Autoclenz Ltd v Belcher and Others

Heard on 11 and 12 May 2011

LORD CLARKE, with whomLord Hope, Lord Walker, Lord CollinsandLord Wilsonagree

The appellant ("Autoclenz") provides car-cleaning services to motor retailers and auctioneers. It has contracts with British Car Auctions ("BCA") for cleaning vehicles at a number of different places. The respondents ("the claimants") are 20 individual valeters who at the relevant time provided car-cleaning services at BCA's Measham site in Derbyshire. In these proceedings the claimants say that they were workers within the meaning of the National Minimum Wage Regulations 1999 ("NMWR") ( SI 1999/584) and of the Working Time Regulations 1998 ("WTR") ( SI 1998/1833) and that, as workers, they were entitled to be paid in accordance with the NMWR and to receive statutory paid leave under the WTR. Their case is that they were paid neither.

The question is whether the claimants were workers within regulation 2(1) of the NWMR, which adopted the definition in section 54(3) of the National Minimum Wage Act 1998, and in regulation 2(1) of the WTR. The definition of worker is in materially identical terms in both sets of regulations as follows:

"… 'worker' … means an individual who has entered into or works under …

(a) a contract of employment; or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes 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 profession or business undertaking carried on by the individual."

Materially identical definitions of employee and worker appear in various other statutes and regulations concerning employment rights and protection against unlawful discrimination in the employment field.

Proceedings were issued in the Employment Tribunal ("ET") by the claimants on 19 November 2007. The question whether the claimants were workers as so defined was determined by the ET as a preliminary issue. In a judgment sent to the parties on 1 March 2008 the ET (Employment Judge Foxwell) held that the claimants were workers within the definition on the basis that they were employed under contracts of employment within limb (a) of the definition and that they were in any event working pursuant to contracts within limb (b). Autoclenz appealed to the Employment Appeal Tribunal ("EAT"), which heard the appeal on 4 June 2008. The EAT (Judge Peter Clark) held that they were not within (a) but that they were within (b). Both sides appealed to the Court of Appeal. The Court of Appeal (Sedley, Smith and Aikens LJJ) restored the judgment of the ET, holding that the claimants were within both (a) and (b). Autoclenz was granted permission to appeal by this Court.

In each case there was a written contract contained in or evidenced by two documents. I take as an example the position of Paul Huntington. His original contract was dated 18 June 1991, in which he was described as a sub-contractor.Clauses 1 to 3 of the contract provided:

"1. The Sub-contractor shall perform the services which he agrees to carry out for Autoclenz within a reasonable time and in a good and workmanlike manner.

2. The Sub-contractor hereby confirms that he is a self-employed independent contractor and that his tax affairs are handled by … tax office under Schedule D ref No …

3. The Sub-contractor and Autoclenz agree and acknowledge that the Sub-contractor is not, and that it is the intention of the parties that the Sub-contractor should not become, an employee of Autoclenz. Accordingly, the Sub-contractor is responsible for the payment of all income tax and national insurance contributions arising on or in respect of payments made to the Sub-contractor by Autoclenz and the Sub-contractor agrees that he shall indemnify Autoclenz in respect of any liability to tax and national insurance contributions for which Autoclenz may be held liable on or in respect of such payments."

That contract did not contain any clause permitting Mr Huntington to provide a substitute to perform the services he was contracted to perform. Nor did it state that he was not obliged to perform services or that Autoclenz was not obliged to provide work under the agreement.

In 2004 the Inland Revenue carried out a review of the arrangements between Autoclenz and the valeters. On 20 May 2004 it said, somewhat enigmatically, that "it is felt that the balance of probability leans more towards self-employment than PAYE".

In 2007 Autoclenz decided to produce two new documents, which formed the contract between it and the claimant in each case. The first document, which was not itself signed by the claimant, included the following:

"For the purpose of providing car valeting services to its client's garages, Autoclenz wishes to engage the services of car valeters FROM TIME TO TIME on a sub-contract basis.

We understand that YOU ARE AN EXPERIENCED CAR VALETER and might be prepared to offer your services to Autoclenz. If so would you please complete and return to us the form of agreement set out below, which is intended to confirm that any contractual relationship between Autoclenz and yourself is one of client and independent contractor and not one of employer/employee and to protect Autoclenz against any claim on Autoclenz for Income Tax and/or National Insurance contributions in respect of payments made to yourself.

For the avoidance of doubt, as an independent contractor, you are entitled to engage one or more individuals to carry out the valeting on your behalf, provided that such an individual is compliant with Autoclenz's requirements of sub-contractors as set out in this agreement…'

Those requirements were, in short, that the individual was capable of providing the services, had been fully trained and held a current full UK driving licence which he would make available to Autoclenz, that he complied with health and safety guidance and that he had permission to work in the UK.

The document asked the claimant to note the following. For security reasons the valeter would be obliged to wear protective overalls which would identify him as a contractor of Autoclenz and that such overalls could be purchased from Autoclenz. The valeter would be required to provide cleaning materials for himself and those who worked for him. Given the nature of the work it might be necessary for the valeter and those who worked for him to drive motor vehicles. Accordingly the valeter would be required to hold a current valid driving licence.

The document concluded:

"If you wish to provide services to Autoclenz would you please sign and return to Autoclenz the form agreement attached.

YOU WILL NOT BE OBLIGED TO PROVIDE YOUR SERVICES ON ANY PARTICULAR OCCASION NOR, IN ENTERING INTO SUCH AGREEMENT, DOES AUTOCLENZ UNDERTAKE ANY OBLIGATION TO ENGAGE YOUR SERVICES ON ANY PARTICULAR OCCASION."

The second document was a contract which Mr Huntington signed on 21 May 2007. A copy of the contract is annexed to this judgment marked A. It can be seen that Mr Huntington was described as a sub-contractor throughout. Moreover, by clause 3 it was expressly agreed that it was the intention of the parties that the sub-contractor was not and should not become an employee of Autoclenz. Further, by clause 7(a) Mr Huntington promised that he would ensure that those who worked for him in providing services to Autoclenz held a current driving licence as set out in the clause.

The ET held that both documents were put in front of Mr Huntington and that he signed the contract set out in Annex A, although he was not provided with a copy. The judge said that he strongly suspected that Mr Huntington signed it without reading it. It is common ground that both documents formed part of the contract between the parties. If the relevant contract was, as a matter of law, solely contained in those two documents, it would be impossible to bring the case within limb (a) of the definition and very difficult to bring it within limb (b).

However, the ET made certain further findings of fact, including the following. If the valeters had not signed the revised contracts, they would not have been offered further work. The valeters had no input into the negotiation of the terms, which were imposed by Autoclenz. However, as the ET put it at para 32, the claimants "went into their agreements … with their eyes open as Autoclenz has made no secret of the fact that it regards the claimants as self-employed".

The ET made further findings of fact in respect of the operation carried on by Autoclenz as follows. There was a relatively low turnover of personnel among the valeters. Mr Huntington started with Autoclenz in 1991 and continued right through almost on a full time basis apart from a few weeks in 2002 and 2003 when he tried working for a competitor. New valeters were recruited either by personal recommendation and word of mouth or through advertisements placed in the local press or at a job centre. Examples of such advertisements seen by the ET invited applications for well paid full time work and emphasised that Autoclenz was looking for "self-employed people". The claimants all knew that they were being offered a role which was described and intended by Autoclenz to be one of self-employment.

The vehicles were required to be cleaned in accordance with a detailed specification set...