did not seek to recast the contracts: it was a finding on the prior question of what the contracts were. Rightly, it was uninfluenced by the fiscal and other consequences of the relationship, which were by no means all one way."
"35. In my judgment these claimants are employees. I do not think it can be said that Mr Huntington and his colleagues are businessmen in business on their own account. They have no control over the way in which they do their work. They have no real control over the hours that they work, save and except that they can leave when their share of the work on site has been completed. They do not have any real economic interest in the way in which the work is organised, other than the fact that the more work they do the more they earn. They cannot source materials for themselves. They are subject to the direction and control of the respondent's employees on site. They work in teams and not as individuals. It crossed my mind that each team might constitute a partnership, but it has never been suggested that these claimants are partners running businesses together and, whilst the makeup of each team seems to be fairly static, they can be adjusted to meet the respondent's needs. The claimants have no say in the terms upon which they perform work, the contracts which are placed before them are devised entirely by the respondent and the services they provide are subject to a detailed specification. The invoices which they submit are prepared by the respondent. The respondent determines the deductions which are applied to those invoices and the amounts charged in respect of insurance and materials. There has been no evidence to confirm that these deductions bear any real relation to the actual cost of the services to which they refer. Rates of pay are determined by the respondent and the respondent has felt able to increase or reduce those rates unilaterally. Really there is nothing that these claimants can do to make their putative businesses any more profitable by the way in which they organise themselves.
36. I have noted that the claimants are required to wear company overalls and some of these are supplied free. I have also noted that they are provided with some training by the respondent. I do not think that either of these factors is determinative in this case. I accept that training must be provided to people who handle chemicals whatever their status for the purposes of health and safety. Equally I accept that requiring some badge of identification, in this case a uniform, is simply an incident of the fact that valeters are permitted to drive high value goods, motorcars and vans. That said, I accept the claimants' evidence that they are fully integrated into the respondent's business and that they have no real other source of work. I accept that occasionally individual claimants might work elsewhere but only on days when the respondent has no work for them to do. In Mr Huntington's case, for example, this occurred once in 17 years of service.
37. I am satisfied that the claimants are required to provide personal service under their agreements with the respondent notwithstanding the substitution clause that was introduced in 2007. I do not find that this clause reflects what was actually agreed between the parties, which was that the claimants would show up each day to do work and that the respondent would offer work provided that it was there for them to do. Mr Hassell confirmed in evidence that this was the true nature of the agreement between the parties and that his work could not have been done without an understanding that the valeters could be relied on to turn up and do the work put in front of them. I have of course noted that in 2007 the respondent introduced a clause saying that there was no obligation on it to offer work or on the claimants to accept work. I find that this clause was wholly inconsistent with the practice described in paragraph 18 of Mr Hassell's witness statement where he refers to a requirement for valeters to notify him in advance if they were unavailable for work. This indicates that there was an obligation to attend for work unless a prior arrangement had been made. In my judgment these factors place these new clauses within the proposition identified at paragraph 58 in the judgment [of Elias J] in Consistent Group Ltd v Kalwak (supra) and I find that the substitution clause and the right to refuse work were unrealistic possibilities that were not truly in the contemplation of the parties when they entered into their agreements.
38. Accordingly, I find that the claimants entered into contracts under which they provided personal service, where there were mutual obligations, namely the provision of work in return for money, that these obligations placed the contracts within the employment field and that the degree of control exercised by the respondent in the way that those contracts were performed placed them in the category of contracts of employment."
Mr Hassell was the Autoclenz manager at the Measham site.
"Autoclenz … and
PAUL HUNTINGTON (Name of Sub-contractor)
HEREBY AGREE as follows:
(a) The Sub-contractor confirms that he holds a current valid Driving Licence, free of endorsements…
And that he will ensure that those who work for him, in providing services to Autoclenz, hold the same.
(b) The Sub-contractor confirms that he DOES NOT hold a current valid Driving Licence.
PLEASE DELETE AS NECESSARY"
Although no deletions were made, details of Mr Huntington's driving licence were included in clause 7(a). The agreement was signed by both Autoclenz and Paul Huntington. An agreement in the same or substantially the same form was signed between Autoclenz and each of the other claimants.