Autoclenz Ltd v Belcher & Ors

This appeal raises a difficult point in employment law. Parliament has given various forms of statutory protection to people who contract to work for others. The entitlement of an individual to the various forms of statutory protection depends upon the legal status of the individual under the contractual arrangements. Discerning the individual’s legal status is not always easy, as this appeal demonstrates.

Essentially, there are three possibilities. One is that the individual might be a self-employed contractor. Another is that the individual might be a ‘worker’. A worker is defined in section 230(3) of the Employment Rights Act 1996 as follows:

“In this Act ‘worker’ … means an individual who has entered into or works under …

(a)

a contract of employment, or

(b)

any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”

From that definition it is clear that, if the relationship between the person who carries out the work and the one who commissions or provides it is one of a professional person to a client or of a businessman to a customer, the individual doing the work is not a worker but a self-employed contractor.

It is also apparent from the definition just cited that a worker might or might not be an employee. An employee is a sub-group of worker. A worker who is not an employee is often called a ‘limb (b) worker’ to distinguish him from a limb (a) worker who is also an employee. An employee is defined in the Employment Rights Act 1996 section 230(1) as an individual who has entered into or works under a contract of employment. A contract of employment is not further defined.

Employees enjoy a wide range of statutory protections, including the right not to be unfairly dismissed and the rights to receive redundancy pay, maternity leave and the benefit of grievance procedures. Limb (b) workers enjoy some statutory rights - for example they are entitled to be paid the national minimum wage and to receive holiday pay and rest periods. They do not enjoy the security of tenure of employees. Self-employed contractors enjoy no statutory rights other than certain protection under health and safety legislation. Because of the entitlement to these various rights, there are many cases in which the status of the claimant is important.

This case is concerned with the legal status of a group of 20 car valeters who worked for Autoclenz Ltd at their premises at Measham, Derbyshire. The valeters brought a claim in the employment tribunal (ET) seeking a declaration that they were workers or employees and were therefore entitled, among other things, to holiday pay. Autoclenz contended that the claimants were self-employed contractors and were not entitled to any statutory rights.

Employment Judge Foxwell (the EJ), sitting at Nottingham held that the claimants were employees. He held also that, if he were wrong about that, they were certainly limb (b) workers. Autoclenz appealed to the Employment Appeal Tribunal (EAT) which allowed the appeal against the holding that the claimants were employees but held that they were limb (b) workers. Before this court, Autoclenz appeals against the holding that the claimants are limb (b) workers and the claimants cross-appeal contending that they are employees and that the ET was right in the first place. The task for this court is to decide whether the claimants are employees, limb (b) workers or self-employed contractors. Throughout this judgment I shall refer to the parties as ‘the claimants’ and ‘Autoclenz’.

It will I think be helpful if at this stage I set out the basic propositions of law which will underlie consideration of this appeal. These are not contentious. Anything contentious I will leave for later discussion.

Where the terms of the contract between the parties are clear, the task of the EJ when deciding whether an individual is a self-employed contractor, a limb (b) worker or an employee is to apply the following tests.

The starting point must be the statutory provision at section 230(3) and the first question is whether, under the contractual arrangements, the individual has ‘undertaken to perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any professional or business undertaking carried on by the individual’. Two separate issues arise. Is the individual contractually obliged to carry out the work or perform the services himself or does the contract permit him to provide someone else to perform them? If the individual is free to choose whether he will do the work himself or send someone else to do it, he is not under an obligation to do the work personally and will not be a limb (b) worker. (Nor will he be an employee or limb (a) worker because an obligation to perform work personally is also an essential requirement of a contract of employment.) But in addition to there being an obligation to perform the work personally, the work must not be done for the other party in the capacity of client or customer. So, even if the individual is under an obligation to perform the work personally, that is not of itself enough to make him a worker. He might not be a worker because he could be providing a personal service as a self-employed contractor to a customer of his business. The customer might have engaged the self-employed individual on the basis that he would carry out the work personally. So, in order for the individual to be a worker, both criteria must be satisfied.

If the conclusion is that the individual is not a worker, then he must be a self-employed contractor. If he is a worker, the next question is whether he is an employee. An employee works under a contract of employment. The classic description of a contract of employment (or a contract of service as it used to be called) is found the judgment of MacKenna J in Ready Mixed Concrete (South East) Limited v Ministry of Pensions [1968] 2 QB 497 at page 515C:

“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”.

I prefaced this section of the judgment by saying that these tests must be applied where the terms of the contract are clear. Often they are not and the EJ must make findings as to the true contractual terms before the above tests can be applied. Sometimes there will be a written document containing contractual terms. However, that might or might not cover all the contractual terms. Sometimes there is a written contract which one party seeks to rely on as accurately defining the contractual terms while the other party claims that the written document does not represent the true agreement between them.

The fact that the parties to a contract describe the effect of their contractual arrangements in a particular way is not conclusive of the actual effect of the contractual arrangements: see Street v Mountford [1985] AC 809, where the parties described the arrangement between them as a licence but where the actual circumstances of what was agreed gave rise to a tenancy.

Where contractual terms are in writing, they will usually be taken as representing the agreement between the parties, but, if one party to the agreement claims that the written terms do not represent the true agreement, the court will have to decide what the true agreement was. In the present case, there are contractual documents. Autoclenz contends that the terms set out in the documents properly reflect the nature of the contractual relationship. The claimants contend that they do not and that the true agreement was quite different. The correct approach to determining the true nature of an agreement has been the subject of discussion in several recent cases including two in the Court of Appeal. It will be necessary to discuss these cases in some detail later. However, for present purposes, I do not think it is contentious to cite briefly from my own judgment in Protectacoat Firthglow Ltd v Szilagyi [2009] IRLR 365 at paragraph 57:

“In a case involving a written contract, the tribunal will ordinarily regard the documents as the starting point and will ask itself what legal rights and obligations the written agreement creates. But it may then have to ask whether the parties ever realistically intended or envisaged that its terms, particularly the essential terms, would be carried out as written. By the essential terms, I mean those terms which are central to the nature of the relationship, namely mutuality of obligation: Carmichael v National Power [2000] IRLR 43 and the obligation of personal performance of the work.”

There is no dispute that, in the present case, the task of the EJ was to determine what were the real contractual obligations of the parties and then to apply the tests I have set out above.

Autoclenz’s car valeting operation had only one customer, British Car Auctions (BCA). It operated at several different depots.

