Stringfellow Restaurants Ltd v Quashie

Nadine Quashie (“the claimant”) worked intermittently for a period of some 18 months as a lap dancer (described in the contractual documents rather more primly as a table-side dancer) at the appellant’s two clubs in London. One was Stringfellows and the other was Angels. On 9 December 2008 she was told that she would no longer be permitted to work for the company as she was believed to have become involved with drugs on the premises.

She brought an unfair dismissal claim. There was a preliminary issue as to whether she was an employee as defined by section 230 of the Employment Rights Act 1996 and, if so, whether she had the necessary qualifying period of a year’s continuous employment to entitle her to bring that claim.

The Employment Tribunal concluded that she was not an employee and in any event did not have the requisite period of continuous employment. The Employment Appeal Tribunal (HH Judge McMullen QC sitting alone) upheld the claimant’s appeal. He held that the only proper inference from the facts was that she was an employee, and he further concluded that she had the necessary continuity of employment. He remitted the matter to the Employment Tribunal. The appellant now appeals against each of those findings and seeks to restore the decision of the Employment Tribunal. However, if the claimant is not an employee, the issue of continuity does not strictly arise.

The definition of “employee” in the Employment Rights Act, section 230(1), is as follows:-

“ ‘Employee’ means an individual who has entered into or works under (or where the employment has ceased, worked under) a contract of employment.”

A ‘contract of employment’ is then defined, section 230(2) as:

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

There is voluminous case law seeking to encapsulate the essence of the contract of employment and to distinguish it from other forms of working relationship. The distinction is important because some rights, including the right to claim unfair dismissal, are conferred on employees whereas others are conferred upon workers, a more widely defined category. All employees are workers but not all workers are employees.

Various tests for identifying when a contract of employment exists have been proposed in the cases, although none has won universal approval. These tests include, to use the shorthand descriptions, the following: the control test, which stems from the decision of Bramwell LJ in Yewens v Noakes (1880) 6 QBD 530 (which focuses on the nature and degree of control exercisable by the employer); the business integration test, first suggested by Denning LJ in Stevenson, Jordan and Harrison v MacDonald and Evans [1952] 1 TLR 101 (whether the work provided is integral to the business or merely accessory to it); the business or economic reality test, first propounded by the US Supreme Court in US v Silk 331 US 704(1946) (whether in reality the worker is in business on his or her own account, as an entrepreneur); and the multiple or multi-factorial test, reflected in the judgment of McKenna J in Ready Mixed Concrete (South East Limited) v Minister of Pensions and National Insurance [1968] 1 QB 497 (involving an analysis of many different features of the relationship).

Employment relationships come in such diverse forms that, whilst each of these tests may in any particular case cast some light on the problem of classification, none provides a ready universal answer. However, the test most frequently adopted, which has been approved on numerous occasions and was the focus of the Employment Tribunal’s analysis in this case, is the approach adumbrated by McKenna J in the Ready Mixed Concrete case. He succinctly summarised the essential elements of the contract of employment as follows (p.515):

“A contract of service exists if these three conditions are fulfilled.

(i)

The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.

(ii)

He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

(iii)

The other provisions of the contract are consistent with its being a contract of service.”

He later added (p.516-517):

“An obligation to do work subject to the other party’s control is a necessary, though not always a sufficient, condition of a contract of service. If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other kind of contract, and the person doing the work will not be a servant. The judge’s task is to classify the contract (a task like that of distinguishing a contract of sale from one of work and labour). He may, in performing it, take into account other matters besides control.”

This approach recognises, therefore, that the issue is not simply one of control and that the nature of the contractual provisions may be inconsistent with the contract being a contract of service. When applying this test, the court or tribunal is required to examine and assess all the relevant factors which make up the employment relationship in order to determine the nature of the contract.

Where, as in this case, the contract is to be gleaned from a mixture of written documents and working practices, an appellate court should not readily interfere with the determination of the first instance court. Absent some misdirection from the tribunal, it can only do so if no reasonable tribunal, properly directing itself, could have reached the decision it did. This firmly established principle has been reiterated on numerous occasions. In Clark v Oxfordshire Health Authority [1998] IRLR 125 Sir Christopher Slade summarised it as follows:

“Principles governing appeals from an industrialtribunal

35.

At first impression one might suppose that the question whether one person is ‘employed’ by another under a ‘contract of employment’ within the meaning of s.153(1) of the 1978 Act would in any case be regarded by the court as a bare question of law, since it raises the question whether there exists between the two parties the legal relationship of employer and employee.  And indeed exceptionally, if the existence or otherwise of the relationship is dependent solely upon the true construction of a written document or documents, the question is treated by the court as being one of law, so that an appellate tribunal or court is free to reach its own conclusion on the question without any restriction arising from the decision of the tribunal below (Davies v Presbyterian Church of Wales [1986] IRLR 194).

