RELATIONSHIP BETWEEN AGENCY AND WORKER >>
TIMING OF STATUTORY HOLIDAYS >>
UPLIFTING COMPENSATION >>
Two cases are particularly worth mentioning in this column, not only because of their direct interest on, respectively, the relationship between an agency worker and the agency, and the timing of statutory holidays, but also because they both raise an incidental issue that has been coming to the fore recently—namely when a tribunal or court is able to ignore written documentation on the ground that it is, at best, unrealistic or, at worst, a “sham”. The third case considered here also concerns a tribunal’s discretion, but in the much more precise context of how it is to operate the provisions on the “uplift” of compensation in relation to the statutory procedures—are there rules, or is it a discretionary free-for-all?
AGENCY AND WORKER—A SHOT ACROSS THE BOWS
Although most recent case law in this area has been on the vexed question of whether or not a longstanding agency worker can transmute into the direct employee of the end user, it must always be remembered that the relationship legally with the agency itself has never been simple. Kalwak and others v Consistent Group Ltd and another [2007] IRLR 560, [2007] All ER (D) 319 (May) is a useful reminder of this, on particularly strong facts.
With regard to the agency, there can of course be cases where an employment relationship is deliberately created with the worker; short of that, however, if the documentation directly denies any such relationship, the agency merely places the worker with the client/end-user, and then has no control over the work that is done—a tribunal or court will not normally find an implied contract of employment with the agency. However, Consistent Group was far from normal:
- The agency recruited Polish staff (for hotels and food processing plants) in Poland, organised their travel, accommodated them in the UK (for full rent) and organised their work with the agency’s clients. Many of the individuals had limited English.
- The documentation given to the individuals was, however, described as a “self-employed sub-contractor’s contract for services” (note—just falling short of adding “…ps: definitely not a contract of employment”). It denied any obligation to provide a set amount of work, denied any terms relating to sickness, holidays and pensions, contained a substitution clause (requiring provision of a competent substitute if he cannot perform the work personally) and allowed the agency to prevent the individual working for someone else if there was a conflict with working for the agency.
An exceptional case
When certain individuals were dismissed and brought tribunal proceedings—for being dismissed for seeking to join a trade union—the question arose as to their employment status. The tribunal found that they were employees of the agency and the Employment Appeal Tribunal (EAT) (President Elias) agreed. On the question of the obligation to work, it was held that the restricted right to work elsewhere and the provision of accommodation meant that on the facts there was sufficient mutuality of obligations, even if (at least theoretically) there could be workless periods. The economic dependency on the agency here was so great that they were certainly “workers” whether actually working or not and, again on these particular facts, there was sufficient control by the agency to hold that they also qualified as employees. Contractual terms pointing in the opposite direction bore no resemblance to reality. This was therefore “an exceptional case where the nature of the relationship justified a finding that there was a contract of employment between the agency and the workers” (para 82).
Substitution clause—reality or sham?
The judgment is also of interest for its treatment of the substitution clause. These have caused problems for claimants in the past. On the facts, this clause came within the category that is still consistent with employment (applying only where the individual cannot work, not allowing him merely to choose not to work). However, the judgment goes further and counsels tribunals to be alive to the concern that:
“Armies of lawyers will simply put substitution clauses, or clauses denying any obligation to accept or provide work, into employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship.”
This emphasis on “not reflecting reality” may be relevant for claimants’ advisers. The leading Court of Appeal authority (Express & Echo v Tanton [1999] IRLR 367, [1999] All ER (D) 256) envisages a tribunal disapplying a substitution clause if it is a “sham”, but this is in itself a difficult test for a claimant because a strict view of it requires proof of a deliberate attempt to evade legal responsibilities, almost an element of mens rea (see Real Time Engineering Ltd v Callaghan [2006] UKEAT/516/05). Here, Elias P quotes from Tanton but construes it more as a “departure from reality” test, which may be easier for a claimant to satisfy—and note the possible parallel with the not dissimilar approach of the EAT under Judge Richardson in MOD v Kettle [2007] UKEAT/308/06 where contractual documentation which bore no resemblance to the relationship actually entered into was disregarded. The proper approach is said to be as follows:
“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.”
TIMING OF ANNUAL HOLIDAY
Sumsion v BBC (Scotland) [2007] IRLR 678, was a test case for complaints by temporary workers for the BBC. The claimant had been taken on by the corporation to work on a particular programme from May to October 2003. The contract provided for him to be available six days per week.
