Hawkins v Darken (t/a Sawbridgeworth Motorcyles)

J U D G M E N T

1. LORD JUSTICE PETER GIBSON: This is an appeal by Mr Nigel Darken, trading as Sawbridgeworth Motorcycles, from the order made by the Employment Appeal Tribunal ("the EAT") on 20th July 2004. The EAT allowed the appeal of Mr Jamie Hawkins, a former employee of Mr Darken, from the decision of an Employment Tribunal ("ET") sitting at Bury St Edmunds. The ET in its decision sent to the parties on 17th February 2004 held that it had no jurisdiction to hear Mr Hawkins' claims of disability discrimination because Mr Darken came within the then existing exemption from the Disability Discrimination Act 1995 ("the 1995 Act") for small businesses, as he had fewer than 15 employees (see section 7(1)). It is not in dispute that Mr Darken had 14 employees at all material times.

2. The sole issue raised by the appeal is whether a supplier of services to Mr Darken, Mr Brian Cowell, was an employee of Mr Darken for the purposes of the 1995 Act. The EAT held that he was, and that accordingly Mr Darken had 15 employees and so the ET had jurisdiction to hear Mr Hawkins' claims. The EAT remitted the case to the same ET to continue to hear the case.

3. Mr Hawkins was employed as a motorcycle valet by Mr Darken from 3rd October 2002 until 17th May 2003 when a notice of dismissal, given to him on 17th April 2003, expired. Mr Hawkins presented an originating application to the ET on 10th July 2003. He claimed that he was a disabled person for the purposes of the 1995 Act and that Mr Darken had discriminated against him in respect of his dismissal, as well as earlier in the course of his employment. However, the focus of the complaint pursued before the ET was the dismissal.

4. The ET dealt with the applicability of the 1995 Act as a preliminary issue. For Mr Hawkins it was argued that in addition to the 14 agreed employees of Mr Darken, Mr Cowell and two others were employees. It is unnecessary to say anything further about the other two alleged employees as the ET rejected the claim in respect of them, the EAT agreed with the ET and that claim is no longer pursued.

5. Mr Cowell gave evidence before the ET which made the following findings about him:

"10. We accept the evidence of Mr Brian Cowell. He describes himself as a self employed van driver and his work involves the delivery and recovery of motorcycles. He has from time to time provided driving services to Sawbridgeworth Motorcycles over the last two years. He is contacted by Sawbridgeworth Motorcycles as and when they need him to carry out driving work and he provided his services for approximately 2½ days per week. He is not guaranteed any regular work. When he has built up a certain number of hours he invoices them for his time. He had previously worked for other motorcycle companies including 'On Yer Bikes' in Aylesbury and 'On Yer Triumph' in Aston Clinton. Business for those companies had been quite slow and he hadn't carried out any driving duties within the last 18 months. On 17 May 2003 he was not working for the respondent.

11. We are also satisfied that from the evidence of Mr Darken that he keeps no separate pay records for Mr Cowell and payments are made to him from petty cash. It is right that Mr Cowell would wear a winter jumper with 'Sawbridgeworth Motorcycles' on it. He is not obliged to wear it and indeed often wears a 'Triumph' jacket. He submits accounts as a self employed person in business on his own account to his accountant for Revenue purposes."

6. Before the ET it was argued for Mr Hawkins that Mr Cowell came within the statutory definition of "employment". By section 68(1) of the 1995 Act:

"'employment' means ... employment under a contract of service or of apprenticeship or a contract personally to do any work, and related expressions are to be construed accordingly."

7. It was said that Mr Cowell was employed under a contract of service, and in the alternative that he worked under a contract personally to do work for Mr Darken.

8. The ET, having set out the definition of employment in section 68, continued:

"16. We are satisfied having considered this matter that Mr Cowell does not fall within the definition. He is on business on his own account. He delivers motorcycles, he does it for Mr Darken from time to time. It was open to him to send an employee, were he to employ one, to undertake his deliveries. He was not obliged to wear the respondent's uniform. He is not tied to working solely for the respondent. He has done work for other similar organisations. We are satisfied he fails the personal service test, as set out in the decision of the Court of Appeal in Express and Echo Publications Limited v Tanton [1999] IRLR 367.