36.

But in the more ordinary case, where the determination of the question depends not only on reference to written documents but also on an investigation and evaluation of the factual circumstances in which the work is performed, a quite different situation arises: see Lee Ting Sang v Chung Chi-Keung [1990] IRLR 236 at p.240; Clifford v Union of Democratic Mineworkers [1991] IRLR 518 at p.520 per Mann LJ).  In such a case, as these two authorities show, the responsibility of determining and evaluating all the relevant admissible evidence (both documentary and otherwise) is that of the tribunal in the first instance; an appellate tribunal is entitled to interfere with the decision of that tribunal, that a contract of employment does or does not exist, only if it is satisfied that in its opinion no reasonable tribunal, properly directing itself on the relevant question of law, could have reached the conclusion under appeal, within the principles of Edwards v Bairstow [1956] AC 14.  An illuminating summary of the legal position in this context is also to be found in the judgment of Sir John Donaldson in O’Kelly v Trusthouse plc [1983] IRLR 369 at pp.381-393.”

The EAT cited this passage in its judgment.

An issue that arises in this case is the significance of mutuality of obligation in the employment contract. Every bilateral contract requires mutual obligations; they constitute the consideration from each party necessary to create the contract. Typically an employment contract will be for a fixed or indefinite duration, and one of the obligations will be to keep the relationship in place until it is lawfully severed, usually by termination on notice. But there are some circumstances where a worker works intermittently for the employer, perhaps as and when work is available. There is in principle no reason why the worker should not be employed under a contract of employment for each separate engagement, even if of short duration, as a number of authorities have confirmed: see the decisions of the Court of Appeal in Meechan v Secretary of State for Employment [1997] IRLR 353 and Cornwall County Council v Prater [2006] IRLR 362.

Where the employee working on discrete separate engagements needs to establish a particular period of continuous employment in order to be entitled to certain rights, it will usually be necessary to show that the contract of employment continues between engagements. (Exceptionally the employee can establish continuity even during periods when no contract of employment is in place by relying on certain statutory rules found in section 212 of the Employment Rights Act.)

In order for the contract to remain in force, it is necessary to show that there is at least what has been termed “an irreducible minimum of obligation”, either express or implied, which continue during the breaks in work engagements: see the judgment of Stephenson LJ in Nethermere (St Neots) v Gardiner [1984] ICR 612, 623, approved by Lord Irvine of Lairg in Carmichael v National Power plc [1999] ICR 1226, 1230. Where this occurs, these contracts are often referred to as “global” or “umbrella” contracts because they are overarching contracts punctuated by periods of work. However, whilst the fact that there is no umbrella contract does not preclude the worker being employed under a contract of employment when actually carrying out an engagement, the fact that a worker only works casually and intermittently for an employer may, depending on the facts, justify an inference that when he or she does work it is to provide services as an independent contractor rather than as an employee. This was the way in which the employment tribunal analysed the employment status of casual wine waiters in O’Kelly v Trusthouse Forte plc [1983] ICR 728, and the Court of Appeal held that it was a cogent analysis, consistent with the evidence, which the Employment Appeal Tribunal had been wrong to reverse.

In Stephenson v Delphi Diesel Systems [2003] ICR 471 I sought to bring some of these strands concerning mutuality together in the following way (paras 11-14):

“11.

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

12.

The issue of whether there is a contract at all arises most frequently in situations where a person works for an employer, but only on a casual basis from time to time. It is often necessary then to show that the contract continues to exist in the gaps between the periods of employment. Cases frequently have had to decide whether there is an over-arching contract or what is sometimes called an ‘umbrella contract’ which remains in existence even when the individual concerned is not working. It is in that context in particular that courts have emphasised the need to demonstrate some mutuality of obligation between the parties but, as I have indicated, all that is being done is to say that there must be something from which a contract can properly be inferred. Without some mutuality, amounting to what is sometimes called the ‘irreducible minimum of obligation’, no contract exists.

13.

The question of mutuality of obligation, however, poses no difficulties during the period when the individual is actually working. For the period of such employment a contract must, in our view, clearly exist. For that duration the individual clearly undertakes to work and the employer in turn undertakes to pay for the work done. This is so, even if the contract is terminable on either side at will. Unless and until the power to terminate is exercised, these mutual obligations (to work on the one hand and to be paid on the other) will continue to exist and will provide the fundamental mutual obligations.

14.