The claimants all worked as valeters at the Measham depot and had all signed similar contractual documents. They had started to work for Autoclenz at different times. One claimant, Mr Paul Huntington, was taken as a typical example. He had started to work for Autoclenz in 1991 and at that time had signed a written contract in which he was described as a sub-contractor. Clause 1 provided that the sub-contractor would perform the services which he agreed to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner. (I interpose to note that, on the face of it, this clause appears to require personal performance of the services.) Under clause 2, the sub-contractor confirmed that he was self-employed and that his tax affairs would be handled under Schedule D. Under clause 3, it was agreed and acknowledged that the sub-contractor was not and should not become an employee of Autoclenz; the sub-contractor was to be responsible for all his income tax and National Insurance contributions. By clause 4, it was agreed that any sums paid by Autoclenz to the sub-contractor would be paid net of VAT but that, if the sub-contractor became registered for VAT, then Autoclenz would pay VAT on all sums payable. Clause 5 gave notice that Autoclenz would, on request, provide information about payments to the Inland Revenue or Department of Social Security. Clause 6 contained a declaration about the sub-contractor’s driving licence.

In 2004, the Inland Revenue carried out a review of arrangements under which the valeters worked and declared itself satisfied that the arrangements were consistent with self-employment for the purposes of Schedule D Income Tax assessment.

In 2007, Autoclenz required the valeters to sign new contracts. It was not contended that the new contracts altered the terms and conditions under which they worked; rather that the new contracts clarified certain matters which might until then have been unclear. There were two contractual documents. The first set out the terms on which the valeter was invited to enter into a contract with Autoclenz. The second had to be signed by the valeter to signify acceptance. I shall set out the terms of the invitation in full as it was printed.

For the purpose of providing car valeting services to its client’s garages, Autoclenz wishes to engage the services of car valeters FROM TIME TO TIME on a sub-contract basis.

We understand that YOU ARE AN EXPERIENCED CAR VALETER and might be prepared to offer your services to Autoclenz. If so would you please complete and return to us the form of agreement set out below, which is intended to confirm that any contractual relationship between Autoclenz and yourself is one of client and independent contractor and not of employer/employee and to protect Autoclenz against any claim on Autoclenz for Income Tax and/or National Insurance contributions in respect of payments made to yourself.

For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenz’s requirements of sub-contractors as set out in this agreement, including, in particular, that the individual:

•

Is capable of providing the services and has been fully trained to valet a vehicle

•

Holds a current full UK Driving Licence free of endorsements DR10 and IN10 and provides a copy to Autoclenz prior to carrying out work

•

Complies with the Health & Safety guidance in operation at the site at which he/she will work and

•

Has permission to work in the UK

Please note that:

(a)

For security reasons, when working on the premises of a client’s garage you, and those who work for you, are required to wear a protective overall, which will identify you/them as a contractor of Autoclenz. Overalls may be purchased from Autoclenz.

(b)

You are required to provide cleaning materials for yourself and those who work for you. Autoclenz has negotiated the supply of a range of high quality materials, which are available for purchase at competitive rates. Details will be given to you at the garage by the Autoclenz representative.

(c)

Given the nature of the work it may be necessary for you/those who work for you to drive motor vehicles, which are the property of or in possession of clients garages. Accordingly you/they must hold a current valid Driving Licence free of endorsements DR10 and IN10. If you/they do not hold a current valid Driving Licence, under no circumstances should you/they drive any motor vehicle whilst providing services for Autoclenz. Should you/they do so, you will be held fully liable for any damage caused

If you wish to provide services to Autoclenz would you please sign and return to Autoclenz the form agreement attached.

YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO SUCH AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY OBLIGATION TO ENGAGE YOUR SERVICES ON ANY PARTICULAR OCCASION.

It will be noted that this ‘invitation’ contained a clause permitting the valeter to provide a suitably qualified substitute. There had been no such express term in the earlier document but it was Autoclenz’s contention that the right of substitution had always existed; indeed it was implicit in the valeters’ status as sub-contractors; the new document merely clarified what had always been the case.

Also, the document contained a term which negated any obligation on Autoclenz to provide work and any obligation on the valeter to undertake it.

The form of acceptance was in virtually the same terms as the previous form of contract which Mr Huntingdon had signed in 1991. The only material difference was that a new clause was inserted which provided:

The Sub-contractor confirms that he is not suffering and has never suffered from back trouble, skin rashes, eczema, dermatitis, asthma or epilepsy and has never been refused work or been terminated from work due to ill-health.

The valeters who were working for Autoclenz in 2007 all signed the new agreement. Mr Huntingdon had no recollection of doing so but it was clear that he did sign it.

The practical arrangements were as follows. Valeters were organised into teams of four, one of whom acted as leader. Each team worked on a batch of 6 vehicles at a time. The processes of cleaning and the materials and methods to be used were strictly controlled by Autoclenz, pursuant to the contractual requirements of its customer, BCA. The cleaning tasks (washing, vacuuming and polishing) were divided between the men in each team. The men were paid £9 for each vehicle cleaned; this sum was divided between the team members. The men provided Autoclenz with details of the vehicles cleaned by each man in the team. Autoclenz then prepared an ‘invoice’ and paid each man his share. From this sum certain deductions were made. Autoclenz deducted 5% from each man’s payment to cover the cleaning equipment and materials which were provided by Autoclenz. Also, the valeters were required to have insurance cover but this was provided by Autoclenz under an umbrella policy and £9 per week was deducted from each man’s payment. While working, the valeters wore overalls originally bearing Autoclenz’s logo but now bearing that of BCA. Autoclenz provided each valeter with two sets of overalls but after that the valeter had to purchase them.

Valeters were recruited by word of mouth and through advertisements. The advertisements emphasised that Autoclenz was seeking self-employed people. The positions were advertised as ‘permanent’ and promised ‘good rates of pay’.

After setting out the basic facts, the EJ observed that all the valeters knew when they were taken on that they were being offered a role which was described as and intended by the respondent to be one of self-employment. The question for him was, he said, whether or not, as a matter of fact and law, the arrangement was one of self-employment.

The EJ considered the contractual documents and observed that Autoclenz imposed all the terms on the valeters; there was no negotiation. Mr Hassall, the manager of the Measham depot, who gave evidence for Autoclenz, admitted that if any valeter had declined to sign the new contract in 2007, he would not have been offered further work. The EJ concluded that Autoclenz controlled the manner in which the claimants did their work, the rates at which they were paid and the materials they were required to use.

After some discussion of the evidence relating to various aspects of the contractual relationship and after consideration of the law (to both of which I will have to return in due course), the EJ directed himself that he must ‘assess the true nature of the relationship between the claimants and (Autoclenz) on the basis of the evidence before me’. At paragraph 35 he held that the claimants were employees. His reasoning was as follows:

“I do not think it can be said that Mr Huntingdon and his colleagues are businessmen on their own account. They have no control over the way in which they do their work. They have no real control over the hours that they work, save and except they can leave when their share of the work on site has been completed. They do not have any real economic interest in the way in which the work is organised, other than the fact that the more work they do the more they earn. They cannot source material for themselves. They are subject to the direction and control of the respondent’s employees on site. ….The claimants have no say in the terms upon which they perform work, the contracts which are placed before them are devised entirely by the respondent and the services they provide are subject to a detailed specification. The invoices they submit are prepared by the respondent (Autoclenz). The respondent determines the deductions which are applied to those invoices and the amounts charged in respect of insurance and materials. There has been no evidence to confirm that these deductions bear any real relation to the actual cost of the services to which they refer. Rates of pay are determined by the respondent and the respondent has felt able to increase or reduce those rates unilaterally. Really there is nothing that these claimants can do to make their putative businesses any more profitable by the way in which they organise themselves.

