Construction Industry Training Board v Labour Force Ltd

[1970] 3 All ER 220

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(Judgment by: Cooke J)

Between: Construction Industry Training Board
And: Labour Force Ltd

Court:

Judges:
Cooke JFisher J
Lord Parker CJ

Subject References:
Master and servant
Contract of service
Incidents of contract
Agreement by one with another to provide services to a third
Whether contract of service or contract sui generis

Case References:
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance - [1968] 1 All ER 433; [1968] 2 QB 497; [1968] 2 WLR 775, Digest Supp

Judgment date: 14 July 1970

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Judgment by:
Cooke J

COOKE J delivered the first judgment at the invitation of Lord Parker CJ. This is an appeal by the Construction Industry Training Board from a decision of the Industrial Tribunal sitting in London. The board is an industrial training board established under the Industrial Training Act 1964. Section 4 of that Act empowers the Minister ^[F1] to make orders authorising an industrial training board to impose levies on employers in the industry with which the board is concerned. Pursuant to that Act, the Minister made the Industrial Training Levy (Construction Board) Order 1966 ^[F2] . Purporting to act under the powers conferred by that order, the board assessed Labour Force Ltd, the respondents, to a levy of £12,000 for what is called in the order the 'second levy period', ie the period beginning on 31 August 1966 and ending on 5 April 1967. From that assessment the respondents appealed to the Industrial Tribunal, which set aside the assessment. The appeal now before this court is an appeal by the board from that decision of the tribunal.

It is unnecessary for the purposes of this appeal to refer to the order in detail. Article 4(2) of the order provides that the amount of the levy, imposed in respect of a construction establishment for the second levy period, shall be equal to 1 per cent of the total emoluments of the persons employed by the employer at or from that establishment in the second base period, ie the period of 12 months beginning on 6 April 1965. 'Employer' is defined by art 2 of the order simply as meaning an employer in the construction industry. The same article provides that 'emoluments' mean all emoluments assessable to tax under Sch E (other than pensions), being emoluments from which tax under that Schedule is deductible. It is common ground in this appeal that as a result of that definition, the only emoluments on which the levy can be assessed are emoluments payable under a contract of service. It is the contention of the respondents that, during the second base period, the workmen who were employed under the arrangements, which I shall describe in a moment, were not employed by them, and in particular were not employed by them under contracts of service. Those contentions were upheld by the tribunal. The tribunal went on to hold that even if the board were entitled to make an assessment on the respondents, the evidence before the tribunal was insufficient to establish any figure in which the assessment should be made. Accordingly it set the assessment aside.

It is plain that the business in which the respondents were engaged during the second base period was that of suppliers of labour to the construction industry. That involved them in relationships with contractors in the construction industry on the one hand, and with workmen in the industry on the other. I deal first with their relationships with the contractors. Briefly the evidence came to this: contractors in need of workmen were encouraged to apply to the respondents stating their requirements in terms of numbers of men in particular trades, and to ask the respondents to supply those men for work at a named site. The nature of the scheme was described in a circular issued by the respondents to contractors. On receipt of an application from a contractor for a supply of workmen, the respondents would send to the contractor a document, which we have seen called 'confirmation of acceptance', stating the number of men to be supplied in each trade, and stating the rates and allowances payable by the contractor. Those rates and allowances were payable by the contractor to the respondents. On the back of the confirmation of acceptance were printed conditions, of which I need to refer to a few only. The first provides that supervision of all labour supplied by the respondents is entirely the employer's responsibility. The 'employer' in this context is the person whom I have referred to as the contractor. Condition 4 provides:

'4.

To terminate any man's hire it is required that three clear days' notice in writing is given, except in the event of misdemeanour, when the right to have the person or persons removed from the site forthwith applies. But on doing so we request that a written report, signed by a responsible person, is sent immediately to our office.'

Condition 7 provided that the respondents' week commenced on a Wednesday morning and terminated on a Tuesday evening. The respondents' office would contract the site by telephone each Wednesday morning and would obtain the times of the respondents' men. The contractors would be invoiced on this time. Condition 9 provides:

'All payments under the Holiday with Pay Scheme, National Insurance Stamps, P.A.Y.E., to be our responsibility and a certificate will be issued, at your request, certifying this fact.'

On Wednesday of each week the contractor notified the respondents of the times worked by the men during the week ending on the Tuesday. On the basis of this information the respondents rendered their invoice to the contractor and also made up pay packets for the men which were sent to the contractor and distributed by him on the Thursday.