The holiday provision stated that he was entitled to six days, which were to be taken (in effect) on every other Saturday. His request to take them as a block was refused and he later brought tribunal proceedings to establish that the BBC was in breach of the Working Time Regulations (SI 1998/1833). At issue was reg 15(2) which provides that an employer may by notice require the worker to take leave “on particular days”. The tribunal held that the employer’s actions were lawful and the EAT agreed.
In spite of arguments for the claimant that to legitimise this arrangement would negate the intent of the annual holiday provisions, for example by allowing the employer to stipulate as “holiday” a day on which it was never intended that the individual should work, the EAT took essentially a textual approach to reg 15(2) and held that the BBC came within it. Lady Smith did add that there might be a case where the employer, in nominating a Saturday, was guilty of perpetrating a “sham”, not giving “real” holiday, in which case the result may be different.
Although this caveat is welcome, it should be remembered that, as seen above, the onus on an individual to show a “sham” may be a high one. One question must be whether or not in the future in such a case a tribunal could be persuaded to apply the arguably lower hurdle of a “not reflecting reality” test. However, one caveat seems to be that, whichever test is applied, the mere fact that a clause has not in practice operated in a particular way will not be enough of itself to ignore it; the emphasis seems to be on its nature at the outset of employment.
Uplifts under the statutory procedures
In the “twilight zone” of the statutory procedures, one question that continues to exercise the mind is how the 10% to 50% uplift—or decrease—in compensation is to operate. Is it to be left entirely to tribunals sitting under Denningesque palm trees, or are there to be a few rules or at least guidelines? Both of these recent EAT decisions (under respectively Judge Burke and Lady Smith) were primarily concerned with other issues, but each raised incidental points on the uplift which could be of general importance.
In Cex Ltd v Lewis [2007] UKEAT/13/07, [2007] All ER (D) 167 (Aug) where the EAT upheld a tribunal decision to make the minimum uplift of 10%, a claimant’s arguments on perversity were dealt with by stressing the breadth of the tribunal’s discretion on fixing the uplift. One specific point was that—certainly in cases arising during the early stages of the procedures—a tribunal is entitled if it so desires to take into account a party’s ignorance of the law:
“In considering whether it is just and equitable to adjust an award beyond the basic 10% or not it is, in our judgment, open to a tribunal to regard the culpability of the party who has failed to comply with the statutorily required procedural step as of relevance and, in assessing culpability differentiate between the case of a party who has deliberately flouted statutory requirements of which that party was aware and the case of a party which has fallen into default through ignorance of those requirements rather than deliberate disregard.
An employer who is unaware of those requirements will not escape the consequences of his ignorance; the dismissal will be held to have been automatically unfair; and, unless he can bring himself within section 31(4), he will have to suffer an increase of at least 10% in the award to the employee. While we accept the general principle that employers should inform themselves of the relevant law, it would, in our judgment, be wrong in principle to lay down a rule that no distinction could ever be made between an employer who errs out of ignorance and an employer who decides not to comply with the requirements of the law of which he is fully aware.” (para 50)
In Aptuit Ltd v Kennedy [2007] UKEATS/57/06, where the EAT quashed a 40% uplift, Lady Smith made the point that the obligation is to make a 10% increase/decrease, with anything above being entirely discretionary, ie there is no obligation to make an increase/decrease of between 10% and 50%. She then went on to point out that an uplift (or, presumably, decrease) must be made because of the failure to comply with the relevant procedure, and must not take into account other matters, even those relating to fairness generally:
“[T]he tribunal took irrelevant matters into account here in respect that they were, apparently, influenced in arriving at 40% by the fact that the failures (ie not just the failure to complete the statutory procedure but the other failures identified by them) were “serious”, that the respondents were a large organisation, that there appeared to have been “no consultation whatsoever” and that they had treated this “longstanding” employee in a “shoddy” manner. These matters should not have influenced the decision to uplift at all since they did not relate to any failure to complete the statutory procedure.”
One other point of interest made by Lady Smith is that there is no required form for informing the employee of the right of appeal after a dismissal meeting; it can be oral or written and, if written, need not be in any set format. The only question is whether or not the right has been communicated. Given that the smart money now seems to be on April 2009 for the final disappearance of the procedures, we are going to have to take heed of continuing explanatory case law such as this for some time to come.