36.

…. I accept the claimants’ evidence that they are fully integrated into the respondent’s business and that they have no real other source of work. I accept that occasionally individual claimants might work elsewhere but only on days when the respondent has no work for them to do.

37.

I am satisfied that the claimants are required to provide personal service under their agreements with the respondent notwithstanding the substitution clause that was introduced in 2007. I do not find that that this clause reflects what was actually agreed between the parties which was that the claimants would show up each day to do work and that the respondent would offer work provided that it was there for them to do. Mr Hassall confirmed in evidence that this was the true nature of the agreement between the parties and that his work could not have been done without an understanding that the valeters could be relied on to turn up and do the work put in front of them. I have of course noted that in 2007 the respondent introduced a clause saying that there was no obligation on it to offer work or on the claimants to accept work. I find that this clause was wholly inconsistent with the practice described in paragraph 18 of Mr Hassall’s witness statement where he refers to a requirement for valeters to notify him in advance if they were unavailable for work. This indicates that there was an obligation to attend for work unless a prior arrangement had been made. In my judgment, these factors place these new clauses within the proposition identified at paragraph 58 in the judgment in Consistent Group Ltd v Kalwak supra and I find that the substitution clause and the right to refuse work were unrealistic possibilities that were not truly in the contemplation of the parties when they entered into their agreements.

38 Accordingly I find that the claimants entered into contracts under which they provided personal service, where there were mutual obligations, namely the provision of work in return for money, that these obligations place the contracts within the employment field and that the degree of control exercised by Autoclenz in the way that those contracts were performed placed them in the category of contracts of employment.

39.

Were I wrong in this, I would have no hesitation to the concluding (sic) that these claimants were workers. There is nothing on the evidence before me to suggest that there were in business on their own account; they cannot be said to be similar to the jobbing tradesman on a building site or a barrister or management consultant. These claimants are in exactly the same position as the stonemason in the case of Lee v Chug [1990] IRLR 236. In fact it might be said that these claimants did not even provide their own tools. ”

The reference in paragraph 37 above to paragraph 58 of the judgment in Consistent Group Ltd v Kalwak [2007] IRLR 560 was to the judgment of Elias P in the EAT. In the passage to which the EJ was referring, Elias P was discussing the correct approach to the possibility that clauses in a written agreement (such as a substitution clause or a clause permitting the individual to refuse work offered to him) might be a ‘sham’. He said:

“In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.”

In effect, the EJ was following Elias P’s approach to the question of whether the written agreement between Autoclenz and the valeters described the true nature of the relationship between them. He was satisfied that it did not.

In the EAT, Autoclenz sought to argue 11 grounds of appeal against the EJ’s decision. These included allegations that some of the EJ’s findings of fact were inconsistent and/or perverse. However, HH Judge Peter Clark determined the appeal on only one basis, namely that the EJ had misdirected himself in law in following the guidance of Elias P in Consistent. This had been wrong, he said, because the judgment had since been overruled by the Court of Appeal. HH Judge Clark cited a passage from paragraph 40 of the judgment of Rimer LJ in the Court of Appeal in which he summarised the correct approach differently from Elias P. Rimer LJ said:

“It is not the function of the court or an employment tribunal to recast the parties’ bargain. If a term solemnly agreed in writing is to be rejected in favour of a different one, that can only be done by a clear finding that the real agreement was to that different effect and the term in the contract was included by them so as to present a misleadingly different impression.”

HH Judge Clark considered that Elias P’s exposition of the correct approach (which he described as the reality test) had been disapproved by the Court of Appeal and was no longer good law. He ought now to base himself on Rimer LJ’s exposition of the test which (based on the old hire purchase case of Snook v London & West Riding Investment Ltd [1967] 2 QB 786) was that, before a tribunal could find that a term of a contract was a sham, it had to be shown that both parties intended the contract to paint a false picture of their respective obligations under that term. In short, before the written contract or part of it could be rejected, it had to be shown that both parties had a joint intention to mislead somebody.

HH Judge Clark therefore concluded that the EJ had misdirected himself in paragraph 37 where he had held that the written contractual term negating any mutuality of obligation to offer work and to perform it did not represent the true relationship between the parties. The judge declined to remit the matter for rehearing. He said that when the correct test was applied and one asked whether there was any evidence that both parties intended the written term to be misleading, the answer was plainly that there was not. Thus that written term was not a sham; it meant what it said. That clause was quite inconsistent with the relationship of employer and employee. Accordingly, the holding that the claimants were employees was set aside.

HH Judge Clark then considered whether the EJ had been right to hold that the claimants were limb (b) workers. Autoclenz was contending that this aspect of the EJ’s decision was also flawed. First, it was said that the reasoning was inadequate. The judge accepted that the EJ’s reasoning at paragraph 39 was ‘at the least economical’. Second, Autoclenz argued that the EJ’s misdirection in reliance on Elias P in Consistent had also vitiated his decision on the limb (b) question because the EJ’s holding that the substitution clause did not represent the true relationship between the parties resulted from the same misdirection. If the substitution clause in the 2007 written agreement was a valid and effective clause (as Autoclenz contended), the claimants had an unfettered right of substitution and could not be said to have ‘undertaken to do or perform personally any work or services’ for Autoclenz so as to satisfy the requirements of section 230(3)(b).

Judge Clark expressed the view that the EJ’s approach to the question of sham had undermined his conclusion about the substitution clause as well as the mutuality of obligation clause. Nonetheless, Judge Clark was of the view that the existence of what he considered was a qualified substitution clause did not undermine the conclusion that the claimants had undertaken to do or perform personal service for Autoclenz. Also, the lack of mutuality of obligation to provide and to carry out work, although fatal to the existence of a contract of employment, did not prevent the contract from being one for the personal performance of work or services. Finally, he agreed with the EJ that, on the facts as found, the claimants’ services to Autoclenz were not being provided to a client or customer. Accordingly, the claimants were limb (b) workers.

On the appeal, Mr Patrick Green, counsel for Autoclenz, submitted first that the EJ had fallen into error when holding that the valeters were under a contractual obligation to perform the work personally. There were express terms in the written contract which negated any such obligation. These were the substitution clause and the clause which provided that there was no obligation to provide the services on any particular occasion. The EJ had been wrong to hold that these clauses did not represent the true contractual position and the EAT had been right so to say. But the EAT had been wrong to hold that the claimants were nonetheless workers. Having found that the EJ had misdirected himself on the question of ‘sham’ terms, the EAT should either have held that, because the written terms were genuine, the claimants could not be workers or, at the very least, he should have remitted the case to another ET.

