Brook Street Bureau (UK) Ltd v Dacas

The issue here is whether a cleaner, who is the applicant in proceedings for unfair dismissal, was an employee of an employment agency. The other possibilities are that she was an employee of a client (the end-user) of an employment agency, or that she was not an employee at all. Although the statement of the issue suggests that it is short and simple, it is neither of those things. Recent cases in the Employment Tribunal, the Employment Appeal Tribunal and in this court demonstrate that there is confusion in the workplace and considerable uncertainty in the law about the status of individuals who obtain work through employment agencies: see, for example, the notes in paragraphs 5-10 and 5-12 in the 3^rd Supplement updating the 18^th edition of Clerk & Lindsell on Torts.

Some may be surprised to learn that a significant number of people in the labour market, who cannot be accurately described as casual, intermittent or temporary workers, who reasonably think that they are in stable employment relationships and whom reasonable people would regard as employees, may not be employees after all and will be denied the protection of such basic employment rights as the right not to be unfairly dismissed. If those people are not employees, it follows that the doctrine of vicarious liability would be unavailable to claimants in actions for tort against those exercising control over such workers, who committed torts in the course of their work: see paragraph 72 of the judgment of Sedley LJ, with which I agree. It is also the case that an entire industry for the supply of workers has been established and is in practice conducted on the basis, for which there is support in the cases, that an individual is not employed under a contract of service, if the end-user, who exercises day to day control over the worker, is not contractually bound to pay remuneration for the work to the worker: see the judgment of Munby J at paragraphs 81-85. In those circumstances a longer introduction than usual is required to explain the legal background to the question, on which the tribunals below in this case have arrived at different answers.

Under s 94 of the Employment Rights Act 1996 (the 1996 Act) an employee has the right not to be unfairly dismissed by his employer. An “employee” is defined in s 230 (1) of the 1996 Act by reference to the nature of the contract under which an individual works: an employee is

“ a person who works under (or where the employment has ceased worked under) a contract of employment.”

The definition of a “contract of employment” in s 230(2) of the 1996 Act reflects the traditional common law differentiation of contracts under which an individual works for another person as either a contract of service or as a contract for services: a contract of employment is

“ a contract of service or apprenticeship whether express or implied, and (if it is express) whether oral or in writing.”

There is no definition or further description of a “contract of service” in the legislation. The omission is deliberate. For better or for worse, Parliament decided to leave in the hands of the courts and tribunals the responsibility for defining the limits of a contract of service on a case by case approach. The general principles of the law of contract are applied and, in dealing with cases brought under the employment rights legislation, the courts take into account the object and scheme of the relevant statutory provisions. In that way the courts and tribunals decide who is within the category of employees, on whom it is intended to confer employment rights, such as the right not to be unfairly dismissed. The courts have to address general, as well as technical, questions: who is Parliament legislating for? If not for an individual in the position of the applicant, why not? What is meant by “a contract of service” in this context?

The extent of the difficulty should not be exaggerated. In the vast majority of the thousands of unfair dismissal claims brought in the Employment Tribunals each year, there is no dispute that the applicant is an employee and that the respondent is the employer. In some cases, however, the applicant’s status is an issue. Debatable cases at the margin of a legal concept are inevitable and even formal statutory definitions would not eliminate them. The marginal cases challenge the courts to explore the essence and to examine the boundaries of something that is very familiar because it readily fits the standard case.

In my view, this claim for unfair dismissal is a difficult case. The tribunals below disagreed on the outcome. It is becoming clear that, in the interests of consistency and predictability, Employment Tribunals require as much guidance as can be usefully derived from the relevant legal principles and from the current state of the authorities. Although, as I shall explain later, this case is complicated by the circumstances in which the appeal has come before this court, its facts neatly pose a troublesome question of employment law concerning the status of a cleaner who obtained, through an employment agency, four years of regular paid work with one end-user. This court would be failing in its function if it did not address that wider question. One of the reasons for spending a long time on this judgment is that the wider question is now the most intractable, as well as the most basic, in the whole of employment law. On the one hand, it would be more consistent with a purposive construction of the 1996 Act to hold that workers in the position of Mrs Dacas are entitled to protection from unfair dismissal than to hold that they are not. On the other hand, it has to be recognised that that result runs counter to the views and assumptions shared by many, both professional and lay, involved in setting up, operating and using employment agencies.

From personal experience everyone knows something about the rapid increase in recent years in the flexibility and diversity of complex legal and economic relationships and practices in the workplace. (The changing shape and structure of the labour market are examined in Professor Freedland’s invaluable work, The Personal Contract of Employment (2^nd ed 2003) published shortly before the hearing of this appeal. As will appear, I am indebted to him for his treatment of this topic.) The development of “complex employment relationships,” which flourish on the theoretical freedom of the people in the labour market to make contracts of their choice, has added to the difficulty of deciding whether an individual, doing paid work for another, does so under a contract of service and, if so, for whom. The common law notion of a “contract of service” has to be applied by the courts, in the employment rights context, to constantly changing conditions in and outside the workplace. The general principles of the law of contract are sufficiently flexible to cope with many changes; but sometimes only legislation can supply the solution that the common law is unable to deliver. For example, the working conditions of “temporary agency workers” have prompted proposals for an EC Directive establishing a protective framework for temporary workers and providing a consistent and flexible framework conducive to the activities of temporary employment agencies, which post temporary workers employed by them to user undertakings to work temporarily under the latter’s supervision.

The particular problem in this case may in due course be regarded as a matter for legislation. It arises from a similar triangular set -up for the organisation of work, which is not necessarily “temporary” from the point of view of the employment agency, the worker (using a legally neutral in the present context) or the end-user. Within the triangle various contractual relationships are expressly created and documented in detail in connection with the organisation of the work to be done by individual workers i.e. type, place and hours of work, rates of pay, dismissal and so on. The rights and obligations normally found in employment relationships are, however, distributed differently in the contractual documents, thereby creating an initial impression of functional dislocation. To take just one example, the applicant not only finds work through the agency; the agency pays for the work done for the end-user, who is under an obligation to make regular payments to the agency based on the hours worked by the applicant for the end-user.

The legal problems are articulated by Professor Freedland at p. 55 of his work:

“Our analysis of the current state of the law of personal employment contracts showed that there was a complex of serious functional problems with regard to employment arrangements or relations involving an end-user of services and an intermediary entity such as an employment agency having some kind of employing role between that end-user and the worker. The problems were firstly, that there is great resistance to the construction of triangular personal employment contracts, secondly, that there may be great difficulty in deciding whether the worker’s bilateral personal employment contract is with the end-user or the intermediary, but thirdly and most fundamentally that the triangular nature of the arrangement may have the effect that the worker fails to qualify as having a contract of employment or even as having a personal work or employment contract of any kind.”

It is plain that increasing numbers of people, both those who do the work and those who pay for the work done, find themselves in situations of the kind described by Professor Freedland and faced with the problems identified by him. The specific legal question in this case is whether the applicant works under a contract of service (express or implied) when (a) the applicant has entered into a written agreement, expressed to be a contract for services and not a contract of service, with an employment agency; and (b) the employment agency has entered into an express contract with its client (i.e. the end-user of work done by the applicant) for the provision of “agency staff”, including the applicant; but (c) no formal contract of any kind has ever been expressly entered into between the applicant and the end-user, in whose premises the applicant works regularly, exclusively and for reward until dismissal takes place on the initiative of the end-user.

If such arrangements are truly intermittent, casual or temporary, claims for unfair dismissal will not in practice involve a risk of liability on the part of the end-user, as the applicant will not satisfy the qualifying period requirement. As recent cases have shown, however, the arrangements are not always temporary for the applicant and the end-user. Dismissal, the triggering event, may not occur until years after the particular triangular arrangements first connected the applicant with the end-user.