The issue whether the employed person is required to accept work if offered, or whether the employer is obliged to offer work if available is irrelevant to the question whether a contract exists at all during the period when the work is actually performed. The only question then is whether there is sufficient control to give rise to a conclusion that the contractual relationship which does exist is one of a contract of service or not.”

On reflection, it is clear that the last sentence of paragraph 14 is too sweeping. Control is not the only issue. Even where the work-wage relationship is established and there is substantial control, there may be other features of the relationship which will entitle a tribunal to conclude that there is no contract of employment in place even during an individual engagement. O’Kelly and Ready Mixed provide examples.

The Tribunal set out in considerable detail its findings in relation to a host of matters: the nature of the club; the practical arrangements under which the dancers provided their services, including the way in which the rota system operated at the club, as well as the arrangements for work days, holidays and shift swaps; the way in which a dancer would be paid by customers at the club; the club agreement, which set out the principal terms of the agreement between the dancer and the club; and the nature of the licence granted by the City of Westminster under which the club is permitted to operate and which imposes a number of mandatory conditions. I will summarise only the principal features identified by the Employment Tribunal.

The working pattern is that the shift runs from 9pm or 10pm until 4.30am. The profitable nights for the club are Tuesday, Wednesday and Thursday. However, a dancer is obliged to work both Saturday and Monday every second weekend on top of the usual set days, and one night per week in the Angels club. If she fails to attend a weekend shift without prior arrangement she will be suspended for the following week. Dancers can take holidays when they wish but they have to complete a holiday booking form in advance specifying the beginning and end date. The Tribunal noted that the claimant herself worked on average two or fewer days in 42 of the 80 or so weeks for which she was working.

Nothing in the rules prevents a dancer from working elsewhere, provided she was not booked to dance at one of the appellant’s clubs. However, the Tribunal found that Ms Quashie, and indeed other dancers, were under the impression that management would not be happy for them to dance elsewhere.

Management requires the dancers to look elegant and they are encouraged to purchase outfits from an approved supplier but they are not obliged to use that supplier.

The Tribunal recounted in some detail how the dancers are remunerated and the nature of their expenses and other outgoings, which include certain fixed payments, commission, and fines. The Tribunal’s findings in this respect are of particular importance in this appeal and I set them out in full (paras 11-16):

“11

On arrival customers are informed at the door of the type of entertainment on offer. The entry cost is £20 for non members. Diners are allowed in free. All customers have to be dressed smartly. The Club is open at 9pm and offers complimentary canapés on certain nights to all guests. In Covent Garden there is an elevated stage area on the ground floor with smaller stages in the restaurant area where girls dance. There are tables and chairs and stools at the bar. Customers are invited either to the bar area, restaurant or downstairs which is the main show area. There are cordoned off areas for VIP and alcoves for seating and booths with curtains. All areas are strictly monitored by CCTV. The Club has a menu which sets out dance packages; £20 for one fully nude tableside dance, £200 for half an hour and from £300 for one hour to invite a Dancer to the table for “sit downs” where a Dancer sits and talks with a customer.

12

All Dancers must be paid in “Heavenly Money”, which is a form of voucher that avoids actual cash being exchanged between the Dancers and customers. Customers buy the heavenly money vouchers from the Clubs. If the customer pays in cash there is no commission charged for the heavenly vouchers but if they pay with credit card the customer is charged a 20% commission rate. Heavenly money is used for tipping staff and gratuities. A client cannot purchase goods with it such as drink and food.

13

The customers are not allowed to touch the Dancers except to put the money in their garter either before or after the dance. If the customer does not have any heavenly vouchers on them then they can put the cash in the garter and as soon as the Dancer has finished the dance she is required to exchange the cash into heavenly vouchers.

14

In order for the Dancers’ needs to be taken care of, such as minor dress repairs, ironing, make-up and hair, they are looked after by a “House Mother”. This person ensures that they are well turned out in their appearance and are properly dressed to maintain the standards of the Club. The Dancers themselves however provide their own outfits. The house mother is also there for the Dancers’ general well-being.

15

The Dancers are directly responsible for the payment of the House Mother and for the DJ, hairdresser and other facilities at the Club used by the Dancers. Dancers therefore pay upfront each night a “tip out” fee of £15 to the House Mother before commencing their shift. When they come into work they have to report to the House Mother. She will then enter their details onto a computer which prints out a label which is then put on to an envelope which is later given to the Dancers. At the end of a shift, the Dancers will post the envelope containing the heavenly money vouchers they have received, into a safe with their name and amount on the envelope. The Club then makes certain deductions; including a commission fee (of 20% for sums below £300 and 25% for sums above £300) a house fee of £65 per night and any relevant fines. The fines can be for the following: £25 per hour for being off rota, £20 for being late for a shift, £10 for being late for a stage dance/song, £50 to £100 for being late for a meeting and £25 for missing a free dance.

