Cable & Wireless Plc v Muscat

This is the judgment of the Court to which all members have contributed.

This appeal raises, on yet another occasion, the problems arising from a triangular employment relationship. Typically the problem arises where a worker has entered into an agreement with an employment agency on the basis that he will work for a client of the agency, the end-user. When the end-user no longer wants the worker’s services and the arrangement is terminated, the worker may wish to claim that he has been unfairly dismissed. In order to found such a claim pursuant to section 94(1) of the Employment Rights Act 1996, the worker must show that he was an employee of either the agency or the end-user. He will also have to show that he has been an employee for at least a year.

In the present appeal, the appellant, Cable and Wireless Limited (C&W) seeks to overturn the decision of the Employment Appeal Tribunal (EAT), which upheld the decision of an Employment Tribunal (ET) which held that the respondent, Mr Patrick Muscat, was an employee of C&W. C&W deny that and contend that the ET’s finding that he was an employee amounted to an error of law, which was perpetuated by the EAT when it dismissed C&W’s appeal.

Before this Court a number of matters which had been in issue before the ET and the EAT were no longer contentious. We will set out the facts as they affect the decision to be made on this appeal.

During 2001, Mr Muscat was employed as a telecommunications specialist by a company called Exodus Internet Ltd (EIL). In September 2001, EIL wished to reduce the number of its employees in order to facilitate a potential buyout. It still wished to retain Mr Muscat’s services. Mr Muscat was told that he would have to become a ‘contractor’ and would have to provide his services through a limited company. On 15^th October 2001, EIL dismissed Mr Muscat and immediately re-engaged him as a contractor. A company named E-Nuff Comms Ltd (E-Nuff) was set up for the purpose of receiving his pay and car allowance. On the day following his dismissal, Mr Muscat continued to work for EIL as before. He became responsible for his own tax and National Insurance contributions. His pay was increased to take account of those factors. In due course, the ET held that Mr Muscat continued to be employed by EIL after 15^th October 2001, as he had been before. That finding was not challenged.

In February 2002, EIL was taken over by C& W. The takeover was complete by the end of April 2002. Mr Muscat continued to work as before, although he now worked under the direction of C&W management. Initially, his manager was a Mr Jones; later it was a Mr Steel. C&W supplied Mr Muscat with a mobile telephone and a laptop computer; they paid his mobile telephone bills. Mr Muscat arranged his annual leave with C&W. Within the C&W departmental structure, Mr Muscat was described as an employee and was assigned an employee number. All the equipment he used was paid for by C&W. In due course, the ET held that the takeover by C&W had been a transfer of undertaking to which the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE) applied. Also it held that, on that transfer, Mr Muscat became the employee of C&W. That finding is not now challenged.

However, C&W understood Mr Muscat to be an independent contractor. Mr Muscat continued to submit invoices for his services (in the name of E-Nuff) but C&W did not pay them. In August 2002, Mr Muscat was told that C&W did not deal with contractors direct and that he must deal with them through an agency, Abraxas PLC (Abraxas). On 26^th July 2001, C&W had entered into an agreement with Abraxas, entitled ‘Agreement for Provision of Contract and Permanent Personnel’ under which Abraxas had agreed to provide contract personnel for C&W.

On 13^th August 2002, E-Nuff entered a ‘Contract for Services’ with Abraxas by which E-Nuff agreed (in part retrospectively) to provide services to C&W for the period 26^th April to 31^st August 2002. That contract is crucial to this appeal as C&W contend that it changed Mr Muscat’s status from that of an employee of C&W to some other status.

The most important provisions of that Contract, for the purposes of this appeal were clauses 2(a) and (c). Clause 2(a) provided:

“This Contract for Services together with the Works Schedule and any attachments shall constitute the entire contract between the company (Abraxas) and the Consultancy (E-Nuff) and shall govern the assignment undertaken by the consultancy. No verbal or other written contract shall be valid.”

The term ‘assignment’ was defined as ‘the period during which the Consultancy is engaged to undertake Works Schedules’. However, from the way in which the term was used in the Contract, it appears that ‘assignment’ really meant the work that was to be performed for a client of the Company. The term ‘Works Schedule’ was defined as meaning an outline of the project tasks or services to be performed. Clause 2(c) provided:

“The relationship between the parties to the Contract is one of independent Suppliers and nothing contained in this agreement shall be construed as constituting or establishing any partnership or joint venture or relationship of employee and employer between the parties. Upon completion of a Works Schedule, there is no obligation by the Company or the Client (which in this case would be C&W) to provide future assignments to the Consultancy, neither is there an obligation for the Consultancy to provide future services to the Company or the Client.”