I have mentioned the potential liability of the end-user to the applicant before that of the employment agency, because the first impression gained, on looking at the practical realities of the triangular arrangement, is that the applicant is more likely to be regarded as an employee of the end-user than as an employee of the employment agency or as not being an employee at all. There is no dispute in cases like the present that the applicant has done work for the end-user at the end-user’s premises and under the control of the end-user, who has indirectly paid the applicant for the work by means of regular payments to the employment agency calculated according to time sheets recording the number of hours worked for the end-user.

Although it normally makes sense to look at things as they actually are and to shy away from the distorting tendencies of the law, the legal difficulties mentioned by Professor Freedland in the passage quoted above have to be faced. The main difficulty lies in tracking down a relevant contract of service under which the applicant works. Without a contract of service, as required by the statutory definition of a contract of employment, the applicant cannot be treated as an employee of the end-user.

The starting point is that it is highly unlikely that paid work was done by the applicant in the absence of a contract of some kind. In a triangular arrangement for the organisation of work a range of possibilities is available as to the particular contract under which the applicant does the work. There may be no contract at all between the applicant and the end-user. That was held by the Employment Tribunal to be the case here. The applicant’s only express contract may be with the employment agency. That was the conclusion of the Employment Appeal Tribunal, which, differing from the Employment Tribunal, construed the relevant document as a contract of service, under which the applicant worked. The employment agency may also have an express contract with the end-user relating to the supply of “agency staff,” such as the applicant, required to work at the premises and under the control of the end-user.

The statutory definition of a contract of employment as a “contract of service” expressly includes an “implied” contract. This should not be overlooked. I think that it has been. Like other simple contracts, a contract of service does not have to be in any particular form. Depending on the evidence in the case, a contract of service may be implied- that is, deduced - as a necessary inference from the conduct of the parties and from the circumstances surrounding the parties and the work done. As already indicated, the overall situation under consideration is shaped by the triangular format used for the organisation of the work: the applicant, the employment agency and the end-user are all involved. Each participant in the triangular situation may have an express contract with either one of, or with each of, the other two parties.

The critical point is that, although the construction of the contractual documents is important, it is not necessarily determinative of the contract of service questions, as contractual documents do not always cover all the contractual territory or exhaust all the contractual possibilities. In determining the true nature of the relationship (if any) between each of the respective parties, it is necessary to consider the total situation occupied by the parties. The totality of the triangular arrangements may lead to the necessary inference of a contract between such parties, when they have not actually entered into an express contract, either written or oral, with one another. Although there was no express contract between the applicant and the end-user in this case, that absence does not preclude the implication of a contract between them. That depends on the evidence, which includes, but may not be confined to, the contractual documents.

As a matter of law, when an issue is raised about the status of the applicant in unfair dismissal proceedings, an implied contract between parties who have no express contract with one another is a possibility that should be considered by the Employment Tribunal in making its findings of fact. It is relevant to the decision whether the applicant works under a contract, and, if so, what kind of contract it is and with whom it was made. There may be no contract of any kind, because it is found that there is no mutuality of obligations. There may be an implied contract, which may be characterised as a contract of service or as a contract for services. There may be an implied contract of some as yet unclassified kind, wedged within the traditional dichotomy, such as a “semi-dependent worker’s contract,” as mentioned by Professor Freedland in his book, or a quasi-dependent worker’s contract, as mentioned in the work of Professors Deakin and Morris on Labour Law (2001) at p.168.

If the applicant has a contract of service in a triangular situation of this kind, it may be with (a) the end-user, the contract usually being an implied one, or (b) the employment agency, depending on the construction of the express contract between the applicant and the agency and on other admissible evidence or, though this is more problematical, (c) more than one entity exercising the functions of an employer, namely the employment agency and the end-user jointly (see Freedland at pp. 42-43).

In this case the Employment Tribunal held that (a) the applicant’s written contract with the employment agency was not a contract of service and (b) there was no contract between the applicant and the end-user. The Employment Appeal Tribunal disagreed, holding that the applicant worked under the express written contract with the agency, which was properly construed as a contract of service. It held that the Employment Tribunal had erred in law in not construing it as a contract of service. Neither tribunal appears to have considered the possibility of an implied contract of service between the applicant and the end-user. (The applicant has not contended for a contract of service with both the employment agency and the end-user, but it may be premature to rule out that possibility for all future cases.)

Although it is a judicial cliché that cases are decided on their particular facts, the decision on the facts must be guided by the applicable law. If it is not, there may be an appealable error of law, which renders the decision liable to be set aside. In an unfair dismissal case the Employment Tribunal is required by law to ascertain all the relevant facts and to determine whether the requirement of an express or implied “contract of service” is satisfied in the particular case. As already explained, the existence of a contract of service between the parties is a statutory pre-condition of employment status in an unfair dismissal claim. If the Employment Tribunal misdirects itself in determining whether there is a contract of service in a given situation, it errs in law. That error constitutes a good ground of appeal to the Employment Appeal Tribunal and to this court.

I turn to the details of these proceedings. The appeal is by Brook Street (UK) Limited (Brook Street), a well known employment agency, against the order of the Employment Appeal Tribunal dated 11 December 2002. The appeal by Mrs Dacas was allowed and she was held to have been an employee of Brook Street. The matter was remitted for rehearing on the issue of unfair dismissal by a differently constituted Employment Tribunal.

The crucial issue in the proceedings begun by Mrs Dacas in July 2001 for unfair dismissal is whether she was an employee within the meaning of the 1996 Act. In extended reasons sent to the parties on 9 April 2002 the Employment Tribunal, sitting at London South, had decided that she was not an employee: she was neither employed by Brook Street, the first respondent, nor by the end-user, Wandsworth Borough Council (the Council), which Mrs Dacas joined as the second respondent. The complaint failed at the first hurdle.

Events took a different turn in the Employment Appeal Tribunal. In a judgment sent to the parties on 20 January 2003 it was held that the Employment Tribunal had erred in law and that the only conceivable finding was that Mrs Dacas was employed under a contract of service with Brook Street. The matter was remitted for a finding of unfair dismissal to be considered, as the Employment Tribunal had not reached any conclusion on that issue when dismissing the complaint on the preliminary issue of status.

I turn to the Employment Tribunal’s findings of fact. Mrs Dacas worked as a cleaner. From about April 1996, possibly as early as 1995, until April 2000 she worked exclusively at a mental health hostel run by the Council at 3-4 West Drive, Streatham (West Drive), a residential care home converted out of two adjoining houses. The Council, via the management at West Drive, exercised day-to-day control over her, and supplied her with cleaning materials, equipment and an overall. She worked prescribed hours: from 8.30 am to 5.30 pm five days a week on a two week rota.

For many years the Council had, by means of competitive tendering exercise, entered into contracts with a limited number of staff agencies for the provision of agency workers to perform a range of jobs with the Council. The Council had held contracts with Brook Street for the supply of agency staff since 1991. Like other employment agencies regulated by the Employment Agencies Act 1993 and subordinate legislation made under it, Brook Street carries on a business involving the provision of services for the purpose of finding workers employment and of supplying employers with workers. For a considerable number of years the cleaning services at West Drive had been performed by workers supplied by Brook Street rather than by the Council’s direct labour force.

The contract between Brook Street and the Council (Social Services Department) was for “the provision of Agency Staff” at various Council establishments, as listed in a directory in an Appendix , including West Drive. It incorporated tender provisions. It set out the procedure for booking agency staff under requests authorised by the Council’s appropriate authorising manager. Most bookings were to be made on a weekly basis when requirements for the following week were known and often a particular member of agency staff would be requested to ensure continuity. If the Council considered that “an employee of the agency” was not suitable for the work involved, the Council was entitled to request the agency to remove the employee from the service. Procedures were also laid down under which, in respect of certain employees, requests were made by the Council for police checks on agency staff on forms to be supplied to the Council e.g. cases involving substantial access to children. The agency had to ensure that staff supplied to work directly with children had been recruited in accordance with the Council’s recruitment procedures. The Director of Social Services would undertake police checks where necessary.

