Agency temp ruled employee: Dacas v Brook Street
The same judge who presided over the original judicial review into IR35 - has handed down a second land-mark decision. As President of an Employment Appeal Tribunal he has found that a temporary worker is an employee of the agency.
Mr Justice Burton
It is now two years since the Honourable Mr Justice Burton first came to the attention of freelancers, when he heard the judicial review into the legality of the IR35 legislation. In that landmark case, even though he found against freelancers’ claims that IR35 was contrary to European law, he gave them great encouragement with a number of his comments and findings.
For example, he forced the Revenue to agree in Court that IR35 should be applied on the basis of looking at the whole picture – not just on a contract by contract basis. He also reminded everyone of the importance of the “in business on your own account” test and the significance within that test of being able to work for other clients while engaged on a contract.
Now two years later Mr Justice Burton has again stepped into the Employment Status arena and, as President of a recent Employment Appeal Tribunal, has handed down a landmark decision.
In the case of Ms P Dacas versus Brook Street Bureau (UK) Ltd and Wandsworth London Borough Council [Appeal No.EAT/492/02/SM][11 December 2002] he has found that a temporary worker employed through an employment agency is an employee of the agency! This case will send shockwaves through the employment agency world. Having found Ms Dacas to be an employee of Brook Street Bureau the EAT has referred the case back to the employment tribunal for them to decide the issue of whether Ms Dacas had been unfairly dismissed.
The judgement also makes some very interesting and helpful comments about length of contract and about control.
Background to the case
Ms Dacas had been engaged, via Brook Street, as a cleaner at a hostel run by Wandsworth for 6 years. In 2000 Wandsworth complained to Brook Street that she had been rude to a visitor and demanded that Brook Street remove her from her position as a cleaner at the hostel. This was the second time that Brook Street had had to raise a disciplinary issue with her and they terminated her engagement with them. She claimed for wrongful dismissal on the basis that she was an employee of either Brook Street or Wandsworth and her case was heard by an Employment Tribunal in November 2001.
There had not been any preliminary hearing to consider whether she was an employee so the ET had to decide if she was an employee of either respondent and, if so, whether she had been unfairly dismissed. However the second issue was never considered because the ET found that:
“the Applicant was not employed by either the First Respondent or the Second Respondent and accordingly her unfair dismissal claim must fail”
Ms Dacas therefore appealed to the EAT. Her appeal was only against the finding that she was not an employee of the agency, Brook Street, having accepted that she was not an employee of the client. Her appeal was based on the contention that the ET had erred in law based upon their findings of fact.
In particular the ET had found, as fact, two significant issues. Firstly they found that: “So far as control is concerned, the Tribunal noted that the First Respondent exercised considerable control over the Applicant.”
They also found that: “there was mutuality of obligation as between the Applicant and the First Respondent.”
The Employment status arguments
In the judgement Mr Justice Burton sets out the main status issues as they related to this case. His first reference was:
“The seminal authority is that of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 Q.B. 497. According to Mr Justice Burton “ this case caused concentration to be addressed towards questions of control, but there has also been elevated, alongside questions of control, the issue of the “irreducible minimum of mutual obligation”, which emerged originally in Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 and has now found its final place in the decision of the House of Lords in Carmichael v National Power plc [1999] ICR 1226.”
He then goes on to cite:
“Another, and very frequent and helpful, test, is that contained in Market Investigations Ltd v Ministry of Social Security [1969] 2 Q.B. 173, where the question that is asked relates to whether the person in question can be said to be carrying on a business of his, or her, own, which is regarded as the or a central description of someone who is genuinely self-employed. The most recent decision relating to analysis of the position, so far as Employment Agencies are concerned, is Montgomery v Johnson Underwood [2001] IRLR 269, a decision of the Court of Appeal.”