As a second ground, Mr Green submitted that the EJ had made various findings of fact which were inconsistent and/or perverse and the EAT had failed to consider and correct these erroneous findings.

Mr Timothy Brennan QC for the claimants submitted that the EJ had correctly considered the question of the genuineness of the substitution and obligation clauses. Since the decision of this Court in Szilagyi, which has clarified and reconciled the apparent differences of view as to the correct approach to ‘sham terms’, it can be seen that the EJ adopted the correct approach. As to the second ground, Mr Brennan submitted that, without the EJ’s notes of evidence, which had not been obtained, it was not possible for this court to consider whether any of his findings of fact were perverse.

On the cross-appeal, Mr Brennan submitted that, once it was accepted that the EJ’s findings of fact were not perverse and that he had approached the issue of sham terms correctly, there was no basis on which his original holding could be disturbed. In any event, once it had been accepted that the claimants were workers, the degree of control exercised by Autoclenz was such that the holding that the claimants were employees was plainly right.

I will deal first with the second ground of appeal because all questions of fact must be resolved before the legal position can be considered.

I accept Mr Brennan’s submission that, at least as a general rule, it is not possible to mount a perversity challenge unless the court is provided with the evidence which was before the fact finder. However, it may be possible to mount such a challenge simply on the basis of the evidence recited and facts found in the judgment itself. In effect, this is what Mr Green has attempted to do. His principal complaint – and indeed the only one he pursued in oral argument – was that the EJ had not been justified in finding, as he did in his paragraph 37, that there was a contractual obligation on the claimants to turn up for work. This had been based on Mr Hassall’s evidence that a valeter was required to give him adequate notice of his intention to take time off. Mr Green submitted that the EJ had made too much of this piece of evidence and had elevated what was really only a sensible and cooperative way of conducting affairs into a contractual term. In particular, there was no evidence that a failure to give notice had ever resulted in Autoclenz’s decision not to offer that valeter any further work.

In fairness to Mr Green’s submission on this point, which I shall reject, I think it right to summarise the evidence before the EJ which was relevant to his holding that there was an expectation or in effect a requirement that the men would turn up for work every day.

At paragraph 16 of his decision, the EJ recorded that, in respect of the obligation to turn up for work, Mr Huntingdon had conceded that there was a degree of flexibility if a valeter needed to take time off for a medical appointment or a ‘family issue’. But his evidence was that Autoclenz would not tolerate a valeter simply choosing whether to turn up or not. The EJ considered that this evidence was corroborated to some extent by Mr Hassall’s witness statement where he said that valeters could take time off as long as he was notified in advance. Mr Hassall had amplified that in oral evidence by saying that, at slack times he needed only a day’s notice but at busy times he would expect up to 7 days’ notice of non-availability. Mr Hassall had confirmed that Autoclenz would be unable to fulfil its contractual undertaking to BCA if the valeters did not turn up to work regularly. The EJ added, by way of observation that, of course, the men did turn up regularly because they wanted to earn money. It seems to me clear from this passage that the EJ had accepted Mr Huntingdon’s evidence as to Autoclenz’s attitude; it would not tolerate a valeter simply deciding not to come in. In short, there was a contractual obligation to attend regularly.

There was another section of the judgment which could be said to point in the opposite direction. It was suggested to Mr Hassall in the course of evidence that he required valeters to carry out particular amounts of work and would put pressure on them to comply. Mr Hassall denied this, saying that, when there was extra work to be done, he would ask valeters to stay on after their usual time and complete it and that usually they would agree. In other words, there was no compulsion. The EJ accepted Mr Hassall’s evidence on that issue. However, it does not seem to me that acceptance of Mr Hassall’s evidence on that point undermines his view that there was an expectation on both sides that the men would turn up for work every day.

In my judgment, the above evidence was sufficient to justify the EJ’s conclusion at paragraph 37 that, notwithstanding the written clause which stated that the men were not under an obligation to turn up for work, in fact they were under an obligation to attend for work unless a prior arrangement had been made. I reject the submission that this conclusion artificially elevated a sensible and cooperative way of conducting affairs into a contractual obligation. I also reject the suggestion that it was not open to the EJ to hold that there was a contractual obligation to attend, absent any evidence that a valeter had been ‘punished’ for breach of that obligation. The evidence was sufficient to support the conclusion.

I turn now to the more fundamental point in the appeal which relates to the correctness of the approach of the EJ and the EAT to the question of whether an express term in a contract should be disregarded because it does not represent the true intentions of the parties.

As I have already explained, the EJ directed himself in accordance with the guidance offered by Elias P, as he then was, in Consistent v Kalwak. Judge Clark adopted the dicta of Rimer LJ in the Court of Appeal, which he considered entailed a fundamentally different approach.

In Protectacoat v Szilagyi, a division of the Court of Appeal of which both Sedley LJ and I were members, had to consider the correct approach to a contract which the claimant had signed but which he contended did not represent the true relationship between the parties. We had to consider the existing authorities and, in particular, the apparent tension between the test suggested by Elias P in Kalwak in the EAT and that enunciated by Rimer LJ in the Court of Appeal. We also considered the dicta of Peter Gibson LJ in Express & Echo Publications Ltd v Tanton [1999] IRLR 367. I am reluctant to cite the full discussion of these cases and would instead refer the reader to paragraphs 42 to 57 of my judgment. From that it will be seen that the ratiodecidendi of the Court of Appeal’s decision in Kalwak was that the employment judge had not given sufficient reasons for his decision. Accordingly, Rimer LJ’s observations in the passage relied on by Judge Clark were not strictly necessary to the decision.

For the purposes of this judgment, I can summarise this Court’s conclusion in Slizagyi by saying that we considered that there was no difference of substance between Rimer LJ and Elias P, only a difference of expression. Also, Rimer LJ’s exposition at paragraph 40 of his judgment and his reference to Snook’s case, was not helpful in all cases. Where one party was relying on the genuineness of an express term and the other party was disputing it, there was no need to show that there had been a common intention to mislead. That was particularly so in a contract in the employment field where it was not uncommon to find that the ‘employer’ was in a position to dictate the written terms and the other party was obliged to sign the document or not get the work. In such a case, there was no need to show an intention to mislead anyone; it was enough that the written term did not represent the intentions or expectations of the parties.

The court considered that there was no difference of substance between Rimer LJ and Elias P because both had accepted the correctness of Peter Gibson LJ’s statement in Tanton, the facts of which illustrate the problem very neatly. In that case, there had been a dispute as to whether the claimant was an employee or an independent contractor. It centred upon whether there was an obligation personally to perform the work. An express term in the written agreement said that there was not. But the claimant contended that that term was a sham. The tribunal held that the term was a sham because, in practice, the employee had always performed the work personally. That, said the Court of Appeal, was the wrong approach. The tribunal should not focus on what happened in practice but on what were the legal obligations which bound the parties. Peter Gibson LJ added:

“Of course, it is important that the industrial tribunal should be alert in this area of the law to look at the reality of the obligations. If the (written) obligation is a sham, it will want to say so.”