The agreement set out the responsibilities of Brook Street. They included ensuring that the agency had a policy and procedure for investigating complaints against staff that it had provided and, where possible, suspension from duties involved; and provision for the Council to pay Brook Street on being given invoices, which were calculated from time sheets of the staff supplied to the Council by Brook Street. The time sheets had to be signed off by a relevant senior officer. Payments were only to be made for time actually worked on site. They were calculated in accordance with a Schedule of Rates. The staff supplied had to follow the work routine set out for them by the person in charge of the establishment where they were placed and would carry out designated tasks, as instructed and adhering to safe working practices. Punctuality was to be essential. The agency was responsible for ensuring that staff supplied should know the exact location of the workplace, starting and finishing times and the name of the person to report to on arrival.

Mrs Dacas had herself entered into a written Temporary Worker Agreement with Brook Street (Clapham Branch). According to the definitions in “Section A GENERAL”

“The Client”- means the person, firm or corporate body requiring the services of the Temporary Worker

“The Assignment”- means:

(a)

in any case where the provisions in Section C (Contract for Services) apply, the period during which the Temporary Worker is engaged by Brook Street to render services for the Client.

(b)…..

Clause 2 headed “The Contract” provided

The Agreement contained the following material provisions in Section C headed “CONTRACT FOR SERVICES”-

Assignment

that suitability shall be determined solely by Brook Street and,

Remuneration

Brook Street shall pay to the Temporary Worker remuneration calculated at the minimum hourly rate of ------- to be notified to the Temporary Worker on a per Assignment basis for each hour worked during an Assignment to be paid weekly in arrears. All payments may be subject to deductions for the purpose of Class 1 National Insurance contributions, PAYE and any other deductions which Brook Street may be bound by law to make.

Unless specifically agreed in writing to the contrary, the Temporary Worker is not entitled to payment from Brook Street or the Client for time not spent on Assignment whether in respect of holidays, illness or absence for any other reason.

Obligation of the Temporary Worker

not engage in any conduct detrimental to the interests of the Client.

Timesheets

Cancellation of Assignments

Brook Street or the Client or the Temporary Worker may without prior notice and without liability end an Assignment at any time.

If the Temporary Worker is unable for any reason to work on an Assignment he should inform the Client or the Brook Street branch, which arranged the Assignment, no later than 1 hour after the appointed start time on the first day of absence to enable alternative arrangements to be made.

Brook Street was responsible for discipline, for payments to Mrs Dacas, for the issue of payslips, for the deduction of PAYE and national insurance contributions and for the performance of statutory obligations in relation to holiday and sick pay. Mrs Dacas booked her holidays through Brook Street and notified sickness absence through them.

In August 2000 Brook Street issued a warning to Mrs Dacas, expressing dissatisfaction with the manner in which she had queried her holiday pay. In April 2001 it was alleged that Mrs Dacas had been rude to a visitor at West Drive. The Council’s management asked that she be withdrawn from the contract and not sent to West Drive in the future. Brook Street informed her that no further work would be found for her.

In her complaint to the Employment Tribunal Mrs Dacas claimed unfair dismissal against both the Council and Brook Street.

The Employment Tribunal found that Mrs Dacas was not an employee of Brook Street during the time that she worked at West Drive. It was conceded by the representative of Miss Dacas that she had no overall or “umbrella” contract of service with Brook Street. Instead, it was submitted, in reliance on McMeechan v. Secretary of State for Employment [1997] IRLR 353, that her engagement at West Drive was governed by a contract of service with Brook Street on the basis of a single assignment or engagement actually worked with the Council.

In relation to the engagement at West Drive the tribunal found that Brook Street exercised “considerable control” over Mrs Dacas, including some control by way of discipline. The Council exercised day-to-day control over her whilst she worked at West Drive, “but that was in accordance with the contractual requirements set out in the Temporary Worker Agreement.” The tribunal concluded that the control exercised by Brook Street “ arose from and was consistent with the Temporary Worker’s Agreement and no additional control arose in respect of the single engagement at West Drive.”

The tribunal also found that there was mutuality of obligation as between Brook Street and Mrs Dacas. She had to attend the assignment at West Drive. Brook Street had to pay her. She had to notify sickness and book holidays through Brook Street. But these matters arose from and were consistent with the Temporary Worker Agreement, which was conceded not to be an overall or “umbrella” contract of service with Brook Street. The mutual obligations were no more onerous in respect of the West Drive assignment than in the case of any other assignment.

The Employment Tribunal also considered other features of the relationship that might assist to determine the status of Mrs Dacas, but they were held to be neutral and of no assistance: the fact that she was put onto a rota, which indicated that the assignment was intended to be on-going; the fact that she was required to put in time-sheets to Brook Street; the entitlement of Brook Street to terminate her assignment; and the fact that the day to day instructions were given by the Council.

The tribunal also considered the expressed joint intention of the parties at the time when they entered into the relationship that she would not be an employee of Brook Street. That was clearly stated in the Temporary Worker Agreement. She would work on assignments to which she was sent. If there were no assignments, she would not get work. The tribunal observed that the assignment at West Drive was no different from any other assignment.

As for the length of time that she worked continuously at West Drive, the tribunal held that mere length of the assignment alone was not relevant. She did not commence the assignment at West Drive as an employee of Brook Street. Neither had her status changed into one of employment nor had the intention of the parties changed. The degree of control, the mutuality of obligations and all the other factors remained the same throughout the four year period.

The tribunal dealt with the position of the Council very briefly indeed, saying only this:

“ 39. ….The Tribunal finds that there was no contract between the Applicant and the Second Respondent [the Council] and in the absence of such a contract there cannot be an employment relationship. In the absence of contract there cannot be any mutuality of obligation but in any event such mutuality was missing, and the only indication of employment was an element of control but that was not inconsistent with the situation which existed which was that the Applicant was “temporary worker” not an employee of the Second Respondent.”

As Mrs Dacas’s contract with Brook Street was not a contract of service and as she did not even have a contract with the Council, she was not an employee and could not maintain proceedings for unfair dismissal.

Mrs Dacas appealed against the decision of the Employment Tribunal, but only with respect to the decision on her claim against Brook Street. Mrs Dacas did not join the Council as a respondent to her appeal and it took no part in it. This was unfortunate. The result was that the focus of argument in the Employment Appeal Tribunal was understandably on the particular situation of Brook Street rather than on the whole of the complex triangular situation involving the Council, Mrs Dacas and Brook Street.

Brook Street naturally did not join the Council as a party to this appeal. On the court’s own motion, however, the Council was joined as a respondent in this court at the outset of the hearing. The court took the view that the presence of the Council was required, since one possible outcome was that the court would allow Brook Street’s appeal on the basis that Mrs Dacas had been employed by the Council.

In those circumstances it was important that the Council should be given the opportunity to make submissions on the appeal. There was a rapid response from the Council. It made full submissions to the court on why the Employment Tribunal was correct in deciding that the Council had no contract with Mrs Dacas. It was also made clear that the Council’s presence and participation at the request of the court could not alter the fact that there had been no appeal by Mrs Dacas from the decision of the Employment Tribunal dismissing the claim against the Council. Regardless of the outcome of the appeal by Brook Street, it was not open to Mrs Dacas to contend on this appeal that the Council was liable to her in relation to any claim arising from the termination of the arrangements pursuant to which she worked as a cleaner at West Drive. The court is greatly indebted to the Council’s legal advisers and to Mr Jonathan Swift, who appeared on behalf of the Council, for the invaluable assistance supplied at short notice.

The Employment Appeal Tribunal held that the Employment Tribunal erred in law in holding that Mrs Dacas was not an employee of Brook Street. The conclusions in the judgment given on behalf of the Appeal Tribunal by the President, Burton J, were that

“ 34. 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 were 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.

35.

We are quite satisfied that the Tribunal erred in law in concluding that the Applicant was not an employee. We have been invited by Ms Heal [counsel for Brook Street] in those circumstances, if we should come to that conclusion, to remit the matter to the Employment Tribunal for further consideration on the correct basis of there being a McMeechan contract, in case that was not entirely clear to the Tribunal at first grasp.

36.