In the judgement Justice Burton summarises most usefully the issues that have to be considered as part of the appeal process. He says:
“The usual consequence where an Employment Tribunal correctly addresses itself, by reference to those and other such cases, is that the Employment Appeal Tribunal will be reluctant to interfere. This is not because such a question is one based entirely on facts, where the Employment Appeal Tribunal, which only has a power to interfere when there is an error of law, will thus be slow to intervene (particularly as the province of perversity, where it is plainly able to intervene, has been gradually so restricted in a number of decisions over the last few years. It is rather because it is a question of mixed law and fact, where the facts are found but then the Employment Tribunal expresses its legal conclusion based on the facts, where an error has to be shown; and, provided that the Employment Tribunal has applied the correct tests, it is rare for an Employment Appeal Tribunal to be able to identify an error, even if itself it would have reached a different conclusion.”
This is very much the same for a tax appeal such as the recent Synaptek case, where the decision of the High Court is expected shortly.
Length of contract
The first status issue that Justice Burton looked at was the issue of the length of contract. Even though Ms Dacas had worked full time at the Wandsworth hostel for six years this was not regarded as a pertinent issue. This was an issue that had been specifically considered by the ET. It cited the view expressed in the case of Montgomery v Johnson Underwood Ltd by Charles J who held:
“that the tribunal took into account an irrelevant consideration by having regard to the actual length of Mrs Montgomery’s service”.
In Ms Dacas’ case the ET concluded that:
“the Tribunal does not find that the mere length of the assignment alone is relevant. The Tribunal finds the Applicant commenced the assignment at West Drive Mental Health Hostel, not as an employee of the First Respondent, and the Tribunal finds that the mere length of that assignment does not itself change the Applicant’s employment status.”
The EAT agreed with that conclusion. It also found that:
“Of course, as a matter of sympathy, someone who is dismissed after six years obtains more of it than someone who is dismissed after six weeks or six months.”
A logical conclusion of this being that the issue of Ms Dacas’ status had to be based on her status as at the start of the contract as there was no evidence that her status had changed in any way during the contract.
Umbrella contracts
The judgement also notes that many cases revolve around umbrella contracts that govern a series of engagements – such as in Montgomery v Johnson Underwood Ltd. However, in this case it was clear that all that there was a single contract, which was referred to as a “McMeechan contract” after the case of McMeechan v Secretary of State for Employment [1997] IRLR 353. The terms of this contract were set out in the agency’s standard contract form, which was known as “The Temporary Worker Agreement”.
Intent
The EAT noted that the ET had apparently concluded that most of the pertinent status factors were neutral. They also noted that the ET had looked at what it “called ‘the feel of the matter’ and, again, concluded that the ‘feel’ of the matter was neutral.”
This appears to be a form of standing back and looking at the wider picture test.
Because of these issues all being regarded as neutral the ET appears to have placed its main reliance on the stated intentions of the parties. However, as the EAT’s judgement makes clear intent is only of relevance when all more pertinent status issues are unclear.
As it says:
“What is clear from those authorities is that, where an Employment Tribunal is left uncertain at the end of its balancing act, where there are pointers both ways; where, as I put it in the course of argument to Counsel, the matter was “up for grabs”, not only can the Employment Tribunal look at and place weight upon the terms of the contract, as expressing the intention of the parties, but that label can be decisive or determinative.”
However, the EAT’s judgement goes on to show that based on the facts it was clear that the issues were not in balance and hence, intent as expressed in the contract was not a determinant factor.
Control
The first clear error by the ET was in the area of control.
The ET had decided that, as far as the second respondent was concerned – the client,
“They considered whether the Appellant’s assignment at West Drive was inconsistent or consistent with an employment relationship by virtue of the fact that day-to-day instructions were given by the Second Respondent, and, again, they concluded that, not least because they decided firmly that there was no employment relationship between the Second Respondent and the Appellant, and, as set out in the earlier paragraph, that since instructions by the Second Respondent as the client were provided for in the Temporary Worker Agreement, that too did not point either to or against an employment relationship”
The EAT also notes that the ET:
“ discounted the day-to-day control exercised by the Second Respondent; plainly on the basis of the arguments by Mr O’Dair, which were by reference to the contract; it found the existence of both a personal control and delegated control, insofar as the day-to-day control was by virtue of the contract, that is, the Temporary Workers Agreement, left to the client. The Tribunal further referred to the control that the First Respondent exercised by way of discipline, by reference to the facts of the case.”