In Szilagyi, after considering the authorities, I summarised the position at paragraph 50 in the following words:

“The kernel of all these dicta is that the court or tribunal has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties, not only at the inception of the contract but, if appropriate, as time goes by.”

I regret that that short paragraph requires some clarification in that my reference to ‘as time goes by’ is capable of misunderstanding. What I wished to say was that the court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.

In my judgment the true position, consistent with Tanton, Kalwak and Szilagyi, is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. To carry out that exercise, the tribunal will have to examine all the relevant evidence. That will, of course, include the written term itself, read in the context of the whole agreement. It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were. Evidence of how the parties conducted themselves in practice may be so persuasive that the tribunal can draw an inference that that practice reflects the true obligations of the parties. But the mere fact that the parties conducted themselves in a particular way does not of itself mean that that conduct accurately reflects the legal rights and obligations. For example, there could well be a legal right to provide a substitute worker and the fact that that right was never exercised in practice does not mean that it was not a genuine right.

In view of what I have said about the effect of this Court’s decision in Szilagyi, it will be apparent that I am satisfied that HH Judge Clark misdirected himself when he held that, without evidence that the written terms were affected by a common intention to mislead, the written terms must be taken to express the common intention of the parties. Accordingly, I would hold that his decision must be set aside.

It remains to consider whether the EJ directed himself correctly when he considered the genuineness of the written terms. I am satisfied that he directed himself correctly in accordance with, although in advance of, Szilagyi. In effect, he directed himself that he must seek to find the true nature of the rights and obligations and that the fact that the rights conferred by the written contract had not in fact been exercised did not mean that they were not genuine rights.

Mr Green submits that, however he directed himself, the EJ misapplied the law by deciding that the substitution and the ‘right to refuse work’ clauses were not genuine simply because the parties did not in practice conduct themselves in accordance with those terms. The EJ’s reasoning was, submitted Mr Green, that, because in practice, none of valeters ever availed themselves of the right to send a substitute, that meant that they did not have such a right. Similarly with the ‘right to refuse work’ clause, the EJ’s approach was to say that because, in practice, the valeters always turned up for work and did not avail themselves of their right to stay away if they felt like it, that meant that they did not have the right to stay away.

I would accept that, if that were how the EJ approached the issue, he would have been wrong to do so. However, in my view, it cannot be said that the EJ fell into the error of holding that the ‘right to refuse work’ clause was not genuine merely because in practice the men always did turn up for work. The reasoning given in paragraph 37 makes it plain that the EJ was relying on Mr Hassall’s own evidence that he expected the men to turn up for work unless they had given an appropriate amount of notice. The EJ was in my view entitled to treat that as evidence that the parties had a joint intention that the valeters would turn up each day (unless adequate notice of absence was given) and were in fact under an obligation to do so.

I have found the question less easy to decide in respect of the substitution clause. The EJ’s reasoning in respect of this clause is less clear. At the beginning of paragraph 37, he said that he was satisfied that the claimants were required to provide personal service notwithstanding the substitution clause that was introduced in 2007. He then said:

‘I do not find that this clause reflects what was actually agreed between the parties, which was that the claimant would show up each day to do work and that the respondent (Autoclenz) would offer work provided that it was there for them to do’.

It seems to me that the EJ was there eliding the genuineness of the substitution clause with that of the ‘right to refuse work’ clause. The EJ does not there refer back to the evidence about substitution; he refers to evidence relating to the expectation that the valeters will turn up for work each day. I can see that such evidence is relevant to the obligation of personal service as well as the right to refuse to work on occasions but the EJ does seem to have run them together to an unfortunate extent. In fact, the only evidence about substitution referred to in the judgment (at paragraph 19) was to the effect that no valeter at Measham had ever provided a substitute and the only example which Mr Hassall could provide of a so-called substitution at another depot turned out, on examination, not to have been a case of substitution at all. Also the EJ mentioned that Mr Huntingdon had said in evidence that he was unaware that he had any supposed right to send a substitute. That, as it seems to me, is of limited relevance, as the EJ found that Mr Huntingdon had probably signed the 2007 acceptance without reading the documentation. So, it can properly be said that the only evidence relating to the substitution clause which was referred to in the judgment was of what happened in practice. More force is added to Mr Green’s submission, because, after setting out the evidence in relation to the substitution clause which was limited to what happened in practice, the EJ observed without further elaboration or explanation:

“The reality, therefore, in this case is that no one seriously expected any of the valeters to provide a substitute.”

I note that, in Mr Hassall’s witness statement, he said that, if a valeter had offered a substitute, he would have been entirely happy to accept him, provided he was properly qualified. On the face of it, that was an important piece of evidence. The EJ did not mention it in his judgment but I do not consider that, in the absence of the notes of evidence, it can now be argued that the decision was perverse for a failure to rely on a relevant item of evidence. Without the notes of evidence, it is impossible to know how that evidence came out or whether, if it was received as evidence-in-chief, it survived cross-examination. Indeed, Mr Green has not attempted to allege that the finding is perverse for that reason. He submits only that, in respect of the genuineness of the substitution clause, the EJ has relied exclusively on past practice.

Accordingly, the question remains as to whether the judge was entitled to infer from the evidence recited that the substitution clause did not genuinely reflect the rights and obligations of the valeters. With some hesitation, I have come to the conclusion that he was so entitled. The fact that Mr Hassall did not know of a single example of true substitution among all the valeters employed by Autoclenz not only at Measham but elsewhere is evidence from which it would be permissible to draw an inference that no one ever intended that it should be done. The fact that Mr Huntingdon, at least, had 17 years of experience and still did not know that he had the right to bring in a substitute is of some relevance. The substitution clause was only introduced in 2007. Mr Huntingdon did not know about his ‘right’ after 2007 because he had not read the documentation. But it was Autoclenz’s case that the introduction of that clause had only served to confirm and clarify what had always been the case. It was argued that the men had always been self-employed contractors; therefore they had always had the right to send a substitute. Yet the evidence suggests that, before 2007, they did not know of that right. The fact that a valeter could work for Autoclenz for many years and not know that he had a right to send a substitute is evidence that no one intended or realistically expected that the ‘right’ should ever be exercised.

Accordingly for those reasons, I would hold that the EJ was entitled to hold, as he did, that both the substitution and ‘right to refuse work’ clauses did not contain genuine rights. HH Judge Clark was in error when he overturned those holdings. Therefore the basis on which the statutory questions under section 230 fall to be decided is that the rights and obligations of the parties are not determined by those two clauses.