There were other provisions within the Contract relating to such matters as the payment of fees, the provision of progress reports and the substitution by the consultancy of individuals undertaking the assignment, provided that the substitutes were suitably qualified and the client was prepared to accept them. However, none of these other provisions is relied on in this appeal.

Mr Muscat (on behalf of E-Nuff) and Abraxas also signed a document headed ‘Abraxas Works Schedule’ which named Mr Muscat as the ‘nominated individual’ of E-Nuff and named C& W as the client. Mr Stewart Jones was named as the client project coordinator. The period of assignment was specified as 26^th April 2002 to 31 August 2002. Under ‘Work Pattern’ it was stated that the standard commitment was ‘five professional working days per 37.5 hour week, or such other times as may be agreed with the client’. The rate of fees excluding VAT was stated to be ‘a professional daily rate of £265.40’. Under the heading ‘Notice of termination/Cancellation’ the periods of notice to be given by either side were stipulated. E-Nuff had to give 4 weeks notice in writing. Abraxas claimed the right to terminate the agreement on five days notice during the first four weeks, two weeks notice in writing in the period between four and eight weeks and four weeks notice thereafter. These earlier periods were stipulated retrospectively, as the contract was not signed until shortly before it was due to expire. Mr Muscat was required to submit his expense claims to C&W for approval before submitting them to Abraxas for payment. Finally, Abraxas asked for references but these were never required because Mr Muscat had been working for C&W for over 3 months when the agreement was signed.

After the ‘Contract for Services’ had been signed, Abraxas paid E-Nuff’s monthly invoices. In September, October and November 2002, Mr Muscat signed further contracts (on behalf of E-Nuff) each covering the provision of his services to C&W for a period of one month. In late November 2002, C&W informed Mr Muscat that it would not require his services further. In fact, he continued to work for C&W until 31^st December 2002. During the period from August to December, the only role undertaken by Abraxas was the payment of the invoices.

In March 2003, Mr Muscat lodged a claim for compensation for unfair dismissal, maintaining that he was employed by C&W and that his employment had been continuous for more than a year. C&W contended that he was not an employee. The ET heard the evidence relating to this preliminary issue in December 2003. At that time, the Court of Appeal had recently heard an appeal in the case of Dacas v Brook Street Bureau(UK) Ltd [2004] EWCA (Civ) 217. It was thought that the Court would give an authoritative ruling on the legal consequences of an arrangement between an agency, a worker and an end-user such as appeared to be in contention in this case. The parties invited the ET to adjourn their decision in this case until the judgements in Dacas had been handed down.

In March 2004, the Court of Appeal (Mummery and Sedley LJJ and Munby J) gave judgment. Mummery LJ, with whom Sedley LJ agreed, gave guidance as to the approach the ET should take to decisions on the employment status of a worker who works under the control of an end-user but is paid by the employment agency who has introduced him. In brief, the guidance was that the ET should examine all the evidence relating to the relationships between the three parties which would include not only any written agreements and oral statements but also the conduct of the parties. In the light of that evidence, the ET should consider the possibility that the worker had an implied contract of employment with the end-user. Munby J dissented, saying that cases in which such a contract could be implied would be very rare because, as a matter of law, there could not be a contract of employment between the worker and the end-user (even though the end-user exercised control) where the agency was responsible for paying the worker, because there would be insufficient mutuality of obligation between the worker and the end user.

Following receipt of the judgments in Dacas, the ET received further written submissions and promulgated its decision on 15^th June 2004. It held that Mr Muscat had an implied contract of employment with C&W. That holding is challenged on this appeal. The ET also held that the fact that it was E-Nuff who had contracted with Abraxas and had submitted the invoices for Mr Muscat’s work did not affect the situation. Mr Muscat’s status was the same whether he had contracted with Abraxas as an individual or on behalf of E-Nuff. That part of the ET’s decision is not challenged and we will not refer to that issue again.