We do not conclude that it is necessary, or appropriate, to remit the case for such a reconsideration. On the findings of this Tribunal, who looked into the matter carefully so far as the facts were concerned, there was considerable control, and no suggestion at all, indeed the reverse, that any control by the Second Respondent was relevant, or that there was any control at all exercised by the Appellant herself. Indeed, regrettable though it was, her own inappropriate efforts of controlling her activities, namely by taking the view that a certain room did not need cleaning was what, for very understandable reasons, no doubt led to her discipline and in due course, although this is not a matter which we are deciding, to her dismissal.

37.

In those circumstances we are satisfied that, on the findings of the Tribunal itself, the control test, the mutuality of obligation test and, insofar as it would have been addressed, the Market Investigation test, indeed, all fell to be resolved in favour of the Appellant, and the only conceivable finding in those circumstances is a finding that she was employed by the First Respondent, and we allow the appeal in that regard.”

In reaching those conclusions the President summarised the findings of fact by the Employment Tribunal, cited the relevant legislation and reviewed many of the leading authorities starting with Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance [1968] 2 QB 497 and including Market Investigations Ltd v. Ministry of Social Security [1969] 2 QB 173: Nethermere (St Neots) Ltd v. Gardiner [1984] ICR 612; Carmichael v. National Power plc [1999] ICR 1226; McMeechan v. Secretary of State for Employment [1997] IRLR 353; Montgomery v. Johnson Underwood [2001] IRLR 269, the last two cases having been relied on by the Employment Tribunal in its extended reasons.

The Employment Tribunal and the Employment Appeal Tribunal are bodies of lay and professional membership with vast experience of all aspects of employment law and practice. Their different conclusions on the contract of service point reflect the uncertain state of a difficult area of the law, which I have already mentioned. There is a natural reluctance at this level of decision to add to the extent of the disagreement and to risk injecting yet more uncertainty and unpredictability into the contract of service question than already exists.

There is an “irreducible minimum of mutual obligation necessary for a contract of service” i.e. an obligation to provide work and an obligation to perform it, coupled with the presence of control: see, for example, Carmichael v. National Power Plc at pp. 1230G (per Lord Irvine of Lairg) and 1235C (Lord Hoffmann); Montgomery v. Johnson Underwood at paragraphs 21, 23, 46 and 47 and the other authorities cited in the judgments in those cases. In deciding whether it has jurisdiction to hear and determine a claim for unfair dismissal the tribunal must decide whether the applicant has a contract with the respondent and, if so, whether it satisfies those requirements. In the absence of a contract, or of a contract having those features, the applicant cannot qualify as an employee, even though it may well seem surprising not to regard the applicant as an employee. A tribunal must, however, resist the temptation to conclude that an individual is an employee simply because he is not a self employed person carrying on a business of his own: Wickens v. Champion Employment [1984] ICR 365 at 371 and Ironmonger v. Movefield Ltd [1988] IRLR 461 at paragraphs 19-21.

The real problem for the tribunals is the application of the basic legal requirements to the case where an employment agency is interposed between the applicant and the end-user and where the functions normally found in a single employing entity are re-distributed between two entities, each of which denies that it is the employer. Thus, while the end-user is the real and immediate recipient of the work done by the applicant, the employment agency is made responsible for paying remuneration to the applicant and for arranging other benefits usually associated with employment, such as sick leave and holiday pay. If there were no interposed employment agency there would be no doubt that, even in the absence of an express contract, Mrs Dacas worked under a contract of service with the Council: it was managing and controlling work done by her in the mutual expectation that she would be paid for what she was told to do and had in fact done. So what difference does the presence of the employment agency really make to the status of Mrs Dacas? Does it mean that, although working under the daily control of the Council, she was an employee of Brook Street, who supplied her services to the Council? Or does it mean that she was not an employee of anyone?

In addressing those questions I should make it clear that there is nothing unlawful or wrongful in what Brook Street, as the employment agency, and the Council, as the end-user, are evidently seeking to achieve for their own mutual advantage: that, if possible, Mrs Dacas works as a cleaner, but not under a contract of service with either of them. They are entitled to arrange their affairs with that lawful aim in mind. As in other areas of the law, however, they must be prepared, if and when the matter is contested, to meet the challenge of general interpretative principles that the legal nature and effect of connected or associated transactions and the documents evidencing them are not ascertained by considering them in isolation from each other or by divorcing them from their context. It is legitimate to have regard to the fact, if it be the case, that a series or number of transactions are intended to operate in combination with one another or are ingredients of a wider transaction intended as a whole.

This means that, in ascertaining the overall legal effect of the triangular arrangements on the status of Mrs Dacas, the Employment Tribunal should not focus so intently on the express terms of the written contracts entered into by Brook Street with Mrs Dacas and the Council that it is deflected from considering finding facts relevant to a possible implied contract of service between Mrs Dacas and the Council in respect of the work actually done by her exclusively for the Council at its premises and under its control, until it took the initiative in terminating that arrangement. The formal written contracts between Mrs Dacas and Brook Street and between Brook Street and the Council relating to the work to be done by her for the Council may not tell the whole of the story about the legal relationships affecting the work situation. They do not, as a matter of law, necessarily preclude the implication of a contract of service between Mrs Dacas and the Council. There may be evidence of a pattern of regular mutual contact of a transactional character between Mrs Dacas and the Council, from which a contract of service may be implied by the tribunal. I see no insuperable objection in law to a combination of transactions in the triangular arrangements, embracing an express contract for services between Mrs Dacas and Brook Street, an express contract between Brook Street and the Council and an implied contract of service between Mrs Dacas and the Council, with Brook Street acting in certain agreed respects as an agent for Mrs Dacas and as an agent for the Council under the terms of the express written agreements.

I approach the question posed by this kind of case on the basis that the outcome, which would accord with practical reality and common sense, would be that, if it is legally and factually permissible to do so, the applicant has a contract, which is not a contract of service, with the employment agency, and that the applicant works under an implied contract, which is a contract of service, with the end-user and is therefore an employee of the end-user with a right not to be unfairly dismissed. The objective fact and degree of control over the work done by Mrs Dacas at West Drive over the years is crucial. The Council in fact exercised the relevant control over her work and over her. As for mutuality of obligation, (a) the Council was under an obligation to pay for the work that she did for it and she received payment in respect of such work from Brook Street, and (b) Mrs Dacas, while at West Drive, was under an obligation to do what she was told and to attend punctually at stated times. As for dismissal, it was the Council which was entitled to take and in fact took the initiative in bringing to an end work done by her at West Drive. But for the Council’s action she would have continued to work there as previously. It is true that the obligations and the power to dismiss were not contained in an express contract between Mrs Dacas and the Council. The fact that the obligations were contained in express contracts made between Mrs Dacas and Brook Street and between Brook Street and the Council does not prevent them from being read across the triangular arrangements into an implied contract and taking effect as implied mutual obligations as between Mrs Dacas and the Council.

It is necessary first to establish whether the authorities stand in the way of that result, and, secondly, to ascertain whether the Employment Tribunal in this case erred in law in concluding that Mrs Dacas was not an employee.

The court was referred to a number of authorities on the issue of a contract of service in various contexts, including cases specifically involving employment agencies

The judgments of the Divisional Court in Construction Industry Training Board v. Labour Force [1970] 3 All ER 220 support the result in the Employment Tribunal that Mrs Dacas did not have a contract of service with Brook Street or the Council. The case was not, however, concerned with unfair dismissal or employment rights. It was an industrial training levy case in which there was an appeal on a point of law against the imposition of the levy on a company, Labour Force Limited, which was not an employment agency but was engaged in the supply of labour to contractors in the construction industry. The contractors paid Labour Force, who in turn paid the workers, but Labour Force exercised no control at all over the work done by them for the contractors, who had the right to terminate. As for the contractors, who took no part in the proceedings, it was simply said (at p 223c-d) that the Industrial Tribunal had come to the right conclusion in holding that there was no contract of any kind between the contractor and the workman. Implied contracts of service were not considered. As for Labour Force, it was held that the contracts between Labour Force, as principal, and the workers to do work for a third party, the contractor, were not contracts of service. They were described as contracts sui generis: see p225d-g.