Both the EJ and HH Judge Clark answered the first statutory question in favour of the claimants. Under their contracts, did the claimants undertake to do or to perform personally any work or services for Autoclenz? If the substitution clause is treated as ineffectual (as the EJ held, properly in my view) the answer is plainly yes. Indeed, clause 1 of Mr Huntingdon’s 1991 contract and the identical clause in the 2007 contract assert that:

“The sub-contractor shall perform the services, which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner.”

That seems to me clearly to impose an obligation to carry out the work personally.

Judge Clark held that the substitution clause was genuine as written, but was only a modified substitution clause and was not inconsistent with the obligation of personal performance. I am unsure of the correctness of this and, as it is not necessary to my decision, I would prefer not to express a concluded view. I have already upheld the EJ’s conclusion that the substitution clause was not a genuine or effectual contractual term.

The second question is whether the obligation to carry out the work personally arose in the context of a man in business on his own account providing services for a customer. The EJ held that it did not, for the reasons he set out in his paragraph 35. It has not been submitted on this appeal that the EJ was not entitled to make those findings. He clearly was.

For those reasons, I would conclude that the claimants were workers within section 230 (3). It remains to consider whether they were also employees, as the claimants contend in their cross-appeal.

It seems to me that, in the light of the findings made by the EJ, his conclusion that the claimants were employees was well-founded. First, there has been no challenge to the findings he made at paragraphs 35 and 36 in so far as they touched upon the way in which Autoclenz controlled the way in which the valeters did their work. It was suggested at one stage in the argument that it could not be said that Autoclenz had controlled the way in which the claimant’s work was done; all it had done was to ensure that BCA’s stipulations and requirements were met. But that is precisely the point. Autoclenz’s customer wanted the job doing in a particular way, using particular products. To satisfy its customer, it had to control the way in which the valeters did their work. I am satisfied that the control test as set out in Ready Mixed Concrete was satisfied. So was the requirement of personal performance for reasons already explained.

The third requirement is that there should be no other contractual term which was inconsistent with the relationship of employer and employee and a contract of employment. The only possible term which might be inconsistent with a contract of employment is the term which, on the face of it, entitles Autoclenz not to provide work to the valeters. However, the EJ found that the true agreement so far as the provision of work was concerned was that Autoclenz would provide work to the valeters if any was available. That was the effect of Mr Hassall’s evidence. Such a term is not inconsistent with a contract of employment. Accordingly, I would hold that the EJ was entitled to hold that the valeters were employees and, for that reason, would allow the cross-appeal so as to restore the EJ’s decision.

I am conscious that the EJ observed on more than one occasion that the valeters knew when they were taken on that Autoclenz regarded them as self-employed contractors and had their eyes open to that situation. However, he considered, rightly in my view, that what Autoclenz wished to create was not material; what mattered was what Autoclenz did create, both by the drafting of its documents and by the requirements it imposed on the valeters. It matters not how many times an employer proclaims that he is engaging a man as a self-employed contractor; if he then imposes requirements on that man which are the obligations of an employee and the employee goes along with them, the true nature of the contractual relationship is that of employer and employee. I can see that the argument of the employee is rather less attractive where, for many years, he accepts that he is a self- employed contractor and benefits from the rather more favourable taxation arrangements which are available to people running their own businesses. However, it seems to me that, even where the arrangement has been allowed to continue for many years without question on either side, once the courts are asked to determine the question of status, they must do so on the basis of the true legal position, regardless of what the parties had been content to accept over the years. In short I do not think that an employee should be estopped from contending that he is an employee merely because he has been content to accept self-employed status for some years.

For those reasons, I would dismiss the appeal and allow the cross-appeal.

I agree with Smith LJ that the appeal should be dismissed and that the cross-appeal should be allowed. However, I wish to state my reasons in my own words because, like Smith LJ, I think this case raises a serious issue in employment law and it is one that must arise frequently. It was suggested that we should not entertain the cross-appeal because it was served out of time. I cannot agree with that submission. The two aspects of this case are bound up together and we must deal with both of them.

The question in this case is whether the Respondents, who are 20 cleaners of motor cars called “valeters” and who provide services to the Appellants, Autoclenz Limited, do so as self-employed contractors, or as “workers” as defined in section 230(3)(b) of the Employment Rights Act 1996 (“the ERA”) or as employees. It is agreed by both sides in the appeal that the same result will apply to each valeter, although the evidence before the Employment Tribunal largely related to only one of them, Mr Huntingdon.

I will take the background facts as set out in paragraphs 16 to 25 of the judgment of Smith LJ.

As Smith LJ has stated in her judgment, section 230(3)(b) of the ERA sets out the statutory definition of a “worker” and that sub-section divides “workers” into two sub-groups. Paragraph (a) states that an individual who has entered into or works under a “contract of employment” is a “worker”. So, as Smith LJ states, an employee is a “sub-group” of “worker”. The ERA does not further define a contract of employment and there is no other statutory definition of the expression. There have been numerous cases where judges have had to decide whether a person has entered into or works under a contract of employment. In essence there are four basic requirements that must be fulfilled before it can be said that there is a contract of employment and so a relationship of employer and employee. First, the employer must have undertaken to provide the employee with work for pay. Secondly, the employee must have undertaken to perform work for pay. Those obligations are mutual. The third requirement is that the employee must have undertaken to perform the work personally; he is not entitled to sub-contract the work to another. Fourthly, it is also generally accepted that there is a further requirement before a court will hold that there is a contract of employment between employer and employee, i.e. that the employee agrees that he will be subject to the control of the employer to a certain minimum degree. These obligations have been described as the “irreducible minimum” to produce a contract of employment: Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at 623 per Stephenson LJ.

The second “sub-group” of “worker” is a person who fulfils the requirements set out in paragraph (b) of section 230(3) of the ERA. This type of “worker” will only be within the sub-group if he fulfils the statutory definition set out in paragraph (b). There are three requirements. Two are positive and one is negative. First, the worker has to be an individual who has entered into or works under a contract with another party for work or services. As the paragraph explains, the contract can be express or implied and, if it is express, it can be oral or in writing. There would, I think, be an implied contract if an individual does work (for remuneration) for another party without agreeing terms at all; after a while, this conduct of doing work for remuneration could give rise to an implied contract. Because there must be a contract, it follows that certain contractual terms must have been agreed between the parties to it.

The second requirement of the statutory definition in paragraph (b) of section 230(3) is that the individual undertakes to do or perform personally the work or services for the other party. If, under the express or implied contract, the parties have agreed a contractual term whereby the individual can sub-contract performance of the work or services to another person, then the individual will not have undertaken to perform the work or services personally and so will not be within the definition of “worker” set out in paragraph (b).