17. We are satisfied there is no mutuality of obligation as that principle is explained in Clark v Oxfordshire Health Authority [1998] IRLR 125 which was upheld by the House of Lords in Carmichael v National Power [2000] IRLR 43.

18. Looking at this in the round we are satisfied that Mr Cowell worked ad hoc for the respondent on a self employed basis. There was no obligation to work, there was no obligation to offer him work. He submitted invoice for his work at negotiated rates. The Tribunal prays in aid its own decision in Stone [v Whittley Parish Estate Agents and Valuers (a firm) ] and is satisfied that Mr Cowell is clearly a self employed individual and independent contractor."

The reference to Stone is to the decision of an ET with the same Chairman as decided the present case.

9. In that case the ET held that where notice of dismissal is given and the dismissal takes effect at the end of the notice period, the dismissal is a continuing act over a period of time from the date notice is given until the date notice takes effect, and that if any at any stage during that time the employer has more than 14 employees it cannot rely on section 7 of the 1995 Act.

10. The ET then referred to another argument for Mr Darken that since Mr Cowell was not working for him on 17th May 2003, the effective date of termination, he was not an employee for the purposes of section 7. The ET rejected that submission on the basis that, in accordance with Stone , as Mr Cowell did work for Mr Darken during the notice period, he was an employee at the time of dismissal and that it did not matter that he was not working on 17th May. The ET expressed its conclusion in this way:

"20. Thus we find that Mr Cowell, applying the well known laid test in Ready Mixed Concrete [v Minister of Pensions and National Insurance [1968] 2 QB 497] as set out by Ms Higgins, is an independent contractor and in those circumstances the respondents do not have more than 14 employees at any stage during the applicant's notice period.

21. Mr Cowell did work during that notice period and therefore had he not been an independent contractor, the respondent would have had 15 employees as defined by the statute.

22. However, on our findings above, the Tribunal has no jurisdiction to hear the applicant's claim for disability discrimination, which is dismissed."

11. The EAT on Mr Hawkins' appeal allowed the appeal. It took the view that the authorities referred to by the ET in paragraphs 16 and 17 were not in point because they were cases on the definition of "employee" and "contract of employment" in section 230(1) and (2) of the Employment Rights Act 1996 and its statutory predecessor, and they were narrower than the definition in section 68(1) of the 1995 Act because they contain no reference to a contract personally to do work. The EAT quoted extensively from the decision in the House of Lords in Kelly v Northern Ireland Housing Executive [1999] AC 428 to which it had drawn counsel's attention.

12. Mitting J, giving the judgment of the EAT, said this:

"21. On the facts found by the Employment Tribunal there was mutuality of obligation during the times that Mr Cowell was performing the work of delivering motorcycles and other minor tasks for the Respondent. He was obliged to deliver the motorcycles, which he agreed to deliver, and the Respondent was obliged to pay him for doing so. During the four week period of notice, which the Employment Tribunal held to be the relevant period, he did such work personally for the Respondent, on average we have calculated for eleven and a half hours a week. We have made that calculation on the basis of invoices contained in the Appeal and Employment Tribunal bundles and on the hourly rate stated to apply, £10 an hour, on behalf of the Respondent.

22. Therefore, applying the mutuality test, Mr Cowell and the Respondent were, for an average of eleven and a half hours at least per week, of the relevant time under mutual obligations to each other. In fact the obligations began before that work was performed. From the moment that Mr Cowell accepted the task of delivering motorcycles, usually we are told by telephone, he became under an obligation to deliver the motorcycles. That obligation endured until he had done so; the obligations of the Respondent began at the moment when he made the request. His obligation was to pay if the work was performed. It endured until Mr Cowell rendered his invoice and the obligation to pay was satisfied.

23. Applying the law as we hold it to be to the Employment Tribunal's findings of fact, Mr Cowell was therefore an employee, applying the statutory definition of employment in section 68(1) for at least a substantial portion of the relevant period. Even if the mutuality test is applied in its full rigour, it was, for substantial elements of that period, satisfied."