McMeechan v. Secretary of State was not an unfair dismissal case. The applicant was a temporary worker on the books of an employment agency, which went into insolvent liquidation. He claimed that he had a contract of service with the agency. That formed the basis of his application to the Secretary of State under the relevant employment protection legislation for payment of money owing to him in respect of his last engagement. The Secretary of State disputed his entitlement on the ground that he was not an employee of the agency and was self employed. It was not contended that the client of the agency, to whom Mr McMeechan was specifically assigned for four days, was his employer. The end-user took no part in the proceedings. The case is helpful to Mrs Dacas to the extent that it held that, even if there was no umbrella contract of service, as was conceded to be the case here, a contract of service between the temporary worker and the employment agency could be inferred in respect of a single engagement or assignment of the temporary worker by the employment agency to an end user. Counsel for Mrs Dacas submitted that West Drive was a specific assignment or engagement-giving rise to a contract of service between Mrs Dacas and Brook Street.

The judgments of this court in Montgomery v. Johnson Underwood [2001] IRLR 264 support Brook Street on this appeal. The court held that the applicant was not employed by the employment agency, which exercised no control over the work to be done by the applicant as a part time receptionist/ telephonist for the end-user. Applying the criteria laid down in Ready Mixed Concrete the court held that, in the absence of a framework of control, direction or supervision by the agency, there was no contract of service with it. As for the client of the employment agency, it was joined as a party to unfair dismissal proceedings in the Employment Tribunal, which held that the applicant was an employee of the agency and not of the end-user. In the Employment Appeal Tribunal, the end-user, as well as the agency, took part and the appeal was dismissed. The end-user took no part in the appeal to the Court of Appeal, which was only concerned with the issue whether the applicant was employed by the agency. The appeal by the agency was allowed. It was held that the applicant had no contract of service with the agency, as there was no mutuality of obligation between her and the agency and there was no control of her by the agency. The question of an implied contract of service between the applicant and the end-user did not arise for consideration in the Court of Appeal.

The decision of the Employment Appeal Tribunal in Stephenson v. Delphi Diesel Systems Ltd supports the Council’s contention that Mrs Dacas had no express or implied contract of service with it. The applicant in that case was an agency worker with an employment agency. It was held that the end-user was under no legal obligation to pay the applicant and the applicant was under no legal obligation to work for the end-user. Control over the applicant by the end-user was explicable by virtue of the contract between the applicant and the agency, which made it unnecessary to imply a contract between the applicant and the end-user.

Munby J, whose judgment I have read in draft, quotes and relies on the key passages in paragraphs 12-14 of the judgment given on behalf of the Appeal Tribunal by Elias J. The judgment is certainly the most fully reasoned to be found in the authorities on this point. The reasoning supports the Council’s submission that it would be impossible in this case to imply a contract of service between the Council and Mrs Dacas. I do not, however, find all of the submissions of counsel (Mr Mansfield) for the end-user in that case as persuasive as the Employment Appeal Tribunal found them or as Munby J finds them.

Some of the Council’s arguments on this point, which are based on Stephenson, are clearly correct. The arrangements were not a sham. The parties would have realised that the triangular arrangements were not “normal” for a contract of service. Brook Street was acting as “an independent party” in incurring certain obligations and was not simply acting as agent finding work for Mrs Dacas or finding workers for the Council. As for the subjective intentions of the parties, it is probably correct to say that there was no intention on the part of the Council or on the part of Brook Street that the Council should enter into a direct contractual relationship with Mrs Dacas. I am not, however, persuaded without the benefit of relevant findings of fact made by an Employment Tribunal which has addressed the question of implied contract, that no contract of service can be implied between Mrs Dacas and the Council because such a contract is “simply not compatible with the documents” or because the fact of control by the Council is wholly explicable by virtue of the contractual obligation that exists between Mrs Dacas and Brook Street. Before reaching a conclusion on those points I would like to know what in fact went on between the Council and Mrs Dacas during the years when she was working at West Drive. What is lacking in this case is any finding by the Employment Tribunal about the facts of the daily contact between Mrs Dacas and the Council at West Drive and the nature and extent of the dealings between them. This information is lacking because the Employment Tribunal did not address the possibility of an implied contract, which it should have addressed and should have been asked to address.

Carmichael v. National Power Plc was not an employment agency case and did not deal with the question of an implied contract of service. The reasoning of the speeches is important, however, on two points of principle: first, on the point that, if mutuality of obligation is lacking, as it was held to be in a casual, “as required” arrangement, there could be no contract of service; and, secondly, even where there are documents evidencing the arrangements between the parties, if the documents were not intended to constitute an exclusive record of the agreement, the Employment Tribunal are entitled, in deciding whether there was a contract of service, to make inferences from what the parties said and did both at the time when the applicant was engaged and subsequently.

Franks v. Reuters [2003] IRLR 423, a decision of this court, was an employment agency case. The result in the Employment Tribunal, which heard the applicant’s claim against both the employment agency and the end-user, was that the applicant did not have a contract of service with either of them. The Employment Appeal Tribunal dismissed the appeal by the applicant. In the Court of Appeal the employment agency took no part as Mr Franks only pursued his appeal against the decision that he had no contract of service with the end-user, Reuters, for whom he had, through the employment agency, done work for six years. The case was remitted to a differently constituted Employment Tribunal to determine whether there was an implied contract of service between the applicant and the end-user.

On Brook Street’s appeal I would hold that the Employment Tribunal correctly concluded that the express contract between the employment agency and Mrs Dacas was not a contract of service. Brook Street was under no obligation to provide Mrs Dacas with work. She was under no obligation to accept any work offered by Brook Street to her. It did not exercise any relevant day to day control over her or her work at West Drive. That control was exercised by the Council, which supplied her clothing and materials and for whom she did the work. The fact that Brook Street agreed to do some things that an employer would normally do (payment) does not make it the employer. Nor am I able to find that although, as was conceded on behalf of Mrs Dacas, there was no “umbrella” contract of service between Brook Street and her, she had a contract of service with Brook Street governing the specific assignment at West Drive and separate from the Temporary Worker Agreement. There was only one contract. There was no basis in the documents or in the evidence for finding another contract between Brook Street and Mrs Dacas governing her work at West Drive and holding it to be a contract of service. The role of Brook Street was not that of an employer of Mrs Dacas. Rather it was that of an agency finding suitable work assignments for her and, so far as the Council was concerned, performing the task of staff supplier and administrator of staff services. The real control over the work done by Mrs Dacas at West Drive and over her in the workplace was not exercised by Brook Street. Although contractual labels are not, of course, conclusive, the Employment Tribunal did not err in law in taking account of the express provision in the Temporary Worker Agreement that the contracts between Brook Street and Mrs Dacas in respect of specific assignments were to be contracts for services. The Employment Tribunal found as a fact that there was no other contract between Brook Street and Mrs Dacas. I would allow the appeal by Brook Street.

This court is not entitled to overturn the decision of the Employment Tribunal dismissing the claim by Mrs Dacas against the Council. She did not appeal against it. She is out of time for doing so. What I have already said about the position between Mrs Dacas and the Council can only be relevant to similar cases in the future.

To sum up: in holding that there was no contract between Mrs Dacas and the Council the Employment Tribunal failed to address the possibility of an implied contract of service between them. That possibility required consideration. She was working at West Drive as a cleaner under the day-to-day control of the Council. That pointed away from the probability of her employment by Brook Street and of her being a self-employed person.