16

The cashiers calculate what is ultimately due and then put cash in an envelope for the Dancer to collect the next day or when they next come into the Club.”

The Tribunal observed that the claimant would sometimes be out of pocket after a night’s work.

The question of payment is also regulated by the licence. Condition 22 specifically provides that a dancer permitted to perform striptease shall be paid a minimum of £10.00 per dance “except for dancers on designated stage areas”. It was a matter of dispute between the parties whether this required the appellant to make the payment or whether it could come from the clients. However, even if it was the appellant, Mr Hendy QC, counsel for the claimant, accepts that it would not bind the appellant as a matter of contract.

There is a club agreement which the Employment Tribunal found that the claimant did not in fact receive. An appendix to the agreement sets out “full contract terms” and contains rights and obligations for both parties. The employment judge found that in practice matters were conducted consistently with these terms. Appended to the club agreement are the house rules which the claimant did not receive either. However, she did receive a booklet entitled “Welcome to Stringfellows: the Cabaret of Angels”. The employment judge noted that this contained much the same material as the house rules. In essence, the employment judge found that she was effectively bound by the terms of the contract, since the contract was performed in accordance with those terms, even though she had not received the formal document. In any event I think that there can be little doubt that she would have expected to be employed on the same terms as the other girls, and so the agreement would have become binding in that way.

The club agreement provides at point 8 of the principal terms that the dancer will be an independent contractor paid by the clients:

“Fees received by dancer: the dancer will be an independent contractor and as such all monies which she receives through Heavenly Money will belong to and be retained by her less the fees payable to the club. The dancer will be responsible for accounting for any VAT on money she receives and is to be responsible for her own tax and national insurance – see clause 9 of the contract.”

Paragraph 1.3 of the appendix states:

“This agreement is not for a fixed period but will apply in respect of each session for which the dancer books.”

Paragraph 1.4 provides:

“The company provides the forum at which the dancer is able to perform for the benefit of members of the public present in return for payment by them to her. These contract terms govern the relationship between the club and each of the dancers who perform at the club so as to preserve the name and integrity of the club and its reputation as a high class establishment of repute.”

The agreement emphasises that the company will be entitled to determine which other dancers may perform and it confirms that it guarantees no particular level of remuneration.

Clause 3.5 is as follows:

“The dancer’s right to attend at the club to provide his/her services to members of the public for any session that he/she has booked will be determinable by the company forthwith in the event of any breach by the dancer of his/her obligations under this agreement.”

The Tribunal extracted, presumably from the Ready Mixed Concrete case, three elements which it held must be present if the relationship is to constitute a contract of employment:

“1.

The contract must impose an obligation on a person to provide work personally.

2.

There must be mutuality of obligation between the employer and the employee; some legal obligation towards each other which is a continuing overriding arrangement.

3.

There must be some form of control over the employee by the employer.”

The Tribunal concluded that the first and third of these were present and that is not challenged. However, the employment judge found that there was no relevant mutuality of obligation, although quite what they meant by that is a matter of dispute. The key findings of the Tribunal were as follows:

“76.

I take account of the fact that mutuality of obligation is the irreducible minimum of obligation on each side required to satisfy that there is a contract of employment but should not be viewed on too narrow a basis and may not in every case consist of the obligation to provide and perform the work. ….

78.

…. The Respondent was not obliged to pay the Claimant anything.  The Respondent never paid the Claimant; rather the Claimant paid the Respondent Club to be able to dance at their venues.  The Claimant did often go to work and earn nothing because she had not earned sufficient Heavenly Money vouchers to cover the cost of the tip out fee, house fee fines and commission.  The tip out fee and house fee are clearly defined as a cost to the Claimant per night in the booklet she received after her audition.

79.

The essential element of the wage/work bargain is not present in this case.  When the Claimant came to dance at the Club she was obliged to follow rules and I have already found she was subject to a degree of control by the Respondent but I do not find that level of control amounted to mutual obligation.  There is no contractual obligation on the Respondent to provide work for which the Claimant would be paid.  The Claimant was not required to work a set number of nights per week but was required, if rostered to work, to work one Saturday and one Monday every two weeks in a month and one night a week at Angels.  It is not clear from the documents before me whether the Claimant in fact complied with those requirements, as for many weeks of the period that she worked at the Respondent she worked two or less days.  …

81.