13. The EAT criticised the reference by the ET to the authorities in paragraphs 16 and 17. With respect to the EAT, it may have lost sight of the fact that it was being argued for Mr Hawkins in the ET that Mr Cowell had a contract of service and that only in the alternative was it being argued that Mr Cowell was employed under a contract personally to do work. Further, the EAT may have failed to recognise the applicability of some of the reasoning of this court in Express & Echo to the circumstances of the present case. I will return to that later.

14. Mitting J then turned to the question whether the ET was right to treat the whole of the period of notice as the relevant period. He quoted from the ET's decision in Stone , and said that it found the reasoning compelling and an accurate statement of the law on the point. It continued in paragraph 24:

"Applying the law, as we understand it, to the Employment Tribunal's findings of fact, we therefore conclude that its reasoning and conclusions were flawed. Mr Cowell did contract to do work personally during the relevant period. The possibility, not in fact put into effect, that he could have delegated some of it to someone else did not prevent it from being such a contract. It is immaterial that he was self-employed and in business on his own account. He was within the definition of 'employee', resulting from the application of the extended test in section 68(1) during the relevant period. He and the Respondent were under mutual obligations for significant parts at least of that period. The Respondent, therefore, had fifteen employees including Mr Cowell for the purposes of the Disability Discrimination Act 1995 ."

15. Mr Darken sought but was refused permission to appeal by the EAT. However, such permission was granted by Wall LJ on the papers.

16. The appellant's notice is singularly unhelpful in identifying the grounds of appeal, saying only that the EAT erred in law in that it applied the wrong test under section 7. The original skeleton argument of Miss Higgins, who has appeared throughout for Mr Darken, was similarly unhelpful, in that the points she took in it were convincingly answered by Miss Cunningham, who appears before us (not having appeared below) for Mr Hawkins in her skeleton argument. At the commencement of the hearing before us today Miss Higgins largely abandoned the points which she took in her skeleton argument.

17. The one point on which Miss Higgins concentrated was one not taken by her in the notice of appeal or skeleton argument, though it had been argued by her in the ET and the EAT. We indicated at the outset of the hearing that we wished to hear argument on the point. That point was based on the apparent finding of the ET in the fourth sentence of paragraph 16 of the decision:

"It was open to [Mr Cowell] to send an employee, were he to employ one, to undertake his deliveries."

18. Miss Higgins submitted that that finding meant that there could be no contract personally to do any work, and that the EAT erred in failing to recognise the significance of that finding.

19. Miss Cunningham objected to this point being taken so late in the manner that it was. She said that if it had appeared in the notice of appeal Mr Hawkins could and would have put in a respondent's notice cross-appealing against the EAT's acceptance of the finding. However, that finding had been the subject of the ground of appeal by Mr Hawkins to the EAT. In that notice of appeal it was said for Mr Hawkins that the ET had extrapolated its conclusion that Mr Cowell was not under a contract personally to do any work from an answer to the hypothetical question: what would the parties have agreed if the question as to whether Mr Cowell could send a substitute had been raised? And that in the absence of any other written or express terms the correct test was: what does the evidence as to the actual operation of the contract during the relevant period disclose regarding the terms of that contract?

20. In the skeleton argument of counsel for Mr Hawkins before the EAT there is little emphasis on this point, it being said that the ET erred by failing to consider the actual operation of the contract at the relevant time. Instead it had considered the question on the basis of a hypothetical question: what would the parties have agreed if the question as to whether Mr Cowell could send a substitute had been raised?

21. Miss Higgins in her skeleton argument in the EAT had argued against these submissions, saying that Mr Hawkins had failed to establish that there was no evidence to support the finding made by the ET in paragraph 16 and that it was not disputed that Mr Cowell gave evidence that he could, if he so wished, hire someone to assist him in undertaking his deliveries.

22. The EAT appears to have accepted that finding when it referred in paragraph 24 to the possibility that Mr Cowell could have delegated some of the work to be done to someone else. I think it most unfortunate that this point has re-emerged in the way that it has. That defeats the purpose of the requirement for the appellant's notice to state the grounds for the appeal and the purpose of the requirement for a skeleton argument, i.e. to tell the respondents what case they have to meet on the appeal.

