Redrow bricklayers win holiday pay at Appeal Court

In the summer of 2003 I reported on an Employment Appeal Tribunal decision involving Redrow Homes that ruled that a group of sub-contractor bricklayers were, for the purposes of the Working Time Directive, 'workers' with a right to holiday pay. For details see here. Not surprisingly, in view of the implications of the decision, the building company, Redrow, appealed the decision to the Appeal Court. However, in April 2004 the Appeal Court decided to dismiss the appeal.

Background

The case involved two similar employment claims in which bricklayers had successfully claimed for holiday pay from two different subsidiaries of the builders, Redrow. The claims had been made under The Working Time Regulations 1998, which define a 'worker' as:

"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."

Both the original Employment Tribunal and a later Employment Appeal Tribunal had found that the bricklayers were 'workers' by virtue of the fact that they were engaged to personally perform the services. Hence Redrow appealed to the Court of Appeal.

The appeal turned upon whether the individual applicants had undertaken to do the work specified in the contract personally. Both the workers had signed a standard Redrow order form that governed the relationship. This included a condition that required:

"The Contractor must at all times provide sufficient labour to maintain the rate of progress laid down from time to time by the Company, and shall supply such labour with all necessary tools and equipment"

However, there was also a clause that prevented any sub-letting of the contract without the prior approval of Redrow.

Redrow's case was that the terms of the contract were inconsistent with a requirement for personal service and that the ET and EAT had erred in placing too much reliance on what had actually happened in practice. It was accepted that the workers had provided the service personally but Redrow considered that the lower tribunals should have placed more emphasis on the terms of the contract.

As the Appeal court judgement notes their case was that "An expectation that the work would be done personally, which Mr Stafford (for Redrow) accepts was present, is not an obligation to do the work personally"

Decision

Despite being critical of some of the EAT's reasoning the Appeal Court decided against Redrow and dismissed their appeal. Nevertheless in reaching their decision they made a couple of interesting and useful points that are of relevance to IR35 cases.

· First they decided that Redrow's terms and conditions were a 'one size fits all' contract designed to be used with all sub-contractors, large or small. Hence some clauses – such as requirement to supply a copy of their Health and Safety policies or to have a charge-hand on site to control their staff - were not applicable to the sub-contractors in this case. Because of this the Appeal Court were able to conclude that, notwithstanding the apparent ability of the subcontractors to delegate their work to others they were required to provide personal service. This could have implications for IR35 cases involving standard client or agency contracts.

· Secondly the judgement reinforces the fact that the contractual rights are what is important, not whether that right has been exercised. The judgement notes, with regard to personal service, that:

".... it does not necessarily follow from the fact that the work was done personally that there was a contractual obligation to do it personally."

In this case the Appeal Court went on to conclude that the contractual reality was that Redrow had intended to contract personally with the bricklayers and they therefore dismissed Redrow's appeal. This comment reinforces earlier cases that have made it clear that it is the right of substitution that is important not whether it has been exercised.

Conclusion

We should remember that this case does not involve contractors working through a service company. Its application to the typical IR35 scenario is therefore limited.

However, the comments regarding standard contract terms and conditions not necessarily applying in any given situation could work both for and against contractors in IR35 situations. It makes it important to be able to demonstrate that, for example, 'standard' substitution clauses in agency contracts were meant to apply and that they were not part of a standard menu of terms and conditions not all of which would apply in any given case.

In this context, however, it is also helpful that the case shows that the issue of what happened in practice regarding matters like substitution is less relevant than demonstrating that the right exists.

These two points together serve to emphasise the importance of client confirmations. These can confirm that a 'standard' clause was applicable in practice and was not just part of a 'standard' menu of terms and conditions that the Revenue can try to 'dissect' to fit their view of the contract.

In a wider context the case will be a worry for end clients, especially in the construction sector, where the use of self employed sub-contractors is common.

This case confirms that for some aspects of employment rights the hurdle that those claiming employment rights have to jump is lower than the level set by more conventional tests of employment/self employment.