I also find that there was no mutuality of obligation in the periods when the Claimant was not dancing at the Respondent Club.  Although she did need to notify the Claimant when she went on holiday so that they could arrange their rotas, the Claimant was never required to obtain permission for when she went on holiday and it is clear from her Dancer’s report print-out that the Claimant had periods when she was not dancing at the Respondent.  During those periods the Claimant was not required to attend work and the Respondent was not required to pay anything to the Claimant and the Claimant could work somewhere else during those periods.  Similarly the Claimant confirmed that when she was at Secrets there were often large gaps between when she attended work there. ….

83.

…. The Club never paid the Claimant; her earnings came from the Respondent’s customers.  How much the Claimant was paid depended on how much the customer wanted to pay, although the Club had to authorise the payment.  The Claimant made her own clothes but had to comply with a dress code.  The Claimant was not obliged to work.  If she put herself forward to go on the rota she could be fined for not turning up but she was not under an obligation to dance at the Club.  There was certainly no obligation on her to work for any period she was not on a rota.  The Respondent had no obligation to her to provide work or pay her for any work.  If she was on a rota the Club provided her a facility for her to dance in.  In return the Claimant had to comply with certain rules.  Some of those rules were necessary to enable the Respondent to maintain their licences.  The Claimant was not under an obligation to make herself available to dance.  She could be away four weeks if she wanted to be.  However that may result in her requiring undergoing another audition if she wanted to dance again at the Respondent’s clubs.

84.

I do not find that the Claimant during the 10 periods during which she was absent from work was covered by an umbrella of a contract of employment.  She was not bound by any mutual obligation with the Respondent during those periods.  She was not retained, not paid holiday pay or any other type of payment and could stay away for as long as she liked although she may be penalised by a fine if she did not return according to the date she had notified on the holiday form.

85.

Therefore since I find that there is no mutuality of obligations, which is an essential element of the contract of employment, I find that the Claimant was not an employee of the Respondent on a continuing basis or by separate contacts but was self-employed.

The overall picture

86.

Since I have found that one of the core elements is missing it is not necessary for me to look at the overall picture.  However, I do note that the Claimant was not paid by the Respondent but was paid by the customer, that she had a degree of financial risk (sometimes incurring a loss) that she provided her own equipment did not receive sick pay or holiday pay or any other benefits.  All these factors are consistent with the Claimant being self-employed.”

Mr Hendy QC submitted to the EAT, as he has before us, that there were essentially four fundamental errors in the Tribunal’s analysis. The first was that the Tribunal had erroneously concluded that there was no contract of employment. This followed from its finding that there was no mutuality of obligation. This was a basic error which tainted its whole analysis.

The second was that the Tribunal had wrongly found that there was no obligation on the appellant to provide work. This was not a sustainable conclusion; it was inconceivable that the appellant could provide her with no opportunity to dance and earn money.

Third, again contrary to the conclusion of the Tribunal, the appellant plainly was under an obligation to pay wages. The fact that the clients were the source of funds was immaterial.

Fourth, the Tribunal failed properly to analyse the relationship during the period between rotas. The obligation to turn up to Thursday meetings was of itself sufficient to create a continuing contractual obligation compelling the inference that there was an umbrella contract in place. Overall, the dancer was plainly integrated into the business of the club which made profit from the presence of clients. It was wholly unrealistic for the Employment Tribunal to have found that the appellant merely provided her with premises where she could exploit her skills.

HH Judge McMullen QC essentially accepted the submissions of Mr Hendy. He found that the Tribunal had held that there was no contract. This was a plain error, entirely at odds with the evidence, and it justified the EAT analysing the matter afresh. Moreover, the Tribunal had erred in concluding that there was no “wage-work bargain” on the facts of this case. Judge McMullen QC observed that the wage work bargain was not the only form which mutual obligations could take within the employment relationship:

“These days, it is not uncommon to find a person agreeing to work for no pay to gain work or to attend for the mere opportunity of being given work for which remuneration would be available.  The wage/work bargain would be satisfied if Ms Quashie agreed to dance in exchange for accommodation, for free meals, for fees paid directly to her university, or even for payment of 1p a night. She could make the bargain to dance to the Respondent’s tune if the Respondent agreed to let her be seen at the club so as to enhance her reputation, or to keep her hand in, or even just to maintain networking in a congenial workplace. ”

The EAT also held, in a finding critical to its conclusion, that contrary to the view of the Employment Tribunal, the appellant was under an obligation to pay the claimant. The fact that the clients provided the source of the pay was irrelevant:

“   I accept Mr Hendy’s deconstruction of the four points that led the Judge to conclude that there was no mutuality.  There plainly was an obligation to pay the Claimant.  That it came about as a result of the Claimant obtaining vouchers from a customer is simply an expression of how business works when collection of moneys is in the hands of an employee of an employer.  The fact that her pay came indirectly through vouchers from the customers is not material: see Cormie. An insurance collector who is paid by an insurer out of the premia he collects on the doorsteps of customers, a bartender paid out of the till from takings on the night, is in reality paid by the insurer or bar-owner. Employment status is not decided by reference to the source, or the route, of the payment. Although occasionally cash was given to the Claimant, the vast majority of her earnings was distilled through the voucher system and the filtering out of the Respondent’s commission and other payments, to the house mum, the DJ and so on.  The Respondent was obliged to pay the Claimant by virtue of the Westminster City Council licence at least £10 for each dance and was obliged to redeem the vouchers less the agreed deductions.  There is nothing inconsistent with the wage/work bargain in a requirement that wages will not be paid unless a certain performance, whether by volume produced or time or quality, is achieved.”

The EAT’s conclusion on these findings, in part relying on my observations in paragraph 14 of the Stephenson case reproduced above, was that the only proper conclusion from an assessment of the evidence was that when she was on duty on any particular night, she was subject to a contract of employment (para 55):

“On each night she attended the Claimant was obliged to work as directed by the management.  If she did not provide the free dances or other duties, she could be fined.  I infer from the findings that if the Claimant were directed to a customer, she could not refuse.  It seems to me that mere attendance on the night is pursuant to a requirement that she work; that is, that she turn up and stay throughout the night shift on pain of fine or deduction.  She takes the risk that there will be no remunerative work, but she is willing to accept that on the basis that she is available for it, and indeed she accepts the obligation to do free dances.  All of those conclusions point ineluctably towards a finding that on the night the Claimant was an employee.”

It is fair to say that the EAT also relied on the terms of the licence to support its analysis that the appellant was obliged to pay a wage, but that is not now relied on as a source of any contractual obligation.

The EAT went on to conclude that even in the gaps when there was no rota in place, there were continuing obligations in existence, if only by reason of the fact that whilst the relationship continued the claimant had an obligation to turn up every Thursday for a meeting with management and was at risk of a fine if she failed to do so. Accordingly, there was an umbrella contract. Even if that was wrong, the EAT held that section 212 would bridge any gaps in continuity during periods when there was no contract (an issue not argued before the Employment Tribunal).

The basic submission of Mr Linden QC, counsel for the appellant, is that the Tribunal reached findings of fact which it was entitled to reach; and that the EAT only reached the conclusion it did by failing to be loyal to those findings.

Mr Linden submitted that the EAT was wrong to conclude that the Employment Tribunal had found that there was no contract. That was a misreading of their decision. The Tribunal was in fact using the concept of “mutuality of obligation” in two distinct ways. First, in paragraphs 81 and 84 when the Tribunal is considering whether there was a contract in place in the periods when she was not working or on the rota, it means that there are no obligations of any kind in place and therefore no contract in existence. However, he submits that in paragraphs 78-79 the concept is used in a different way. The Tribunal was focusing on the nature of the obligations and saying that there were no mutual obligations of a kind which fixed the contract into the employment sphere. It was never the appellant’s case that there was no contract even when the dancer was working, merely no contract of employment; and the Tribunal was not making the error of concluding that there was no contract at all. He observed that there are passages in the judgment which clearly assume the presence of some contract.

He further submitted that the finding that the employer was not obliged to pay any remuneration to the claimant for the work she did was entirely consistent with the evidence before the Tribunal, and indeed was stated to be the position in the contract. The EAT was not entitled to interfere with that finding. The lack of any such obligation was inconsistent with the notion of the wage work bargain which lies at the heart of the contract of employment. The only proper inference on the facts was that there was no contract of service in existence.

He also argued that the Tribunal was entitled to find that there was no duty on the appellant to provide the opportunity to dance even when she was present at the club, and that there were no continuing obligations of the kind necessary to establish an umbrella contract, in existence between rotas. This latter finding meant that even if the claimant was an employee, she could not establish the necessary qualifying period of continuous employment to pursue her case.

I accept that the decision of the Employment Tribunal does somewhat confusingly use the concept of mutual obligations in two rather distinct senses, as Mr Linden suggested. Sometimes it means that there are no obligations of any kind, and sometimes it means there were no obligations of the kind necessary to establish a contract of employment. However, I am satisfied that on a fair reading of its decision as a whole, it was not saying that there was never any contract in place at all.