To carry out these arrangements with contractors, the respondents built up a register of men who were willing to accept the work under such arrangements. An application to be entered on the register was made by the workmen on a form. Men on the register would inform the respondents of their availability for work, and from the men so available the respondents would choose men to send to a contractor to satisfy his requirements. We have before us a form which was used on the first occasion on which the respondents assigned a man to a job. The upper part of the form was retained by the respondents. On the front of the upper part of the form there were entered particulars of the reporting site and the pay and conditions. On the back of the upper part of the form was a declaration signed by the workman which read as follows:

'I [and the name and address are given] hereby certify that I am engaged by [the respondents] on a Sub-Contract Basis. I further declare that I shall be responsible for my own and any of my employees' P.A.Y.E. Income Tax Returns, National Insurance Contributions and Holiday with Pay payments or stamps.'

Pausing there, it appears clear on the evidence that in fact a person who was sent to work for a contractor under these arrangements was sent as an individual, and there was no question of his being sent as the employer of other men who were sent with him. The declaration goes on:

'I shall be paid on the basis of the terms set out below such money to be paid to me weekly.'

Then there is a reference to the amount of the payments, and confirmation that he has read and understood the terms and conditions of his employment. The lower part of the form was given to the workman. On the back of it were directions as to the site to which he was to report. On the front, under the heading 'Terms and Conditions of Employment', these provisions appear:

'You are engaged by [the respondents] under terms and conditions contained in the declaration and lodged in our office and your money is paid by us. Money is made up exactly on the hours reported to us by the site. In the event of dispute you must refer the matter to us. Your hourly payment is an inclusive flat rate for all Overtime, Travelling Time and Expenses, Site Conditions, Clothing Allowances, Wet Time, etc The week starts Wednesday and ends Tuesday evening. Your money will be sent to site either Thursday afternoon or Friday morning or you may collect from the office Thursday morning 10.0-12.0 a.m., providing you give 24 hours' notice.'

The workman was paid by the respondents at the rate agreed between him and them, and the profit of the respondents was derived from the difference between the sums which they paid to the workmen and the sums which they received from the contractor.

Against that background, I can turn to the findings of the tribunal. The tribunal dealt first with the question whether the contractor was the employer of the workman or had any contract with the workman. It came to the conclusion that there was no contract of any kind between the contractor and the workman. It is sufficient to say that in my judgment that conclusion was right. The tribunal next considered whether in its relations with the workman, the respondents were an employment agency. As to that, the tribunal said:

'There is similarity with the employment agency in that [the respondents] found work for persons wishing to work and found workmen for those with work to be done. But other than that there is not similarity. The contractor and the workman were not brought into contractual relationship for reasons already set out. When the workman agreed to work he entered into a contract with someone to do work and be paid for it. That person we think was Labour Force Ltd [ie the respondents]. After agreeing to accept work at the place and for the hours and for the pay suggested, a contract came about between the workman and [the respondents], that if he did the work [the respondents] would pay him. The full terms and nature of this contract will later be dealt with, but when it is found that the so-called agent is itself the principal in the contractual relationship, argument that there is only agency is we think wrong.'

In my judgment it is plain that when the workman agreed to work on a particular site at a particular rate of pay, he was agreeing so to do with the respondents as principals. That in my judgment is sufficient to dispose of the view that the respondents were merely acting for the workman as an employment agency. They were contracting with the workman as principals.

That brings me to the third question considered by the tribunal, namely whether the workmen were the respondents' employees under contracts of service or, as the tribunal put it, were self-employed persons who agreed with the respondents to do work for the contractors. As to the terms and circumstances of the contract between the workmen and the respondents, the tribunal made these findings, all in my judgment amply justified by the evidence:

(ii)

The workman contracted only with [the respondents].

(iii)

The workman was in the construction industry.

(iv)

[The respondents were] liable to pay the workman the agreed rate per hour for the hours worked and did so even when the contractors defaulted in payments to [them]. There was no overtime rate.

(v)

[The respondents] had no control over the workman, even as to the place of work which had to be accepted by the workman.

(vi)

The contractors had all control over the workman with regard to the work to be done and the manner of doing it.

(vii)

The contractor could end the work, even summarily for misconduct to him. [The respondents] could not put an end to the work by any express provision.

(viii)

[The respondents] under the agreement with the workman [were] not responsible for deduction of P.A.Y.E. tax, National Insurance Contributions or holiday with pay, payments or stamps, and did nothing in those regards.

(ix)

[The respondents] paid nothing when the workman was not working; [they] paid no sick pay and [they] paid no holiday pay.

(x)

There is no obligation on the workman to work only for [the respondents] or to work for [the respondents] at all unless he agreed to the work suggested.'