23. But having said that and whilst recognising that what has happened may have costs consequences, I do not think that I would be right to refuse to allow the point now to be taken. It is not a new point, as I have indicated. We have endeavoured to allow Miss Cunningham full opportunity to say all that she would have wanted to say had the point been taken in the appellant's notice and skeleton argument of Mr Darken and had Mr Hawkins put in a respondent's notice. In my judgment, having regard to the overriding objective, I think that it is only just that we should decide the point now that it has been taken.

24. To elaborate a little further on the point, the relevance of the finding in the sentence in paragraph 16 is that it appears to be a finding on what is to be inferred as a term in each of the many contracts entered into between Mr Darken and Mr Cowell. If it is such a term, then that would appear to be inconsistent with the contract being one personally to do any work.

25. In Express & Echo the question was whether a contract, described as "an agreement for services", was a contract of service. Under the contract, clause 3.3 provided that should the applicant be unable or unwilling to perform the services personally, he should arrange for another suitable person to perform the services. Of the three conditions which MacKenna J in the Ready Mixed Concrete case [1968] 2 QB 498, at 515, said should be fulfilled if a contract of service existed. The first was that the servant agreed that in consideration of a wage or other remuneration he would provide his own work and skill in the performance of some service for his master. MacKenna J explained that the servant must be obliged to provide his own work and skill, as the freedom to do a job either by one's own hands or by another was inconsistent with a contract of service. That statement has often been approved by this court.

26. In Express & Echo Publications Ltd v Tanton [1999] ICR 693, the ET Chairman expressed himself as more concerned with what actually occurred than with what the documents recorded as being the obligation of the parties. I said this at page 697:

"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. The obligation could be temporarily waived. If there is a term that is inherently inconsistent with the existence of a contract of employment, what actually happened from time to time may not be decisive, given the existence of that term. For example, if, under an agreement, there is a provision enabling, but not requiring, the worker to work, and enabling, but not requiring, the person for whom he works to provide that work, the fact that work is from time to time provided would not mean that the contract was a contract of service: consider Clark v Oxfordshire Health Authority [1998] IRLR 125."

This court held that there was a contract for services and not a contract of service.

27. That case concerned the obligation personally to do work in the context of a contract of service, but similar reasoning is applicable to that part of the extended definition of employment which relates to a contract personally to do work.

28. In relation to the extended definition, we have been referred to two authorities in which the extended definition in language virtually identical to that in section 68(1) of the 1995 Act was considered in the context of whether employment under a contract personally to do work excluded some part of that work being done by another for whom the contractor was responsible.

29. In Mirror Group Newspapers Ltd v Gunning [1986] ICR 145, this court found that the dominant purpose of a contract between a newspaper group and the holder of an agency for the wholesale distribution of newspapers was the effective distribution of papers. The test was laid down that the statutory definition referred to a contract, the dominant purpose of which was the personal execution of work or labour (see page 157 per Balcombe LJ).

30. That test was approved by the House of Lords in Kelly , in a case on similar wording in the Fair Employment (Northern Ireland) Act 1976. That case confirms that it matters not that the claimed employee entering the contract is self-employed or a professional (such as a solicitor), even one in partnership. Such a person can still have employment under a contract personally to execute work and need not do all the work personally, provided that the dominant purpose of the contract is (in the words of Lord Slynn [1999] AC at page 438) that he will do "the essential part of the work", and (in the words of Lord Clyde at page 448) if "it is a contract which seeks to secure his particular individual participation as the principal and major contribution to its performance."

31. The EAT in the present case simply asserts without explanation in paragraph 24 of its judgment both that Mr Cowell did contract to do work personally during the relevant period and that the possibility that he could have delegated some of it to someone else did not prevent it from being such a contract. It has to be borne in mind that Mr Cowell had a succession of contracts with Mr Darken, but that there was no overarching contract. If one looks at each contract in isolation, I do not see how it could be said that the dominant purpose of that contract is that Mr Cowell would do the essential part of the work or that the contract sought to secure his particular individual participation as the principal and major contributor to its performance, if it was open to Mr Cowell to send an employee to undertake the collection and delivery which were the core tasks to be performed. The EAT never addresses this difficulty. Rather, it seems to have proceeded on the footing that because Mr Cowell personally did the work, therefore the contract was to do the work personally. With respect, that is logically fallacious.