C&W appealed to the EAT, contending that the guidance given by the Court of Appeal in Dacas was wrong; Munby J had been right. In any event, the guidance was not binding on the ET because it was not part of the ratio decidendi. The ET should not have applied it as they had done and their decision was wrong in law. The EAT held that the guidance in Dacas was ‘binding’ upon ETs and the EAT and dismissed the appeal. However, it granted permission to appeal to this Court, saying that it was for this Court to decide whether the views of Munby J were to be preferred to those of the majority.

In this appeal, the appellant, C&W, pursued the same arguments as had been advanced before the EAT. In order to consider these submissions, it is necessary to set out the facts of Dacas and explain the basis on which the Court gave guidance.

Mrs Dacas signed an agreement with the employment agency, Brook Street Bureau (UK) Ltd (Brook Street) in which they agreed to seek suitable work for her with clients of theirs. They were under no obligation to provide her with work and she was under no obligation to accept an offer of work. If she undertook work with one of their clients, she would not be an employee of Brook Street but would enter into a temporary contract for services with them for the duration of the assignment with the client. Brook Street would pay her wages.

Brook Street introduced Mrs Dacas to their client, Wandsworth Borough Council (Wandsworth). Mrs Dacas worked for Wandsworth for four years as a cleaner at one of their premises. They had day-to-day control of her work and they supplied her with cleaning materials and overalls. Brook Street paid her wages, according to time sheets signed by Wandsworth. Brook Street was responsible for all the usual ‘human resources’ functions, including discipline and the making of holiday arrangements. Although Brook Street and Wandsworth had a written agreement governing their relationship, there was no express agreement, either oral or written, between Mrs Dacas and Wandsworth.

When Wandsworth became dissatisfied with Mrs Dacas’s services, they gave notice to Brook Street, who terminated their temporary contract for services with Mrs Dacas. Mrs Dacas sought compensation for unfair dismissal. She named both Brook Street and Wandsworth as employers. Her claim failed; the ET held that Mrs Dacas was not an employee of either Brook Street or Wandsworth. Mrs Dacas appealed to the EAT but only in respect of the decision as to Brook Street. She accepted the position so far as Wandsworth was concerned and they dropped out of the proceedings. The EAT allowed the appeal and held that Mrs Dacas had been employed by Brook Street for the duration of the assignment with Wandsworth.

Brook Street appealed to the Court of Appeal. Wandsworth accepted the Court’s invitation to make submissions during the appeal although it was not a party to the appeal. The Court of Appeal allowed Brook Street’s appeal, holding that Mrs Dacas was not its employee, on the ground that there was no mutuality of obligation between Mrs Dacas and Brook Street and also that Brook Street did not exercise effective control over Mrs Dacas’s work. The Court said that the ET had been right to take into account the express term of the written agreement between Mrs Dacas and Brook Street which described their relationship as one of a temporary contract for services. That was sufficient to dispose of the appeal itself. However, the Court had been concerned to consider the full effect of the triangular relationship between worker, agency and end-user; it was for that reason that Wandsworth had been asked to attend.

In a General Introduction to his judgment, Mummery LJ discussed the legal difficulties presented by this kind of case and also the social and business implications of the questions arising. The resolution of the question that arose in this type of case was important as the use of employment agencies was increasing. He defined the question as whether an applicant works under a contract of service 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 (the end-user of the work done by the applicant); but (c) no formal contract 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.’

It was apparent that the effect of the decision just taken by the Court of Appeal was that, in a typical triangular case, the worker will usually be held not to be an employee of the agency. If the decision of the ET had been correct, Mrs Dacas (a typical worker) was not an employee of the end-user either and had no employment rights, even after working in the same place and under the control of Wandsworth for four years. This was a matter for concern because the use of agencies by organisations that require labour has been increasing and many workers who would formerly have had protection against unfair dismissal, apparently no longer did. Mummery LJ noted that the reason why it was said that employers and agencies entered into arrangements of this kind was to allow flexibility for employers whose requirements for workers of a particular type vary from time to time. It was also said that many employees wish to work through agencies as it gives them flexibility; they can work when it is convenient for them to do so without having any obligation to work at other times. Nonetheless, the concern remained that employers were using agencies in an attempt to ensure that their workers could not acquire employment rights.