In approaching the question whether the workmen were employees of the respondents under contracts of service, the tribunal sought to apply the familiar tests which have been used to distinguish contracts of service from contracts for services. In that connection it is, I think, important to bear in mind that the sole question which the tribunal had to determine in this case was whether the contracts in question were contracts of service. If they were not, then it followed that the board must fail on a crucial point, and it mattered not whether the contracts in question were contracts for services or some third variety of contract which was neither a contract for services nor a contract of service. I will return to that hereafter.

Nevertheless, the tests which have been formulated for the purposes of distinguishing a contract for services from a contract of service are obviously of value in determining whether a particular contract is a contract of service, and I do not think that the approach adopted by the tribunal can be said to have been wrong. The tests which have been so formulated have been referred to in a number of recent cases, including Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance , a decision of MacKenna J. These tests are now so familiar that in my judgment it is unnecessary to set them out in detail. I merely observe this. First, that no list of tests which has been formulated is exhaustive, and that the weight to be attached to particular criteria varies from case to case. Secondly, although the extent of the control which the alleged employer is entitled to exercise over the work is by no means a decisive criterion of universal application, it is likely in many cases to be a factor of importance. On the one hand, the tribunal pointed out that an hourly paid workman has no opportunity to deploy managing skills or make money by so doing. On the other hand, the tribunal took account of the undeniable fact that in the building industry there are many self-employed persons. I think that in the circumstances of this case, the tribunal was entitled to take account of that. The tribunal was asked to consider the nature of the contracts entered into by a large and indeterminate group of workmen in the industry. It was entitled, as it seems to me, to use its own knowledge of the undoubted fact that many of the workmen in the industry are self-employed. The tribunal referred to the declaration signed by the workman in which he purports to certify that he is employed on a subcontract basis. Quite rightly, in my judgment, the tribunal held that this did not preclude it from enquiring into the true nature of the contractual relationship. On the other hand, it pointed out that the declaration contains terms which are undoubtedly terms of the contract, eg those in regard to times and amounts of payments. It was, in my judgment, entitled to have regard to that, and it was also entitled to have regard to the workman's promise, because that is what it amounted to, to be responsible for his own income tax returns, national insurance contributions and holiday with pay payments. I agree with the tribunal when it said:

'It may be that if the contract in law is one of service, the term will not protect the employer who by statute is liable as employer, but that the parties did contract to bring about the position that employers' obligations of this type did not lie on [the respondents] cannot be ignored.'

In my view, the fact that the parties have in express terms sought to make a contract of a particular kind, while it does not bind the courts to hold that they have succeeded, is a factor which can be considered in determining the true nature of the contract. The tribunal expressed their conclusions in these terms:

'Considering all the facts set out, and mainly because there was no control lying with [the respondents] at all, no continuity of contracts, no ordinary responsibility of an employer at all such as for sick pay or holidays, no bar on the workman working for others when he liked, we think that the proper decision is that the contracts entered into between [the respondents] and the workman, from time to time as he worked, were contracts to provide services to agreed persons in return for an hourly payment for hours worked paid by [the respondents]. We do not consider that [the respondents were] the employer of these men. That means that in so far as [the respondents were] assessed on moneys paid to the workmen who worked for contractors, the assessment was not justified.'

In my judgment, in reaching that conclusion the tribunal applied proper tests in a proper way. I can see no ground on which we could hold that the conclusion was wrong in law. In particular, in the circumstances of this case I think that the tribunal was right in attaching considerable weight to the fact that the respondents had no control at all over the work. In this case I think that that particular feature was a strong indication that the contracts were not contracts of service. I think, however, that it is at any rate possible that the tribunal might have reached the same result in a simpler way. The sole question before the tribunal on this part of the case was, as I have said, whether the contracts were contracts of service. These contracts were contracts whereby the workman contracted with the respondents to do work for a third party, the contractor. It was not a question of the respondents' lending the services of one of their own employees to the contractor, because the workman never contracted to render services to the respondents at all. I think that there is much to be said for the view that, where A contracts with B to render services exclusively to C, the contract is not a contract for services, but a contract sui generis, a different type of contract from either of the familiar two. Had it been necessary, I should have been prepared to uphold the decision of the tribunal on that ground.

As it is, I prefer, for my part, to rest my view on the ground which I first stated, which is that in my judgment the tribunal applied proper tests in a proper way, and that there is no ground for saying that it misdirected itself in law. It follows that in my view the assessment made by the board was made on a wrong basis, and having been so made, in my judgment it cannot stand but should be set aside. In those circumstances it does not, as it seems to me, become necessary to consider the question whether, had the assessment been rightly made, it was made in the proper amount.

I would dismiss this appeal.