EAT deliver three judgements

24 Sep 2012

An old adage has it that things come in threes: 3 blind mice: 3 French hens: 3 Billy Goats Gruff; and 3 wise men.  And so it was in the Employment Appeal Tribunal (EAT) during six days at the end of last month when it delivered three judgements about employment status.

HMG summarily terminated the agreement and Dr Westwood claimed accrued holiday pay and unlawful deductions from his earnings.

The Employment Tribunal found there was no mutuality of obligation between Dr Westwood and HMG so the issue was whether he was a worker within the definition of S. 230(3)(b) ERA 1996.  In particular, whether Dr Westwood undertook:

"… 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 professional business or business undertaking carried on by the individual."

HMG said Dr Westwood was not a worker because he was engaged in business on his own account, he dealt with HMG in the course of that business and HMG was, therefore, his client.  The Tribunal disagreed and found that Dr Westwood was a worker because he was not a client or customer of HMG; his patients were clients of HMG and his fee was a percentage of the amount they paid HMG.

The EAT agreed with the Tribunal, saying that HMG’s arguments “effectively emasculate the words of the statute”.  The EAT also approved the “integration” test under which it found that Dr Westwood was an integral part of HMG’s business when providing hair restoration services.

The case is The Hospital Medical Group Ltd v Westwood.

Mutuality of obligation

In Drake v Ipsos Mori UK Ltd the EAT considered mutuality of obligation under a succession of individual assignments.

Clifford Drake worked as a freelance market research interviewer for Ipsos Mori.  He was engaged on an assignment by assignment basis, under which he was not obliged to accept work and there was no obligation on Ipsos Mori to offer work. 

There was no written contract, but Ipsos Mori published guides which said that Mr Drake was a worker, not an employee.  The guides also said that when a job has been accepted, there was a verbal contract and the interviewer was expected to complete the job within a deadline and to survey specifications.  However, in its oral evidence, Ipsos Mori added a gloss.  It said that even after accepting work, interviewers could return jobs and did so from time to time.

The question was whether each assignment was a contract of employment.  If so, Mr Drake had sufficient continuity of employment to claim unfair dismissal. 

The Employment Tribunal said there was no mutuality of obligation, either from one assignment to another or within an assignment.  The main reason was its finding that individual assignments could be terminated at will.  The Tribunal therefore decided that Mr Drake was not employed.

The Employment Appeal Tribunal disagreed.  It said there was a contract in place with the requisite mutuality of obligation when Mr Drake was undertaking an assignment.  That the assignment could be ended at will was not relevant.  The EAT then considered whether mutuality was relevant to the question of whether the contract was a contract of employment (as opposed to a contract for service or anything else).  It acknowledged that mutuality does come into the picture but it preferred to put the emphasis on the nature of the wage-work bargain, leaving mutuality to determine the existence, or not, of a contract.

Umbrella Contracts

If Westwood and Drake managed to avoid opening up the subject of umbrella contracts and continuity of employment, then Pulse Healthcare Limited and Carewatch Care Services Ltd and 6 others jumped into these murky waters with both feet.

Carewatch employed five Carers who provided a 24 hour critical care package for a lady with severe physical disabilities.  Carewatch provided this service under a contract with a PCT.  The Carers were retained on Zero Hours Contracts which dutifully recorded that Carewatch was under no obligation to offer work and reserved the right to reduce hours whenever necessary. 

In fact, the evidence showed the Carers worked a regular pattern of agreed hours for at least the last two years of their engagement.  Carewatch’s Operations Manager even conceded in her evidence that, in her opinion the Carers were employed.

The PCT re-tendered the contract and awarded it to Pulse.  The Carers said they were employed by Carewatch and therefore liable to transfer under TUPE.  Pulse said no.  It raised several arguments including that the Carers were not employed because there was no mutuality of obligation; the Zero Hours Contract rendered it impossible for there to be a global or umbrella contract of employment.

On the facts, the Tribunal found that the contract documents did not reflect the true agreement between Carewatch and the Carers. They were employed under umbrella contracts of employment to provide a critical care package. The Employment Appeal Tribunal agreed, describing the care package as being of the most challenging kind and that:

 "…it is fanciful to suppose that Carewatch relied on ad hoc arrangements in the provision of such a package."

The EAT also noted with approval a 2007 judgement expressing this sentiment:

 "The concern to which Tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship…"

Our view:

Cases in this area are always particularly fact sensitive.  Nevertheless, we are seeing more issues concerning atypical working arrangements because they have become popular ways of achieving greater flexibility and reducing wage costs.

The last part of the definition of a worker in S. 230(3)(b) ERA often causes difficulty because it introduces a negative.  Westwood is helpful for clarifying that there is indeed a third, albeit negative, element and for the robust way in which the EAT knocked it down.  It also highlighted the importance of the integration test, which should be considered in many of these cases.

Drake is a good guide to the way in which one may use the concept of mutuality.  It is also a lesson in how easy it is to glide from a casual working arrangement into a full employment legal relationship, which then comes back to haunt the unwary.

Pulse Healthcare is a fine example of the duck test; if it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck.

The so-called Zero Hours Contract was a duck’s breakfast.  The heading “Zero Hour Contract Agreement” was followed by a sub-heading “Principle Statement of Terms of Employment” then records terms “….as required by Section 1 ERA 1996”.  It even provided for continuity of employment, annual leave, sick pay and pensions.

We often see contracts that have been copied from an obsolete precedent book or agreements that have been cut and pasted so many times they have lost their sense.  Pulse is a timely reminder that the law is a complicated beast and although we can often do the impossible, we can struggle with miracles.