Mutuality of Obligation in UK Law

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.

Whatever other developments this branch of the law may have seen over the years, mutuality of obligation and the requirement of control on the part of the potential employer are the irreducible minimum for the existence of a contract of employment, see Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612, 623 per Stephenson LJ approved in Carmichael v National Power Plc [1999] 1 WLR 2042, 2047 per Lord Irvine of Lairg LC.

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.

There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of services. I doubt if it can be reduced any lower than in the sentences I have just quoted and I have doubted whether even that minimum can be discerned to be present in the facts as found by the industrial tribunal, particularly in paragraph 8 of its decision, and what the appeal tribunal said about it and counsel's interpretation of it. Mr. Justice Tudor Evans said:

It is said nonetheless that there is one sine qua non which can firmly be identified as an essential of the existence of a contract of service and that is that there must be mutual obligations on the employer to provide work for the employee and on the employee to perform work for the employer. If such mutuality is not present, then either there is no contract at all or whatever contract there is must be a contract for services or something else, but not a contract of service.

The documents contained no provisions governing when, how, or with what frequency guide work would be offered; there were no provisions for notice of termination on either side; the sickness, holiday and pension arrangements for regular staff did not apply; nor did the grievance and disciplinary procedures. Significantly, as Kennedy L.J. in his dissenting judgment with which I agree emphasised, in 1994, for example, Mrs. Carmichael was not available for work on 17 occasions nor Mrs. Leese on 8.

The evidence of a party as to what terms he understood to have been agreed is some evidence tending to show that those terms, in an objective sense, were agreed. Of course the tribunal may reject such evidence and conclude that the party misunderstood the effect of what was being said and done. But when both parties are agreed about what they understood their mutual obligations (or lack of them) to be, it is a strong thing to exclude their evidence from consideration.