The third requirement relates to the status of the other party to the contract. That other party must not, by virtue of the contract, have the status of a client or customer of any profession or business undertaking carried on by the individual who is to perform the work or services. No further explanation of what is meant by a client or customer of a profession or business undertaking is given, but, in most cases at least, it is easy enough to recognise someone who has this status. It includes, for example, the solicitor or accountant’s client or a customer who seeks and obtains services of a business undertaking such as from an insurance broker or pensions adviser.

It is common ground in this case that there were written contracts between the valeters and Autoclenz and the terms of the contract between each valeter and Autoclenz are to be treated as being the same. Mr Green for Autoclenz accepted that there was only one contract between each valeter and Autoclenz, which was concluded at the time that Autoclenz first agreed to offer work to that particular valeter. Unlike some other cases, (see e.g: Clark v Oxfordshire Health Authority [1998] IRLR 125), there were not two contracts (one general contract at the time it was agreed to offer work to the work/service provider and another contract each time the work/services were provided); in this case there was only one.

The appeal proceeded on the basis that, from 2007, the terms of the contract between each valeter and Autoclenz were those contained in two documents. First, the invitation given to each potential valeter, inviting him to enter into a contract with Autoclenz. Secondly, a form of acceptance which was to be signed by the valeter. Each valeter signed the acceptance document. Smith LJ has set out the relevant terms of those documents in paragraphs 17, 19 and 23 of her judgment and I need not repeat them.

There is a further point of common ground between the parties to this appeal concerning the contracts between the valeters and Autoclenz. It is that, although the terms of the 2007 contracts were not the same as the earlier contracts, the effect of them was not different. The later contract terms simply expanded what was implicit in the earlier contracts.

The determination of the relationship between the valeters and Autoclenz depends, as Smith LJ has said, on the resolution of three issues. First, what are the terms of the contract between each of the valeters and Autoclenz. Secondly, whether those contract terms fulfil the requirements of paragraph (b) of section 230(3) of the ERA. Thirdly, assuming the answer to the second issue is “yes”, whether the contract terms are such as to make them contracts of employment.

The key issue which divides the parties is whether the terms of the written contracts, as set out in the 2007 contractual documents, accurately reflect what was agreed between the parties concerning the basis on which the valeters would provide their services to Autoclenz as cleaners of motor cars. (It is not argued, as I understand the respondents’ submissions, that there was a subsequent variation of the 2007 contract terms). Autoclenz submits that they do, with the result that it is clear that the requirements of paragraph (b) of section 230(3) are not fulfilled, so the valeters are not “limb (b)”workers. If so, they cannot be employees under a contract of employment, so they must be self-employed contractors.

The respondents say that the written terms of the contracts do not accurately reflect what was agreed between the parties in two crucial respects. First, the term in the invitation document that the valeter was entitled to engage someone to carry out the valeting on his behalf, provided certain requirements were fulfilled, was not a contract term. Instead, (the respondents argue) Autoclenz insisted, and the valeters accepted and agreed, that the valeting work had to be performed personally by any valeter engaged by Autoclenz. The term in the contract on this issue was referred to in the appeal as the “substitution clause”.

The second written term which the respondents say did not accurately reflect what was agreed was the clause in capitals at the end of the invitation, to the effect that a valeter was not obliged to provide his services on any particular occasion, nor was Autoclenz obliged to engage the valeter’s services on any particular occasion. This clause was referred to in the appeal as the “right to refuse work” clause. Instead, the respondents argue, Autoclenz required and each valeter agreed to do the work offered to him and if he did not do so, he would not be offered any more work. I note at this stage that there was no specific argument, on the appeal, concerning the other part of that clause, i.e. the statement that Autoclenz was not obliged to provide any work to a valeter on any particular occasion.

In summary, therefore, the respondents’ case was that the contracts between the valeters and Autoclenz did not contain the “substitution clause” or the “right to refuse work” clause. Instead, the contracts contained two other terms which were to the opposite effect. Thus, the first was that the valeters were obliged personally to perform the valeting work. The second was that the valeters were obliged to perform all work offered to them by Autoclenz, and, by implication, Autoclenz undertook to provide the valeters with work, if it was available.

Smith LJ has referred to three “employment” cases where this court has considered the correct approach to an argument that a term in a written contract between one person, providing work or services, and another person (or entity) for whom the work or services are performed, should be disregarded for the purpose of deciding on the nature of the relationship between the two contracting parties. Those cases are Express & Echo Publications v Tanton [1999] IRLR 367, Consistent Group v Kalwak [2007] IRLR 560, and Protectacoat Firthglow Ltd v Szilagyi [2009] IRLR 365.

Before referring briefly to those cases, I think it sensible to consider this point from first principles of contract law. Express contracts (as opposed to those implied from conduct) can be oral, in writing or a mixture of both. Where the terms are put in writing by the parties and it is not alleged that there are any additional oral terms to it, then those written terms will, at least prima facie, represent the whole of the parties’ agreement. Ordinarily the parties are bound by those terms where a party has signed the contract: see e.g. L’Estrange v Graucob Ltd [1934] 2KB 395. If a party has not signed a contract, then there are the usual issues as to whether he was made sufficiently aware of the clauses for a court to be able to conclude that he agreed to the terms in them. That is not an issue in this case.

Once it is established that the written terms of the contract were agreed, it is not possible to imply terms into a contract that are inconsistent with its express terms. The only way it can be argued that a contract contains a term which is inconsistent with one of its express terms is to allege that the written terms do not accurately reflect the true agreement of the parties.

Generally, if a party to a contract claims that a written term does not accurately reflect what was agreed between the parties, the allegation is that there was a continuing common intention to agree another term, which intention was outwardly manifested but, because of a mistake (usually a common mistake of the parties, but it can be a unilateral one) the contract inaccurately recorded what was agreed. If such a case is made out, a court may grant rectification of a contract. See, generally, the discussion in the speech of Lord Hoffmann, [48] to [66], in Chartbrook Ltd v Persimmon Homes Ltd [2009] 3 WLR 267, with whom all the other law lords agreed. But in cases of contracts concerning work and services, where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties, rectification principles are not in point, because it is not generally alleged that there was a mistake in setting out the contract terms as they were. There may be several reasons why the written terms do not accurately reflect what the parties actually agreed. But in each case the question the court has to answer is: what contractual terms did the parties actually agree?

In the first of the three “employment cases” in this court to which I have referred, Express & Echo Ltd v Tanton (supra), there is, in my respectful view, nothing in the judgment of Peter Gibson LJ that is inconsistent with the general principles that I have set out. Indeed, Peter Gibson LJ emphasises the importance of looking at the contractual wording to discern what was agreed between the parties, rather than what actually occurred when the contract concerned was in operation, in order to decide on the parties’ relationship: see page 697F to H.