I should state that Mr Swift argued strongly against a possible contract of service between the Council and Mrs Dacas, emphasising the unchallengeability of the finding of fact by the Employment Tribunal that there was no contract between them. There could not be a contract, let alone a contract of service, as there was no offer and acceptance. There was no mutuality of obligation: the Council had no right to require her to do work and no obligation to pay her for work done. She had no obligation to the Council to work for it. She had to look to Brook Street for payment, which was fixed by Brook Street. It was not conditional on payment by the Council to Brook Street. She also looked to Brook Street for sick pay and arrangements for holidays. She was not entitled to claim her pay from the Council. Any control over her by the Council was not free-standing, but was through and was explicable by reference to the contract with Brook Street, which required her to accept directions from the Council, not through any contract between the Council and her. There was no basis, he submitted, for the implication of a further contract between the Council and Mrs Dacas. It was not the intention of any of the parties that Mrs Dacas should have a contract of service with the Council. Such a contract could not be implied so as to re-write or re-define the obligations in the express freestanding contracts, which the parties had in fact made. If the case raised policy issues as to the working conditions of people in the position of Mrs Dacas, that was a matter for legislation by Parliament and not for the courts.

I recognise the force of Mr Swift’s submissions, but in future cases of this kind the Employment Tribunal should, in my judgment, at least consider the possibility of an implied contract of service. The result of the consideration will depend on the evidence in the case about the relationship between the applicant and the end-user and how that fits into the other triangular arrangements. In general, it would be surprising if, in a case like this, the end-user did not have powers of control or direction over such a person in such a working environment. The end-user is the ultimate paymaster. The arrangements were set up and operated on the basis that the end-user was paying the agency. What was the Council paying for, if not for the work done by Mrs Dacas under its direction and for its benefit?

I would allow the appeal by Brook Street. The decision of the Employment Tribunal rejecting the claim by Mrs Dacas against the Council must stand, however, as it was not appealed to the Employment Appeal Tribunal or to this court. If it had been appealed, I would have remitted it to the Employment Tribunal to determine whether there was an implied contract between Mrs Dacas and the Council, and, if so, whether it was a contract of service under which she worked for the Council. In dealing with cases of this kind in the future Employment Tribunals should not determine the status of the applicant without also considering the possibility of an implied contact of service and making findings of fact relevant to that issue.

Mrs Dacas worked for upward of four years for Wandsworth as a cleaner in a mental health hostel. She had obtained the job through Brook Street, to whom Wandsworth had contracted out recruitment for this and many other jobs. Her wages were paid by Brook Street out of the payments made to them by Wandsworth for supplying her services. For the rest, her working terms and conditions, so far as they were in evidence, were indistinguishable from those of any local authority employee: she was expected to work as directed by Wandsworth's managerial staff, and she was finally dismissed for allegedly failing to do so. Yet, if the arguments for the two original respondents are correct, she enjoyed no statutory protection against unfair dismissal and redundancy and presumably lacked all other employment rights too.

The conclusion of the Employment Tribunal that Mrs Dacas was employed by nobody is simply not credible. There has to be something wrong with it. The EAT clearly thought so. Their conclusion that she was employed by the agency, Brook Street, is intelligible but still odd. In some degree it may reflect the fact that, for some reason which has not been explained to us, Wandsworth was not made a respondent to the appeal against the Employment Tribunal's decision. Lord Justice Mummery has explained how, in this court, we have been able to repair the omission without injustice; and I echo his appreciation of the speed and competence with which Wandsworth came in and put its case.

It is important to bear in mind that a great deal more hangs on the legal status of a worker than the worker's own rights, though they are important enough. An employer is vicariously liable for injury to others caused by an employee's carelessness, and is required by statute to insure against it; but an enterprise will have no such liability for harm done by somebody working for it who is not an employee. Suppose for a moment that Mrs Dacas had injured a resident or a visitor in the course of her work by carelessly leaving cleaning materials in a dangerous place. She would have been in breach of her obligation to Brook Street under clause 4(d) of the temporary worker agreement, but that would have been of no value to the victim. Any competent solicitor to whom the victim went would have issued proceedings against Wandsworth on the footing that Wandsworth was vicariously liable as Mrs Dacas' employer; and if it were so held, the borough's compulsory insurance would cover the damages. If Wandsworth denied that Mrs Dacas was their employee it would be obliged to say whether it contended that she was employed by somebody else or by nobody. For the reasons explained by Lord Justice Mummery it is highly unlikely that it could succeed in either such contention. If the facts established at trial were those I have postulated, it is a near-certainty that the county court or the High Court would find Wandsworth vicariously liable for Mrs Dacas' negligence. Counsel advancing a submission (and it is the submission made to us) that Mrs Dacas had for four years or more been cleaning the hostel as a contractual licensee, or pursuant to some other innominate type of contract, and that Wandsworth therefore had no vicarious liability for her negligence, could look forward to a bad day in court.

It would be nothing to the point in those circumstances that Brook Street too carried third party liability insurance pursuant to their contract with Wandsworth. Unless the policy directly indemnified workers sent out by Brook Street regardless of their status - and nothing in the head contract which we have seen requires this - it would cover only such vicarious liability as Brook Street had for its own employees; and for the reasons given by Lord Justice Mummery, I agree that Mrs Dacas cannot have been an employee of Brook Street.

It is because the issue of employment has arisen in the present case as a more abstract question of contract law that it has been possible for Mr Swift to invest his argument for Wandsworth with a cogency that it could not have begun to display if this had been a personal injury action. His method, skilfully executed, has been to dissect the relationship and to point out - correctly - in relation to each element in turn that it does not create a contract of employment between the borough and the applicant. But the question for us, as for the tribunals below, is whether the elements considered as a whole and in context spell out a relationship of employer and employee.

The argument for Wandsworth proceeds from the fact that it had no written agreement of any kind with Mrs Dacas to the submission that there was accordingly nothing into which any terms could be implied. This, however, misses the critical point that there are more means of expressing mutual intentions than putting them in writing. In the field of employment it is not uncommon to find that a contract of employment has come into being through the conduct of the parties without a word being put in writing or even, on occasion, spoken. In particular, conduct which might not have manifested such a mutual intention had it lasted only a brief time may become unequivocal if it is maintained over weeks or months. Once the intention to enter into an employment relationship is so expressed, the common law will imply a variety of terms into it and simultaneously will spell vicarious liability out of it; and statute will add a series of other rights and obligations.

It is correct that the written terms of the temporary worker agreement allowed Brook Street to move Mrs Dacas daily from job to job, or from a job to no job, and to send a different cleaner each day or week to the West Drive hostel. Had this or something like it happened, I accept readily that it would have been difficult, though not necessarily impossible to spell out of it any contract of employment between Wandsworth and Mrs Dacas. But it is not what happened; it was very possibly something that Wandsworth would not have wanted to happen; and the Employment Tribunal's task was to make a legally proper appraisal of what did happen. This they failed to do. As Lord Justice Mummery has demonstrated, their single paragraph of findings about Mrs Dacas' relationship with Wandsworth fails to identify, much less address, the determinative questions.

For my part, I would doubt whether, at least on the facts found by the tribunal, those questions were susceptible of more than one answer- namely that by the date of her dismissal she was an employee of the borough with a statutory right not to be unfairly dismissed. In saying this, I should make it clear that there is nothing special about the length of time for which, as it happens, Mrs Dacas had been working for Wandsworth. Until a year had gone by she had no protection in any case against unfair dismissal; but once arrangements like these had been in place for a year or more, I would have thought that the same inexorable inference would have arisen.

As Lord Justice Mummery has made clear, nothing we decide at this level can now fix Wandsworth with liability. But my principal reason for agreeing that Brook Street was not Mrs Dacas' employer is that, in my judgment, the evidence before the Employment Tribunal pointed to the conclusion that Wandsworth was. Had Wandsworth remained a party it would have been necessary to remit the claim against it for a correctly approached decision on its liability, not least because the possibility that she had no employer defies common sense. The possibility mentioned by Lord Justice Mummery (paragraph 19) of a trilateral contract of service, meaning simply a contract in which one side's obligations are divided or shared between two of the three parties, would also remain for consideration.

I agree that Brook Street was not Mrs Dacas’ employer, and that its appeal therefore succeeds.

I agree entirely with Lord Justice Mummery that the appeal by Brook Street should be allowed, and for the reasons he has given. And I can go much of the way with my Lords in what they have said about the Council. But at what is in truth the crucial point I am afraid that I must, with all diffidence, part company.