The Court was concerned that Mrs Dacas had been found to be employed by no one. Mummery LJ thought that there was a real possibility that she had in fact been employed by Wandsworth under an implied contract of employment. There was no express contract between them. He considered that it might be possible to infer the existence of an employment contract between them from their conduct. Wandsworth provided work each day for Mrs Dacas to do; she attended each day and did the work. Wandsworth controlled and directed the work which had to be done and the way in which it was to be done and Mrs Dacas acceded to that direction. It was unfortunate that the ET had not apparently given any consideration to the possibility of an implied contract. It was now not possible for the case to be remitted to them for further consideration.

Mummery LJ concluded that ETs needed guidance on the approach they should take to cases of this kind. He advised that ETs should consider the possibility that there might exist an implied contract of employment between the worker and the end-user. He said that the correct approach was for the ET to consider the whole of the evidence relating to the relationships between the three parties, including any express agreements and their conduct during the period covered by the work.

Sedley LJ agreed with Mummery LJ but he went further and expressed the view that Mrs Dacas had almost certainly been employed by Wandsworth. One of the reasons given came under particular attack before us. Sedley LJ said that, in the event that a person in Mrs Dacas’s position committed a tort in the course of her work, it was inconceivable that Wandsworth would not be held vicariously liable for her actions. It was pointed out to us that, although Sedley LJ was right to say that Wandsworth would be vicariously liable, it would not follow that Mrs Dacas was to be regarded as Wandsworth’s employee for all purposes. She would be deemed to be their employee in respect of the issue of vicarious liability because they had day to day control of her work. We accept that that is right and that one cannot deduce that a contract of employment exists merely from the presence of the element of control necessary to establish vicarious liability for tort. However, that was only one reason why Sedley LJ agreed with Mummery LJ. He endorsed Mummery LJ’s view that the task for ETs was to examine all the evidence in context and to see whether it spelled out the relationship of employer and employee.

Munby J agreed that Brook Street’s appeal should be allowed but dissented from Mummery LJ’s invitation to ETs to consider whether, on the whole of the evidence in each case, they should hold that there was an implied contract of employment between the worker and the end-user. He considered that such a finding was not open to them in the typical case where it was the agency that was responsible for paying the worker. He took the view that, where the control of the worker’s work and the obligation to pay were placed in different entities, it was not possible to hold that a contract of employment existed either between the worker and the agency or between the worker and the end-user. In his view, for there to be a contract of employment with the worker, the right to control and the obligation to pay had to rest in the same person or entity. Unless they did, he said, the necessary mutuality of obligation did not exist.

Before leaving Dacas, it should be noted that this was not the first case in which the Court of Appeal had said that careful consideration should be given to the question of whether an implied contract of employment existed between a worker and end-user, where the worker was introduced by an employment agency to work at their client’s premises. In Franks v Reuters Ltd and another [2003] ICR 1166, Mummery LJ, with whom Dame Elizabeth Butler-Sloss P and May LJ agreed, said that all the evidence should be considered. The Court remitted the case to the ET for further findings of fact.

Four grounds of appeal were argued by Mr Frederic Reynold QC for C&W. It seems logical and convenient to take the fourth ground first; that is the contention that the EAT and the ET had been wrong to regard the guidance given by the majority of the Court of Appeal in Dacas as binding upon it. It was not binding because it was obiter. Furthermore, the decision of the majority was wrong; they had reached their conclusion without considering the relevant authorities. Also, the majority appeared to be driven by their concern that workers in a triangular relationship with an agency and an end-user may be deprived of their employment rights. Any such concern should be a matter for Parliament to correct and not one that should be corrected by judicial intervention.

The basic requirements of a contract of employment were described by McKenna J in Ready Mixed Concrete (South East) Ltd v Ministry of Pensions and National Insurance [1968] 2QB 497. He said, using the language of master and servant, that there were three essential features of a contract of service. These were (i) that the servant agreed in consideration of remuneration to provide his own work or skill in the performance of service for the master; (ii) the servant agreed expressly or impliedly that he would be subject to control by the master and (iii) that the other provisions of the contract were not inconsistent with a contract of service. McKenna J also said that, if examination of the rights conferred and duties imposed by the contract led to the inference that the contract was a contract of service, it was irrelevant that the parties had declared it to be something else.

In the context of statutory employment rights, such as those now granted by the Employment Rights 1996, it has been said on more than one occasion that the irreducible minimum of mutuality of obligation necessary to support a contract of employment is the obligation on the ‘employer’ to provide work and the obligation on the worker to perform it. That mutuality of obligation must be accompanied by a sufficient degree of control by the employer over the worker: see Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at page 623 (C-G) and Clark v Oxfordshire Health Authority [1998] IRLR 125 at paragraph 22, as approved by the House of Lords in Carmichael v National Power PLC [1999] ICR 1226.