However, as regards the first respondent (the agency), the EAT notes, “It is quite apparent that the Tribunal made a finding of fact that the Respondent exercised considerable control over the Appellant”. It also noted
“The Tribunal further referred to the control that the First Respondent exercised by way of discipline, by reference to the facts of the case.”
The ET also added the following comment
“However that control arose from and was consistent with the Temporary Workers Agreement and no additional control arose in respect of the single engagement at West Drive.”
According to Justice Burton in his judgement it was quite clear from the findings of the ET that “there is a finding of considerable control”.
Mutuality of obligation (MOO)
The second error which the EAT concluded that the ET had made was on the issue of MOO. The ET found that there was MOO between Ms Dacas and Brook Street although they tried to dismiss this on the following terms
“However those obligations [that is, the mutual obligations] arose under the Temporary Worker Agreement and were no more onerous in respect of the assignment at West Drive than any other assignment.”
As Justice Burton notes:
“We find that sentence almost impossible to understand and neither party has been able to assist us. What does it matter that the mutuality of obligation arose under the Temporary Worker Agreement,..”
The EAT judgement summarises the position as follows:
(1) They applied a Ready-Mixed Concrete test, within which they made a finding of considerable control.
(2) They applied a Montgomery v Johnson Underwood test and they found that there was mutuality of obligation.
(3) They did not operate a Market Investigations test. Had they done so, it appears quite inevitable that they would have found, insofar as it assisted in the conclusion, that the Appellant was not carrying on a business of her own. This Appellant was not offering any kind of specialist services; she was not a nurse or a physiotherapist at the hostel, she was a cleaner. This Appellant was not providing, on the evidence at any rate, such services to anyone else. She was full-time working at West Drive, as it was seemingly found by the Tribunal. On the face of it, she would in ordinary parlance, working as a cleaner on an hourly rate full-time at a hostel, seen to be an employee, but she would certainly not look like someone who was carrying on business on her own account, yet the Tribunal concluded that she was not an employee and they did so, by reference to the label or rubric in the Temporary Worker Agreement.
The EAT concludes that:
“It appears to us quite clear, that all the pointers on the findings of fact by the Tribunal were in favour of employment, and because all the other factors found by them to be neutral, no pointers existed pointing against employment. The only pointer was the label, but, albeit that they were no doubt entitled to take that into account, if it pointed the opposite way to all the indications which on their own findings otherwise existed in this contract, then they were not entitled to treat that label or rubric as determinative or decisive, as they appear to have done.”
They therefore concluded that the ET was wrong in law to find that Ms Dacas was not an employee of Brook Street and have therefore referred the case back to the ET for them to conclude on the issue of whether she had been wrongfully dismissed.
Implications of the judgement
For agencies the decision is very worrying. It says that from day one Ms Dacas was an employee of the agency. Not surprisingly, we understand that Brook Street are appealing the decision. We will therefore have to await the appeal verdict before we can draw any final conclusions from the judgement.
However, without having seen the contract it is hard to judge what the grounds for the appeal may be. Nevertheless, there seems to be some possible inconsistencies in Mr Justice Burton’s judgement.
For example, the EAT concludes that Ms Dacas was an employee from day one but a key aspect of the control issue was that she had been disciplined by the agency. However, unless the contract specifically covered that issue that seems to have been a matter that may not have been clear right at the start of the contract.
Nevertheless, there are some useful comments in the judgement that should help freelancers in future. The comments about the length of the contract being irrelevant are helpful in reinforcing a message that has also been made in other cases.
The case also makes some interesting comments on control. It appears that the EAT accepted the argument that little control was exercised by the client even though the agency contract appeared to give the client the right of supervision, direction and control.
It also casts some more light on the 'in business on your own account test' where the judgement notes that Ms Dacas was not carrying out a business and cites as factors pointing towards this the fact that she was not carrying out any specialist services nor was she “providing, ….. such services to anyone else”
This case is further proof that the whole area of employment and tax status is fraught with uncertainty. This can work both ways. It makes life more difficult for freelancers who can never be totally sure as to where they stand.