There plainly were mutual obligations of some kind in place when the claimant was actually working, and the Tribunal’s judgment at various points refers expressly to the existence of a contract. I will give some examples. The employment judge referred to the club agreement “which summarises … the principal terms of the agreement with the dancer”; she identified “terms of the contract”; she refers to what happened “after her contract was terminated”; she analysed the question whether she could work elsewhere “while she had a contract with the respondent”; and she expressly stated that when deciding whether the claimant was an employee “I first looked at the contractual documents.” Finally she observed that the club had to provide a safe place of work but added “that would have been required in any contractual relationship.”

In view of these and other references to the relationship being contractual, I do not think one should attribute to the employment judge the elementary error of concluding that this relationship was not contractual at all.

The critical question was as to whether the nature of those contractual obligations. Were they such as to render it a contract of employment? To use the language of McKenna J, were the provisions of the contract consistent with it being a contract of service? In my view, the most important finding in that regard was the Tribunal’s inference from the evidence that the employer was under no obligation to pay the dancer anything at all. The principal evidence for that was that she negotiated her own fees with the clients, took the risk that on any particular night she would be out of pocket and received back from the employer only monies received from clients (whether by way of cash or Heavenly Money) after deductions.

In my judgment, this was an inference which the Tribunal properly made on that evidence. It could not be said to be perverse and the EAT was not, with respect, entitled to conclude that the arrangement for payment was no more than the mechanism whereby the club discharged its obligation to pay the dancer. Even if the EAT was correct to find that the Tribunal had wrongly concluded that there was no contract at all in existence, that would not in my view have justified it in opening up all the Tribunal’s findings and substituting its own analysis of the evidence.

In so far as the EAT was concluding that the only proper inference from the evidence was that the employer was contractually bound to pay wages, I strongly disagree. I would accept, as the EAT found, that in some cases waiters or waitresses may be employed under a contract of service notwithstanding that they are paid at least substantially from the tips left by the customers. As Cozens-Hardy MR observed in Penn v Spiers and Pond Ltd [1908] 1 KB 766, “… there are many classes of employee whose remuneration is derived largely from strangers”, citing hotel porters. Each case turns on the particular arrangements under which the contract is made and performed. But in my judgment, it is impossible to say that the only legitimate inference on the facts was that the club was paying the dancers.

There is nothing inherently implausible in the finding of the Tribunal that the club was obliged to pay nothing. Indeed, the dancer herself understood the arrangement in that way at least when first engaged. It is what the terms of the agreement say, and the judge found that it was her understanding. It was not suggested that the agreement was a sham or anything of that kind. Indeed, the Tribunal’s analysis entirely accords with the decision of the High Court in Spearmint Rhino Ventures (UK) Limited v Revenue and Customs Commissioners [2007] STC 1252. In that case Mann J held that a club operating in a very similar way to the appellant here was not liable to VAT. The Revenue contended that the club was providing the services of dancers to clients but the judge disagreed. He held that dancers were supplying their own services to the clients who paid them directly. The payments were made to the dancers in their own right and not as agents of the club.

Having made that finding, the Employment Tribunal saw an analogy, in my view justifiably, between this case and the position of the golf caddie in Cheng Yuen v Royal Hong Kong Golf Club [1998] ICR 131. In that case the club allowed the caddie to come onto the premises provided he complied with certain rules relating to such matters as dress and behaviour. The caddie would offer to caddie for an individual golfer who was ultimately responsible for the payment of his caddying fees, although the arrangement was that the club would make the payment and recoup it from the golfer. The High Court in Hong Kong considered that it was artificial to regard the club as an agent collecting fees for the caddie, but the Privy Council disagreed, holding that it was a perfectly sensible arrangement which accurately encapsulated the true nature of the relationship. The Judicial Committee held that in the circumstances the caddie was not an employee of the club. Lord Slynn said this (p.138):

“It is to their Lordships clear that the only reasonable view of the facts is that the arrangements between the club and the claimant went no further than to amount to a licence by the club to permit the claimant to offer himself as a caddie for individual golfers on certain terms dictated by the administrative convenience of the club and its members. Thus he was required to wear a uniform, to behave well on the club premises and to charge a fee per round at a scale uniform for all caddies which was fixed and collected by the club and paid to the caddies. The club was not, however, obliged to give him work or to pay him other than the amount owed by the individual golfer for whom he caddied. Conversely he was not obliged to work for the club and he had no obligation to the club to attend in order to act as a caddie for golfers playing on the club premises. He did not receive any of the sickness, pension or other benefits enjoyed by employees of the club nor indeed any pay over and above that resulting from particular rounds of golf for which the golfer was debited by the club even if as a matter of machinery the club handed the fee to the claimant.”