In Carmichael, the House of Lords held that, unless the parties to an agreement had agreed that a document or series of documents was intended to constitute an exclusive record of their agreement, any question arising as to the nature or terms of the contract was a question of fact to be determined upon consideration of all the evidence, including written documents, oral statements and conduct. That being so, the guidance given by Mummery LJ in Dacas could not be criticised when he said that ETs should consider the possibility of the existence of an implied contract in the light of all the evidence about the relationship between the parties. That must be the right approach. Whether the existence of an implied contract will be inferred will depend upon the circumstances. The irreducible minimum requirements of mutuality will have to be present, as will control by the ‘employer’. It will have to be necessary to infer the existence of the implied contract in order to give business reality to what was happening, to which issue we will return below.

The difference of opinion within the Court of Appeal in Dacas arose because Munby J considered that the minimum mutuality of obligations could not be satisfied where the obligation to remunerate did not lie on the person having control of the worker’s work. The majority took the view that, so long as the remuneration was being provided by the ‘employer’ it mattered not that it was not paid directly but through some other arrangement made by the employer. In other words, the fact that a person who would otherwise be the worker’s employer did not cease to be his employer simply by arranging for the wages to be paid via a third party.

In our opinion, the view of the majority in Dacas was correct. The essentials of a contract of employment are the obligation to provide work for remuneration and the obligation to perform it, coupled with control. It does not, in our view, matter whether the arrangements for payment are made directly or indirectly. The point can be illustrated by the following simple facts. Mrs A employs a domestic cleaner W for several years during her marriage to Mr A and always pays W herself. There is no doubt that Mrs A is W’s employer in a contract of employment. Following the divorce of Mr and Mrs A, W continues to work for Mrs A but, as part of the maintenance arrangements between Mr and Mrs A, Mr A agrees with Mrs A that he will pay W’s wages. Mr A then agrees with W that, for as long as she continues to clean Mrs A’s house, he will pay her wages. Mrs A continues to control the way in which the work is done. Can it really be said that there is now no longer a contract of employment between Mrs A and W just because it is Mr A who pays the wages, by arrangement with Mrs A? We find the suggestion surprising. The position would be the same if, when Mrs A took W on as a cleaner, she arranged that the wages would be paid by the trustees of a family trust or by the company that she worked for. It seems to us that it cannot make any difference how the wages are paid. In any of the arrangements we have envisaged, Mrs A, who had the benefit of the work done, would remain liable to pay the wages if the arrangement broke down.

For those reasons, we would say that the majority in Dacas was correct and the guidance provided for ETs was unimpeachable. We would accept that it was not strictly ‘binding’ according to the rules of precedent but it was plainly right for ETs to heed it. The guidance did not direct ETs to reach any particular conclusion; only to consider the possibility that an implied contract might exist. It is true that the Court expressed some concern about the extent to which, as the result of recent decisions in ETs and the EAT, workers within a triangular relationship had been held to have no employment rights. As we understood the guidance in Dacas, this was not an attempt to resolve a social problem by judicial creativity but an attempt to ensure that ETs considered (and made relevant findings of fact) according to the existing law.

Mr Reynold submitted that the EAT had misunderstood the guidance given in Dacas and had thought that they were obliged to affirm the decision of the ET and dismiss the appeal. The passage relied on is at paragraph 75 of the EAT’s decision where the EAT said that, if counsel for the appellant were to persuade them that the ET had been wrong, she would have to persuade them that ‘the ET should not have followed the decision in Dacas’. There was also a passage at paragraph 71 where the EAT said that it was ‘unable to accept that the Dacas decision could be distinguished on its facts’. Taken out of context, those two statements might suggest that the EAT thought that Dacas was binding authority for the proposition that, in circumstances such as these, there should be a finding of an implied contract of employment between the worker and end-user.