The case raises a point of fundamental importance not merely to large numbers of workers but also to the whole of an industry in which Brook Street is merely one, albeit a very prominent, player. Lord Justice Mummery’s judgment (and even more so Lord Justice Sedley’s judgment) seem to me to put in question the most basic assumptions upon which the whole of that industry has hitherto conducted its business. Therefore, whilst recognising that this is an area of law in relation to which my Lords have vastly greater knowledge and experience than I could ever possibly claim, I feel that I must explain why I have very serious misgivings about the course on which they would have us embark.

The approach of the industry is founded on assumptions that, reduced to their simplest form, can be summarised as follows:

Now the mere fact that there is a contract between the worker and the agency, and another contract between the agency and the end-user, plainly does not prevent there also being a contract between the worker and the end-user. Nor, of itself, does it prevent any contract between the worker and the end-user being a contract of service. Thus far, I have no difficulty at all with my Lords’ analysis. But what is relied on in this type of case as negativing the existence of any contract of service – indeed any contract at all – between the worker and the end-user is not the mere fact that there are contracts both between the worker and the agency and also between the agency and the end-user. What is relied on is the fact that the two critical elements – the obligation to remunerate and the right to control – are located in different parties. It is the differential distribution between the agency and the end-user of rights and obligations that would normally all be vested in the employer which is crucial and which has hitherto been relied on by the industry as necessarily producing the happy outcome – happy, that is, both for the agency and the end-user, though not, of course, for the worker – that the worker has no contract of service either with the agency or with the end-user.

How justified are the assumptions on which the industry has hitherto based its practice?

My Lord has referred to many of the authorities. I shall focus on those that bear on the position of the end-user. The starting point now must be the decision of this court in Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318, [2001] ICR 819. Giving the leading judgment, Buckley J reviewed the key authorities: the classic statement of principle by MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at p 515, the judgments of Stephenson LJ in Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at p 623 and of Sir Christopher Slade in Clark v Oxfordshire Health Authority [1998] IRLR 125 at para [22], and the speech of Lord Irvine LC in Carmichael v National Power PLC [1999] ICR 1226 at p 1230. As Buckley J pointed out (see at paras [20]-[22]), Lord Irvine LC approved Stephenson LJ’s judgment, which had in turn approved MacKenna J’s classic statement.

The principle which emerges from that line of authority is most simply formulated in the statement by Longmore LJ at para [46] that:

“Whatever other developments this branch of law may have seen over the years, mutuality of obligation and the requirement of control on the part of the potential employer are the irreducible minimum for the existence of a contract of employment.”

As Elias J pointed out in Stephenson v Delphi Diesel Systems Ltd [2003] ICR 471 at para [11]:

“The significance of mutuality is that it determines whether there is a contract in existence at all. The significance of control is that it determines whether, if there is a contract in place, it can properly be classified as a contract of service, rather than some other kind of contract.”

I respectfully agree.

The requirement that there be mutuality of obligation necessarily focuses attention on the obligations (if any) undertaken by the end-user. Although it is, I suppose, theoretically possible to think of some other type of obligation that the end-user might undertake, in the context of a contract of employment the only two obligations which are likely to be present in the general run of cases are either the obligation to provide work or the obligation to remunerate. But as Stephenson LJ pointed out in the Nethermere case at p 623, the normal rule is that a contract of employment does not oblige the master to provide the servant with work in addition to wages, and common experience suggests that such an obligation is not very often to be found expressed in written contracts of employment. Nor will such an obligation necessarily be implied. Thus if there is any obligation it will typically be the obligation to remunerate.

Hence, no doubt, what MacKenna J said in the Ready Mixed case at p 515:

“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.

… As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind.”

Thus the authorities, in my judgment, support the assumptions upon which the industry has hitherto proceeded. If the obligation to remunerate the worker is imposed on the agency, there cannot be a contract of service between the worker and the end-user. And if, at the same time, control is vested in the end-user, then there equally cannot be a contract of service between the worker and the agency.

There is in fact a consistent line of authority holding that in these circumstances there is no contract of employment – indeed, no contract at all – between the worker and the end-user: the decision of the Divisional Court in Construction Industry Training Board v Labour Force Ltd [1970] 3 All ER 220 (see per Cooke J at p 223c) and the decisions of the Employment Appeal Tribunal in Costain Building & Civil Engineering Ltd v Smith [2000] ICR 215, Montgomery v Johnson Underwood Ltd (see the report of the decision of the Court of Appeal [2001] EWCA Civ 318, [2001] ICR 819, at paras [5]-[8]), Hewlett Packard Ltd v O’Murphy [2002] IRLR 4, Esso Petroleum Co v Jarvis (unreported – 18 January 2002) and Stephenson v Delphi Diesel Systems Ltd [2003] ICR 471.

In the Stephenson case three separate arguments were deployed in support of the contention that there was a contract of service between the worker and the end-user. The first turned in large measure on a particular feature of the case and is of no general application. The second and third, however, are very much the kind of arguments that one might expect to find deployed in the general run of such cases. It is therefore interesting to set out the arguments and to see how the Employment Appeal Tribunal dealt with them. Summarising Miss Cook’s arguments, Elias J said this at paras [25]-[26]:

“[25] The second argument was based on what she termed the reality of the situation. She submitted that if one looks at this relationship between these three parties it is plain that in substance what is happening is that the employee is, to all practical intents and purposes, being employed by the [end-user] and doing the same sorts of things that other employees would do, and that the relationship with the agency is simply a complex and potentially obfuscatory method of paying the wages. Although the submission was not quite put in these terms, the logic of this argument, we think, it that it is being said that the agency must here be treated as the agent of the [end-user] in paying the wages.

[26] The third way in which this point was put was to suggest that there was plainly extensive control over the day-to-day activities and that in these circumstances the [worker] must have impliedly agreed to be bound by the terms which conferred control upon the [end-user]. We were shown the various disciplinary and other rules applicable at the work place which, of course, one finds in most, if not all, businesses.”

He then proceeded, at paras [31]-[36], to summarise the opposing submissions by Mr Mansfield:

“[31] … First, as to the contention that there was a direct contract between the [worker] and the [end-user], he submits that … it was simply not compatible with the documents to make such a suggestion. We think that must be right. If the parties had understood that they were entering into, what I might term, a “normal” contractual obligation then plainly they would have conducted their affairs on that basis, and the [worker] would have been paid by the [end-user] in the normal way …

[33] As to the argument based on agency, or what may be termed the “reality” argument, he submits again that there is no basis for treating the agency as in any way acting simply as the [end-user]’s agent in making the payment.

[34] He points out, and this is not being disputed, that it has not been suggested that the arrangements here were a sham in the sense that they were made in bad faith simply to conceal the true legal relationship between the parties. It is plain that the agency relationship was established because the [end-user] thought that it gave them a more beneficial way of regulating the ebb and flow in the requirements for the workforce; and the arrangements were made, indeed, with the approval, it seems, of the trade unions.

[35] Accordingly, Mr Mansfield submits that it would be quite wrong not to take these arrangements at face value. They demonstrate that the agency was acting as an independent party, that it had certain obligations towards the [worker] and that there is no material from which an agency relationship could properly be inferred. In truth, he suggests that Miss Cook's submission really amounts to saying that the law ought to recognise this kind of relationship as an agency relationship because of the potential adverse consequences to the [worker] if the law fails to do that.

[36] Finally, in relation to the question of implied contracts, Mr Mansfield submits that the fact that the [end-user] may exercise extensive control on a day-to-day basis in relation to the contract does not demonstrate that there is a contractual relationship between the parties. Even if that control extends to disciplinary matters – and that was a matter of dispute between the parties – he submits that the agreement by the [worker] with the agency, to be bound by the rules and requirements imposed by the [end-user], itself explains why the [worker] is complying with those rules. There is no reason, in those circumstances, to suggest that the source of that obligation to obey the rules is anything other than the agreement made with the agency. It is neither necessary nor appropriate to infer that there must be some other separate, independent contractual obligation between the [worker] and the [end-user].”