I agree with Mr Linden that this is essentially the position here, given the findings of the employment judge. The club did not employ the dancers to dance; rather she paid them to be provided with an opportunity to earn money by dancing for the clients. The fact that the appellant also derived profits from selling food and drink to the clients does not alter that fact. That is not to say that Cheng provides a complete analogy; I accept Mr Hendy’s submission that the relationship of the claimant to the club is more integrated than the caddie with the golf club. It is not simply a licence to work on the premises. But in its essence the tripartite relationship is similar.

The fact that the dancer took the economic risk is also a very powerful pointer against the contract being a contract of employment. Indeed, it is the basis of the economic reality test, described above. It is not necessary to go so far as to accept the submission of Mr Linden that absent an obligation on the employer to pay a wage (or to secure or arrange for its payment by a third party, as in Cormie v Robert Rodger (UKEATS/0036/11), the relationship can never as a matter of law constitute a contract of employment. But it would, I think, be an unusual case where a contract of service is found to exist when the worker takes the economic risk and is paid exclusively by third parties. On any view, the Tribunal was entitled to find that the lack of any obligation to pay did preclude the establishment of such a contract here. Indeed, in the Trusthouse Forte case the waiter was found to be engaged as an independent contractor even though in that case he was paid remuneration by the employer.

The Employment Tribunal’s conclusion was strongly reinforced by the fact that the terms of the contract involved the dancer accepting that she was self employed, and she conducted her affairs on that basis, paying her own tax. In addition, and again consistently with that classification, she did not receive sick pay or holiday pay. It is trite law that the parties cannot by agreement fix the status of their relationship: that is an objective matter to be determined by an assessment of all the relevant facts. But it is legitimate for a court to have regard to the way in which the parties have chosen to categorise the relationship, and in a case where the position is uncertain, it can be decisive, as Lord Denning recognised in Massey v Crown Life Insurance [1978] 2 All ER 576, 578. To similar effect is the following observations of Lord Justice Ralph Gibson in Calder v H Kitson Vickers Ltd [1988] ICR 232,251:

“the fact that the parties honestly intend that between themselves the contract should be a contract for services and not a contract of service is not conclusive, but it is a relevant fact, and .. it may afford strong evidence that that is their real relationship.”

It follows, in my judgment, that the fact that the parties here intended that the dancer should have self-employed status reinforces the conclusion of the employment judge in this case.

I do accept that there were some mutual obligations in play when the dancer was at work; and indeed she had a duty, at least once on the rota, to work certain days. I also accept that it can be readily implied that the appellant was under some obligation to allow her to dance when she was at work. It surely could not have been understood that she would have to pay the tip out fee and the house fee and yet be prevented from dancing at all. I am not in fact sure that the judge was saying otherwise; she said at one point that the appellant was not obliged to provide work for which the claimant would be paid, which is a different thing from saying that there was no duty to provide work at all. In any event, in view of the clear finding concerning the obligation to pay, any such error would not in my opinion be material. The inevitable conclusion in the light of its analysis is, in my view, that the claimant was not an employee.

It follows that, in my judgment, the Employment Tribunal was fully entitled to conclude that there was no relationship of employer and employee constituted by this arrangement. Although I accept that the reasoning of the Tribunal with respect to mutuality of obligations is not entirely satisfactory, reading the judgment as a whole I think it is plain why it reached the decision it did, and that was a conclusion which was wholly sustainable and consistent with its findings of fact.

The analysis of the EAT was premised on the assumption that the mutual obligations of work and wages were established. Thereafter, the only issue was whether a degree of control was sufficient to constitute a contract of employment. Assuming the premise to be correct, I would agree that the EAT was fully entitled to reach this conclusion. Indeed, any other conclusion might then have been perverse. But in my judgment the premise was not open to the EAT in view of the Tribunal’s findings.

Moreover, in so far as the EAT was saying that the result would be the same even if the employer was merely providing the dancer with an opportunity to present her skills - which is essentially what the Tribunal did find - I respectfully disagree. Those mutual obligations would constitute a contract but they certainly would not compel the conclusion that it was a contract of employment. The analogy with the caddie was in my view an apt one.

For these reasons I would uphold the appeal. The Tribunal’s conclusion that there was no contract of employment in place should be restored. In the circumstances, it is not necessary to consider whether if each engagement had constituted a separate contract of employment there was nonetheless sufficient continuity of employment between engagements to constitute the necessary qualification period for claiming unfair dismissal.

I would uphold the appeal and restore the finding of the Tribunal that the claimant was not employed under a contract of employment. It follows that the Tribunal has no jurisdiction to hear her claim of unfair dismissal.

I agree.

I also agree.