32. It is unfortunate that the ET did not deal with the argument that Mr Cowell was employed under a contract of service separately from the alternative argument that he was employed under a contract personally to do work. The latter contract must be a binding contract under English law and so supported by consideration. In Mr Cowell's case, each time he was called on to perform work he promised to do it, though not personally it would appear from the finding in paragraph 16 to which I have drawn attention, and Mr Darken promised to pay him and so to that extent there was mutuality of obligation. But there were no further mutual obligations such as one would find in a contract of service, and in my judgment no further mutual obligations are necessary. It is not now in dispute that Mr Cowell had no contract of service.

33. Miss Cunningham challenged whether the finding in paragraph 16 of the ET's decision was properly made. She told us it was based on a single question and answer in the cross-examination of Mr Cowell and was a throwaway line by the ET. Miss Cunningham's main objection was based on what she said was the inadequacy of the finding. She rightly said that Mr Hawkins was entitled to know from the ET's decision why he had lost, and she suggested that because the findings were so inadequate the case should be remitted to the ET to make further findings. I am not able to accept Miss Cunningham's submissions on this point.

34. Miss Higgins, who has the advantage over Miss Cunningham of having been at the ET hearing, disputes the suggestion that the finding was only a throwaway line and that there was only the evidence of a single question and answer. She tells us that there was much evidence on the point. The finding in paragraph 16 seems to me no more than what one would expect from a contract for the collection and delivery of goods. In the absence of any term to the contrary, the natural inference from such a contract is that the contractor is free to employ someone to undertake the essential collection and delivery. It would appear that the evidence of Mr Cowell entirely accorded with that expectation.

35. Miss Higgins had flagged up the importance of the point in her skeleton argument put before the ET, so that Mr Hawkins' representative could have dealt with it then. The ET had in paragraph 16 accepted what Miss Higgins had submitted in her skeleton argument virtually verbatim. The ET had linked the point to its conclusion that Mr Cowell failed what it called the personal service test as set out in Express & Echo . To require the ET to do more in its decision is, in my judgment, to require unrealistically high a standard from ETs. By its decision, the ET did adequately explain to the parties why they had won and lost on this point. It would in my judgment be quite wrong to send the case back to the ET for further findings at this stage.

36. For these reasons, despite Miss Cunningham's well-presented submissions, I have reached the clear conclusion that on this point the appeal must be allowed. The finding of the ET in paragraph 16 seems me to be inimicable to the notion that there was a contract personally to do work for Mr Darken. It is unnecessary to say anything further on the other submissions of Miss Higgins which, with respect to her, I did not find persuasive.

37. I add a word of caution on a further point decided by the ET and the EAT which does not arise on this appeal as it was not the subject of a cross-appeal by Mr Darken from the decision of the ET to the EAT. As I have noted, had the ET been satisfied that Mr Cowell came within the definition of employment, it would have supported its reasoning in Stone and would have held that Mr Cowell by reason of working under the contract on any day in the period of notice for dismissal was an employee for the purpose of section 7 in respect of the complaint of discrimination over the dismissal of Mr Hawkins, and the EAT supported that reasoning. I have considerable doubts as to whether that reasoning is correct. The act complained of is the applicant's dismissal. The time at which the test of section 7 has to be applied is the time of the allegedly discriminatory act. It is far from obvious to me that the fact that a person is an employee in the extended sense on any day of what may be a long notice period will make that person a relevant employee in relation to the dismissal. If it is said that the employer could that day have withdrawn the notice, that converts the nature of the complaint from being a complaint about the dismissal to a complaint about a failure to withdraw the dismissal notice. I do no more than to record my reservations as to the correctness of what the ET and the EAT decided on what seems to me to be a difficult point.

38. However, for the reasons which I have given, I would allow the appeal, set aside the order of the EAT and restore the decision of the ET.

39. LORD JUSTICE MANCE: I agree with my Lord's reasoning and conclusions and there is nothing further I wish to add.

40. LORD JUSTICE CARNWATH: I also agree.

ORDER: Appeal allowed, the order of the Employment Appeal Tribunal set aside and the decision of the Employment Tribunal restored.

(Order not part of approved judgment)

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