The Tribunal’s conclusions were summarised by Elias J at paras [37]-[39]:

“[37] In our view Mr Mansfield's arguments are correct on this point. As we have indicated, we do not think that the approach of the employment tribunal chairman to the question of mutuality was a proper one, but we are satisfied that had he properly directed himself he could only have reached the conclusion that he did in fact reach for other reasons, namely that there is no contractual relationship between the parties. More accurately, he found there was no mutuality of obligations but it seems to us that it must follow that there is no contractual relationship.

[38] We are satisfied that there is no ground for suggesting that the [end-user] could ever have intended to enter into any direct contractual relationship with the [worker] or vice versa.

[39] Equally, we think there is no basis here either for implying some kind of agency nor is it appropriate to imply any term to explain the fact of control being exercised by the [end-user]. On the contrary, we accept that that is wholly explicable by virtue of the contractual obligation that exists between the [worker] and the agency.”

He then referred to a number of earlier decisions which the Tribunal rightly regarded as supporting its conclusions.

I have dwelt on this case at some length because Elias J’s judgment is, if I may say so, an impeccable and to my mind wholly convincing analysis. It was not merely determinative of the facts of that particular case. It is also, as it seems to me, likely to be determinative of the general run of such cases.

The only cases which have been identified as lending any credence to the opposite view are Motorola Ltd v Davidson [2001] IRLR 4 and Franks v Reuters Ltd [2003] EWCA Civ 417, [2003] ICR 1166. Neither, in my judgment, is of much assistance. In the Motorola case, as Lindsay J pointedly observed at para [5], the end-user adopted the “self-denying ordinance” of choosing to fight the case only on the ground that he did not have sufficient control over the worker. The end-user lost on that issue. Lindsay J expressly left open (see at para [16]) the question of whether, looking at the case more generally, the Employment Tribunal had been right to conclude that there was a contract of employment.

In the Franks case this court remitted the matter for rehearing by the Employment Tribunal. Giving the judgment of the court my Lord said this at paras [18]-[21]:

“[18] Drawing a line between those who are employees (and so have statutory employment rights) and those who are not entitled to statutory employment protection has become more, rather than less, difficult as work relations in and away from the workplace have become more complex and diverse. This development makes it all the more important that the employment tribunal, as the tribunal of fact, should consider all the relevant evidence about the dynamics of the work relationship between the person claiming to be an employee and the putative employer. Before characterising the relationship, the tribunal must make clear and comprehensive findings of fact on the relevant evidence.

[19] Even if the work relations are documented, the documents do not necessarily present the complete picture. That is why the tribunal in Carmichael’s case were held by the House of Lords to have acted correctly in examining not only the correspondence, but also the circumstances surrounding it, the subsequent conduct of the parties, and the way in which the parties operated and understood the situation. Unless and until the tribunal have conducted this exercise and obtained an overall picture of the work relationships between the parties, it is impossible in many cases for them to reach an informed and sound conclusion on whether there is mutuality of obligation in the form of an express or implied contract of service.

[20] In some cases it may be unnecessary to look beyond or beneath the documents, which the parties have agreed should embody the exclusive record regulating their relations …

[21] The instant case does not turn exclusively on the construction of documents. The available documentation relates almost entirely to the regulation of the relations between (a) [the worker] and [the agency] and (b) [the agency] and [the end-user]. The crucial relationship is that between [the worker] and [the end-user]. It is the third limb of the tripartite work arrangements. It is hardly documented at all. It must be considered against the background of the other relationships which are documented, but the very lack of documentation of the work relations between [the worker] and [the end-user] highlights the importance of considering all the evidence relevant to the possible formation of an oral or implied contract of service.”

My Lord went on to explain at para [33] why the matter was being remitted:

“A question of law arises from the decision of the tribunal. That question is whether it is legally correct for a tribunal to conclude that an individual is not an employee without first determining as a fact whether, on a consideration of all the relevant evidence (including what was said and done, as well as any relevant documents), there was an implied contract of service between [the worker] and [the end-user]. If there was not, [the worker] was not their employee. If there was, then it is necessary to determine his claims for unfair dismissal, redundancy pay and damages for breach of contract. In this case the tribunal failed to address clearly the question whether there was an implied contract and so failed to give full and proper consideration to all the evidence relevant to that issue.”

I do not read that as departing in any way from the previous learning. The only reason it might be thought as casting any doubt on established principles is because it could be said that, by remitting the case for a rehearing, this court was necessarily accepting that it was open to the tribunal to find that the worker was employed by the end-user under a contract of service when on the reported facts of the case (see paras [4], [14], [26]-[27]) it might be thought improbable in the extreme – indeed on one view impossible – for any tribunal correctly directing itself in law to come to such a conclusion.

I return to the present case.

Like my Lords I approach this case with a strong desire to be able to reach an outcome which would accord with practical reality and common sense, namely that there is an implied contract of service between the worker and the end-user, that is, between Mrs Dacas and the Council. Like my Lords I entirely agree that in future cases of this kind the Employment Tribunal should explore the possibility of an implied contract between the worker and the end-user. And, if the point had arisen for decision, I would have been prepared, albeit reluctantly, to agree that the matter should be remitted to the Employment Tribunal on the basis indicated by my Lord – a basis corresponding very closely to that which commended itself to this court in the Franks case.

Where, with all respect, I part company with my Lords is in relation to three matters. The first is the suggestion that the objective fact and degree of control over the work done by Mrs Dacas over the years is crucial. That, as it seems to me, somewhat overstates the position. And in any event it does not seem to me, with all respect, to meet the point made by Elias J in the Stephenson case.

The second is the suggestion that there is mutuality of obligation because the Council was under an obligation to pay for the work that Mrs Dacas did for it and she received payment in respect of such work from Brook Street. In this connection my Lord asks rhetorically, What was the Council paying for, if not for the work done by Mrs Dacas under its direction and for its benefit? The difficulty with this approach, as Mr Swift correctly pointed out, is that the Council had no obligation to pay Mrs Dacas, that Brook Street’s obligation to pay her arose independently of whether or not Brook Street was paid by the Council, and that the Council did not set the rate of her pay. It needs also to be borne in mind that the sum contractually payable by the Council to Brook Street was not simply the aggregate of the sums payable by Brook Street to Mrs Dacas and her fellow workers. It will also have included, in addition to Brook Street’s profit, an element reflecting the cost to Brook Street of meeting its various obligations to the Council.

The contract between Brook Street and the Council was for the provision of services in accordance with a detailed Specification and various other contractual documents. The Specification, amongst other things, required Brook Street to ensure that any staff supplied to the Council had been formally interviewed, had satisfactory references and, in respect of staff supplied to work directly with children, had been recruited in accordance with the Social Services Department’s recruitment procedures, to ensure that its own recruitment staff were trained in the selection of professional staff to work with children or vulnerable adults, and to ensure that all staff were instructed in safe working practices and were made aware of their obligations under the Health and Safety at Work Act 1974. The answer to my Lord’s rhetorical question, I respectfully suggest, is that what the Council was paying for was not the work done by Mrs Dacas and her fellow workers but the services supplied to it by Brook Street in accordance with the Specification and the other contractual documents. The monies paid by the Council to Brook Street were not payments of wages, nor were they calculated by reference to the wages payable by Brook Street to Mrs Dacas and her fellow workers. There was no mutuality.

The final matter is the assumption that any very useful purpose is likely to be served by remitting a case such as this for rehearing by the Employment Tribunal. I rather doubt that it will, for I find it very difficult to imagine that any Tribunal correctly directing itself in law could find that there is in these circumstances any contract, let alone a contract of service, between Mrs Dacas and the Council. I agree with the submission made on this point by Mr Foy QC. Such a finding is likely to be extremely rare, because there can only be an employment relationship if the end-user is responsible for the payment of remuneration to the worker, and in most cases – of deliberate purpose – it is the agency and not the end-user who undertakes to pay the worker.

I should add that I agree entirely with the sentiments expressed by Brooke LJ in the Montgomery case at para [48] and by Elias J in the Stephenson case at para [54]. The present situation is plainly most unsatisfactory.