However, in our view, that contention is untenable. First, when the EAT judgment is read as a whole, it is clear that its members perfectly well understood that the effect of Dacas on this case was only to give guidance as to the approach the ET should take and was not in any way seeking to suggest what finding should be made. In any event, it would not matter even if the EAT had fallen into that error. It is plain from the ET’s decision that they well understood the effect of Dacas. At paragraph 13 of its decision, the ET said that as the result of Dacas, ‘the tribunal has been guided to consider whether in this case an implied contract of service exists between the Applicant and the Respondent’. There is no hint there that the ET thought that they had been guided towards any particular conclusion, only that they had been told to consider the point. In the following paragraph, the ET set out its conclusions and it is clear from their reasoning that they were considering the possibility of an implied contract by reference to the particular facts of the instant case. That ground of appeal fails.

It had been C&W’s case both before the ET and the EAT that a contract of employment could not be implied between Mr Muscat and C&W in view of the provision in Clause 2(a) of the Contract for Services between Abraxas and Mr Muscat/E-Nuff. That was the provision, which we set out earlier, in which it was said that the written contract would constitute the entire agreement between Abraxas and E-Nuff and would govern the assignment undertaken by E-Nuff; also that no verbal or other written contract would be valid. Mr Reynold for the appellant referred the Court to Stevedoring and Haulage Services v Fuller [2001] IRLR 627, in which the Court of Appeal held that it was not possible to imply a contract of employment where the parties had entered into an agreement, the express terms of which were wholly inconsistent with there being such an implied contract. No one doubted the correctness of that proposition. However, as Mr Malik for Mr Muscat pointed out, in that case the workers had sought to imply a contract of employment with the stevedoring company despite the fact that the parties had signed an agreement stipulating that the workers would provide their services on ‘an ad hoc and casual basis’ with no obligation on the part of the company to provide work or on the worker to accept any work offered. Moreover the agreement spelt out that the workers were not to be the employees of the company. Unsurprisingly, the workers failed. Here, he submitted, the position was quite different. There was no express agreement at all between C&W and Mr Muscat. The contractual position was very similar to that which had pertained in Dacas and no member of the Court of Appeal had suggested that the existence of a contract for services between the agency and the worker absolutely precluded the existence of an implied contract between the worker and the end-user.

Mr Reynold submitted that this distinction was misconceived. The guidance in Dacas required the tribunal to consider the whole of the evidence in the case, contractual documents, oral statements and conduct. If the written contract between Abraxas and Mr Muscat/E-Nuff were brought into consideration, it was impossible to imply a contract of employment between Mr Muscat and C&W.

We cannot accept Mr Reynold’s submission. In our view, it is right that, when considering the possible existence of an implied contract of employment, all the evidence should be considered. However, we cannot see why Mr Muscat’s contract for services with Abraxas should preclude the existence of a contract of employment with C&W. C&W was not a party to the contract for services. Nor was it a signatory to the Works Schedule. There does not appear to be any essential inconsistency between Mr Muscat’s position in promising Abraxas that he would undertake an assignment at the premises of C&W and an implied contract of employment with C&W when that assignment began. We accept, of course, that because there is no essential inconsistency, its does not follow that there was an implied contract of employment between Mr Muscat and Abraxas; it only means that the possibility of such a contract is not ruled out.

Mr Reynold also contended that, when it came to considering whether there was any mutuality of obligation between C&W and Mr Muscat, one had to look at the terms of the written contract between Abraxas and Mr Muscat. Mummery LJ had said that the obligations spelled out in the contract between Mrs Dacas and Brook Street could be ‘read across’ so as to establish what Mrs Dacas’s obligations were towards Wandsworth. If the written agreement between the agency and the worker was taken into account, it would negative the existence of a contract of employment between the worker and the end-user. We do not accept that. It may be possible to infer the existence of a contract of employment between the worker and the end-user from their conduct, although its precise terms might not be clear. If there is a contract between the worker and the agency, that must be examined to see whether it excludes the possibility of there being a contract of employment between the worker and the end-user. That contract might also be useful as a means of determining what the precise terms are of the implied contract of employment between the worker and end-user. In the present case, it is possible to infer a contract of employment by examining the conduct of C&W and Mr Muscat. This is a particularly clear case because of the existence of a contract of employment between Mr Muscat and EIL and the transfer of that contract upon the transfer of undertakings. The written contract between Mr Muscat/E-Nuff and Abraxas should be examined in order to see whether it affects the relationship between C&W and Mr Muscat and weighs against the existence of an implied contract of employment between them. In our view, it does not. Examination of that written contract is also useful as a means of determining the precise terms of the implied contract of employment, for example the hours of work, remuneration and notice periods. Reading the provisions across is simply a means of clarifying detail that might otherwise be in dispute. This ground of appeal does not assist the appellant.