I respectfully agree with the summary of the legal position set out by Smith LJ in Protectacoat v Szilagyi, at [50], as explained in her judgment in this case at [47] to [53]. Thus, in cases where there is a dispute as to the genuineness of the written terms of a contract relating to work or services, the focus of the enquiry must be to discover the actual legal obligations of the parties. Speaking for myself, I would respectfully suggest that it is not helpful to say that a court or tribunal has to consider whether the words of the written contract represent the “true intention” or the “true expectation” of the parties. There is a danger that a court or tribunal might concentrate too much on what were the private intentions or expectations of the parties. What the parties privately intended or expected (either before or after the contract was agreed) may be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffmann’s speech in the Chartbrook case at [64] to [65]. But ultimately what matters is only what was agreed, either as set out in the written terms or, if it is alleged those terms are not accurate, what is proved to be their actual agreement at the time the contract was concluded. I accept, of course, that the agreement may not be express; it may be implied. But the court or tribunal’s task is still to ascertain what was agreed.

I respectfully agree with the view, emphasised by both Smith and Sedley LJJ, that the circumstances in which contracts relating to work or services are concluded are often very different from those in which commercial contracts between parties of equal bargaining power are agreed. I accept that, frequently, organisations which are offering work or requiring services to be provided by individuals are in a position to dictate the written terms which the other party has to accept. In practice, in this area of the law, it may be more common for a court or tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and the court or tribunal must be realistic and worldly wise when it does so. In cases where there is a written contract, as Smith LJ pointed out in Szilagi at [57], that must be the starting point for determining the terms of the contract and therefore the nature of the relationship between the parties that follows from the contract terms. But, where one party alleges that the written terms do not accurately represent the actual terms agreed, then, with respect, I suggest that the exercise a court or tribunal has to perform is not to find out whether the parties “realistically intended or envisaged” that its terms would be performed as written. What if one party intended or envisaged one thing but one did not? I would prefer to put the matter as Smith LJ has done at [53] in this case, viz. the focus of the enquiry must be to discover the actual legal obligations of the parties.

The Employment Tribunal (“the ET”) is, in this case, the fact-finding tribunal. It had before it written statements and heard oral evidence from one of the valeters, Mr Huntingdon, and from the manager of one of the depots of Autoclenz, Mr Hassell. On the basis of their evidence and the documents before it, the Employment Judge (“EJ”) found various facts. We must be bound by those findings of fact unless they are clearly wrong, e.g. because, in reaching a conclusion of fact, the EJ failed to take into account some oral or documentary evidence or there was no evidence on which a factual finding could have been based.

The EJ found, at [37] of his judgment, that the terms of the “right to refuse work” clause in the 2007 contract terms were “wholly inconsistent with” the practice described in paragraph 18 of Mr Hassell’s witness statement. There Mr Hassell referred to a requirement for valeters to notify him in advance if they were unavailable for work. The EJ inferred from that evidence that there was an obligation on the valeters to attend for work unless a prior arrangement had been made. In my view the EJ was entitled to conclude from the evidence that the true agreement of the parties was that the valeters agreed to undertake the work offered them by Autoclenz.

The EJ did not deal expressly with the other half of the “right to refuse work” clause, namely the provision that Autoclenz was under no obligation to provide work for the valeters. However, it seems to me that once the EJ concluded that the true agreement between the parties was that the valeters were obliged to undertake the work offered them, it is only a short step for him to conclude that, in fact, the true agreement was that Autoclenz undertook to provide work. That, as Smith LJ acknowledged in [68] above, is implicitly what the EJ found. It seems to me that, on the evidence, that conclusion was open to the EJ and we are obliged to accept it.

I share Smith LJ’s concerns about the shortcomings in the reasoning and so the legitimacy of the conclusion of the EJ (at [37] in his judgment) on the “substitution clause”. However, I agree with Smith LJ’s analysis and conclusion (at [58]-[61] above) that the EJ was, on the evidence, entitled to find that the “substitution clause” did not reflect the terms agreed between the parties and, in fact, there was no effective contractual right to substitute at all.

Having reached the conclusion that the EJ was entitled to find that the 2007 contractual documents do not accurately reflect what was agreed between the parties, I think that, in order to analyse and determine the nature of the relationship between the parties, it is necessary to state what actually was agreed between them. I agree with Smith LJ that, on the basis of the EJ’s findings, four essential contractual terms were agreed. These are: (i) that the valeters agreed to perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (ii) that the valeters would be paid for that work; (iii) that the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (iv) the valeters must personally do the work and could not provide a substitute to do so.

Based on those findings, the nature of the relationship between the valeters and Autoclenz can be determined. I agree with Smith LJ that it is clear that there was and is a contract between each of the valeters and Autoclenz whereby the valeters undertake to perform personally work or services for Autoclenz. I also agree, with the EJ at [35] and Smith LJ, that the valeters are not providing the services of a profession or a business undertaking. Nor is Autoclenz in the position of being a client or customer of such services.

Accordingly, the three requirements set out in section 230(3)(b) of the ERA are fulfilled and the valeters therefore must have the status of “limb (b) workers”.

As Smith LJ notes at [67] above, there was no challenge before us of the EJ’s findings in [35] and [36] concerning the way in which Autoclenz controlled the way the valeters did their work. I agree with Smith LJ’s conclusion that the “control test” set out in the Ready Mixed Concrete case is satisfied for the reasons she gives at [67] above.

I have already said that I accept that the EJ was entitled to find, implicitly, that there was an obligation on Autoclenz to provide work for valeters who had concluded contracts with it. Accordingly, the four essential elements of a contract of employment are established. Therefore, the EJ was right to conclude that the valeters were and are employees of Autoclenz. Thus the appeal must be dismissed and the cross-appeal allowed.

I agree with Lady Justice Smith that this appeal should be dismissed and the cross-appeal allowed, in both cases on the ground that the employment judge was entitled to conclude that the respondent was an employee.

While I share her reasons for reaching this conclusion, I do so less hesitantly. I am also entirely content to adopt the reasoning of Lord Justice Aikens, recognising as it does that while employment is a matter of contract, the factual matrix in which the contract is cast is not ordinarily the same as that of an arms’-length commercial contract.

Employment judges have a good knowledge of the world of work and a sense, derived from experience, of what is real there and what is window-dressing. The conclusion that Autoclenz’s valeters were employees in all but name was a perfectly tenable one on the evidence which the judge had before him. The elaborate protestations in the contractual documents that the men were self-employed were odd in themselves and, when examined, bore no practical relation to the reality of the relationship.

The contracts began by spelling out that each worker was required to “perform the services which he agrees to carry out for Autoclenz with a reasonable time and in a good and workmanlike manner” - an obligation entirely consistent with employment. Notwithstanding the repeated interpolation of the word “sub-contractor” and the introduction of terms inconsistent with employment which, as the judge found, were unreal, there was ample evidence on which the judge could find, as he did, that this was in truth an employment relationship.

His finding did not seek to recast the contracts: it was a finding on the prior question of what the contracts were. Rightly, it was uninfluenced by the fiscal and other consequences of the relationship, which were by no means all one way.