Finally, Mr Reynold submitted that the ET had given no proper consideration to the question of whether it was necessary to imply a contract of employment between Mr Muscat and C&W in order to give business reality to what was happening. We were referred to the well-known passages in the judgment of Bingham LJ in The Aramis [1989] 1 Lloyd’s Rep 213. The facts of that case are not germane but Bingham LJ made some general observations about the circumstances in which a contract might be implied. At page 224 column 1, he said:

“As the question whether or not any such contract is to be implied is one of fact, its answer must depend upon the circumstances of each particular case – and the different sets of facts which arise for consideration in these cases are legion. However, I also agree that no such contract should be implied on the facts of any given case unless it is necessary to do so; necessary that is to say, in order to give business reality to a transaction and to create enforceable obligations between parties who are dealing with one another in circumstances in which one would expect that business reality and those enforceable obligations to exist.”

Later, on the same page in column 2, he said that, in a case where there was no express agreement, the court considering whether a contract was to be implied must answer the question whether it would be reasonably understood from the conduct of the parties that there was an agreement between them. He continued:

“I do not think it is enough for the party seeking the implication of a contract to obtain ‘It might’ as the answer to these questions for it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied on is no more than consistent with an intention to contract than with an intention not to contract. It must surely be necessary to identify conduct referable to the contract contended for or at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.”

Mr Reynold submitted that, in giving guidance in Dacas, Mummery LJ had not mentioned the need for the ET to consider whether the implication of a contract of employment between worker and end-user was necessary to give business reality to what was happening between the parties. The ET had not expressly referred to this requirement in their decision and the EAT had accepted that they could not say whether or not the ET had given consideration to this issue. However, they observed that it may be that the Court of Appeal in Dacas had considered that in the particular circumstances of the case, it was necessary to imply a contract of employment because, to adopt the expression Mummery LJ had used at paragraph 53 of his judgment, that ‘would accord with practical reality and common sense’.

We do not accept these submissions. In paragraph 16 of his judgment, Mummery LJ said:

“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.”

We take that to be an express appreciation of the principles referred to in The Aramis. Moreover, in the decision of the ET in the present case, there is a reference to “the most relevant and helpful passages” in the decision of the Court of Appeal in Dacas. The first paragraph there listed is paragraph 16 in the judgment of Mummery LJ which includes the passage just cited. Thus, quite apart from the inherent unlikelihood of Mummery LJ not having considered the basic contractual principles, we are satisfied that he actually referred to the criterion of necessity and, by express incorporation, so did the ET in the present case.

Mr Reynold submitted that in this case it could not be said that it was necessary to infer a contract from the parties’ conduct. Both their conduct and their relationship were entirely consistent with Mr Muscat’s agreement with Abraxas and Abraxas’s agreement with C&W. He submitted that those agreements covered all aspects of the working relationship and left no room for any additional implied contract. He went so far as to say that the implication of a contract was inconsistent with the conduct of the parties. He submitted that Mr Muscat had chosen to enter into a contract with Abraxas whereby he expressly agreed that his contract with them would govern his assignment to C&W and that no other contract would have any validity.

As to those submissions, the point must first be made that, when Mr Muscat entered into his contract with Abraxas, he did not exactly ‘choose’ to do so. He was told that unless he signed the contract with Abraxas he would not be paid for the work he had already done for C&W. However, we would accept that he could have chosen to give up his livelihood and sue C&W for the money they owed him rather than sign the agreement with Abraxas. That does not seem to be much of a choice. But in any event, we do not think that ‘choice’ is an important factor when deciding whether it is necessary to infer the existence of an employment contract in order to give business reality to the arrangements in operation or to create enforceable obligations in circumstances where one would expect to find that they existed.

We accept that the question whether it is necessary to infer the existence of an employment contract between two parties may sometimes be difficult. In this particular case, we do not think it is. It is common ground that, from April until 13^th August 2002, Mr Muscat was employed by C&W. True it is that C&W did not think he was their employee but what the parties may think or say about their relationship is not conclusive. The issue must be determined objectively. The ET held that, for that period, the relationship was that of employer and employee. The employment had been transferred from EIL and, until the terms were varied, they would remain as they were with EIL. That meant that C&W were under an obligation to provide Mr Muscat with work. Mr Muscat was under an obligation to attend their premises and do the work of a telecommunications specialist, subject to the direction and control of C&W management. There were other indicia which tended to confirm that the relationship was indeed that of employer/employee. Mr Muscat arranged his annual leave with his C&W managers. C&W provided equipment and paid Mr Muscat’s mobile telephone bill. They gave him an employee number. There can be no doubt that, before Mr Muscat signed the agreement with Abraxas, C&W were under an obligation to pay Mr Muscat. They defaulted on that obligation for about three months. Then they made arrangements with Abraxas that Abraxas would pay Mr Muscat’s invoices and, on 13^th August, Mr Muscat signed a contract with Abraxas.

Mr Malik submitted that the only thing that changed on 13^th August, as between Mr Muscat and C&W, was the arrangement for payment. Mr Muscat’s manager told him that he was to be paid by Abraxas. There was no express or implied termination of the existing arrangements between Mr Muscat and C&W. The words of the written contract between Mr Muscat and Abraxas did not either expressly or impliedly change the nature of his relationship with C&W. The obligations to provide work and to do it remained as before. So did the degree of control.

In the course of argument, Mr Reynold suggested first that the 13^th August agreement brought to an end the employment contract which, he accepted, had existed until then. That cannot be right as both Mr Muscat and C&W carried on exactly as before except that C&W arranged for payment of Mr Muscat’s invoices through Abraxas. What Mr Muscat agreed with Abraxas had no effect at all on the substance of his existing relationship with C&W. Second, Mr Reynold suggested that, on 13^th August, there might have been a novation of the employment contract. He submitted that Abraxas took the place of C&W in that employment contract. That is obviously not right. There was no substitution of parties to the existing contractual obligations. Considered objectively, the only possible conclusion was that, if Mr Muscat was an employee before 13^th August, he was also an employee after that date.

Applying the words of the test established in The Aramis, it was necessary to infer the continuing existence of the employment contract in order to give business reality to the relationship and arrangements between Mr Muscat and C&W. There was no other possible explanation for what they were doing. Also, it was necessary to infer the existence of an employment contract in order to establish the enforceable obligations that one would expect to see in these circumstances. Before 13^th August, there were enforceable obligations between Mr Muscat and C&W. After that, it cannot be said that those obligations had disappeared. Abraxas had not affected them. If Abraxas had for some reason ceased to function, that would not have brought the relationship between C&W and Mr Muscat to an end. Their mutual obligations to each other would have continued and C&W would either have had to pay Mr Muscat itself or make some other arrangement for payment. We reject Mr Reynold’s final submission.

The ET was entitled to hold that Mr Muscat had been an employee throughout the period of work for EIL and C&W. They did not misdirect themselves in law; they properly applied the guidance given by this court in Dacas, which guidance was itself correct. We would dismiss the appeal.

We add this. In the course of argument there was a suggestion that, if the court were to uphold the ET’s decision, it would be doing so from a desire to change the established law by ‘judicial creativity’. That should not be done; if the law needed to changed, as a matter of policy, it should be done by Parliament. We wish to make it plain that this decision is not driven by policy considerations. The decision of the ET was correct, according to the established law.

It may well be that the Court of Appeal in Dacas felt concerned that some recent decisions in ETs and the EAT had had the effect of depriving a worker, such as Mrs Dacas, of the employment rights to which the circumstances of her work suggested that she should be entitled. We share that concern. However, the concern was, as we understand it, that, by failing to consider the possibility of an implied contract of employment between worker and end-user, ETs were not applying the law correctly so as to provide the employment protection which Parliament intended. No doubt, if ETs apply their minds to the possibility of an implied contract between the worker and end-user, there will be some cases in which they find that relationship, as in this present case. There will no doubt also be many cases in the future in which ETs will conclude that a worker in the triangular relationship is not an employee of the end-user. That may be because they find that he or she is an independent contractor. It may be that the ET will conclude, on the particular facts of the case, that the worker was employed by the agency. Another possibility is that the worker may be found to have had a series of short employment contracts with different end-users but no continuing contract of employment such as will support employment rights. All will depend on the facts of the individual case. We find it hard to imagine a case in which a worker will be found to have no recognised status at all, either as an employee of someone or as a self-employed independent contractor. But that question must await another day.