Hudson Contract Services Ltd v Construction Industry Training Board
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Lambert |
| Judgment Date | 18 January 2019 |
| Neutral Citation | [2019] EWHC 45 (Admin) |
| Docket Number | Case No: CO/2252/2018 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 18 January 2019 |
[2019] EWHC 45 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Lambert
Case No: CO/2252/2018
Mr Jolyon Maugham QC AND Mr Christopher Stone (instructed by Norton Rose Fulbright) for the Appellant
Mr Christopher Knight (instructed by Field Fisher) for the Respondent
Hearing Dates: 6 and 7 December 2018
This is a statutory appeal under s. 11(1) Tribunals and Inquiries Act 1992 from the ruling of the Employment Tribunal of 18 May 2018 dismissing Hudson's appeal under s. 12(4) Industrial Training Act 1982 against an assessment to levy notice (“the Notice”) issued by the Construction Industry Training Board (“the CITB”) in March 2017 in the sum of £7,964,584. The Notice had been issued by the CITB under its statutory duty to assess to levy employers in the construction industry in accordance with the Industrial Training Levy (Construction Industry Training Board) Order 2015 (SI 2015/701), (“the 2015 Order”).
There were two issues before the Employment Tribunal:
i) whether Hudson is an employer in the construction industry for the purposes of s. 11(2) Industrial Training Act 1982 and Article 3(1) of the 2015 Order;
ii) whether Hudson has a “construction establishment” for the purposes of Article 5 of the 2015 Order.
The Employment Tribunal (“the Tribunal”) answered both questions in the affirmative. Hudson appeals that decision. The appeal is restricted to a point of law and, like the challenge before the Tribunal, is an exercise in statutory interpretation focussing upon Articles 3 and 5 of the 2015 Order. I am in as good a position as the Tribunal to perform the exercise of statutory interpretation and have not therefore deferred to the Tribunal's reasoning, save where, for the purpose of resolving various points and arguments, the Tribunal has obviously relied upon its relevant industrial expertise.
Mr Jolyon Maugham QC leading Mr Stone appeared on behalf of Hudson. Mr Knight appeared on behalf of the CITB.
Hudson
Hudson is a company established in 1996. Its headquarters is in Bridlington, East Yorkshire although it has a small off-shoot office in Manchester. Its clients are small construction firms who have been engaged by a principal contractor to deliver a specific element of a construction project. Where a client requires the services of self-employed individuals (“operatives”), the client will identify the operatives required and contract with Hudson that Hudson shall (a) engage those operatives on a self-employed contract and (b) supply the services of those operatives to the clients. The client is required to use Hudson's method statement to explain to the operative that he is to be engaged on a self-employed basis with Hudson (with the option of employment if he wishes) and the operative will then sign a contract for services with Hudson at the client's premises. The contract for the provision of services (self-employed) between Hudson and the operative spells out that, following the negotiation of terms between the operative and the client, “ Hudson will step into the shoes of the Client and contract with the Freelance Operative on the terms negotiated” and that the operative “ has no contract of any type whatsoever with the Client.”
It is the client which checks the operative's qualifications and competence, arranges the necessary insurance, negotiates the rates of pay and which is responsible for health and safety issues. Copies of the paperwork are sent to Hudson. Hudson supplies a software package to the client for the purpose of entering details of pay and hours for payroll purposes. The client must ensure that cleared funds are in Hudson's account for payment of the operative. Hudson will then pay the operative, withholding the tax liability and provide a pay breakdown to the operative.
Hudson's own directly employed workforce (that is, those engaged under contracts of employment or materially equivalent contracts) is small, including only its directors and 2 members of staff together with a small team of regional auditors. The directly employed staff provide a wholly office-based function. As Mr Maugham put it, none of those directly employed by Hudson wield a pickaxe or do anything which is physical in the construction industry. Hudson is not contracted to deliver construction outputs or activities; it makes no profit that is dependent upon construction operations; Hudson itself maintains no pool or bank of operatives and does not select them; the directly employed workforce has no supervisory or management function in relation to construction work. Operatives are not despatched or directed or controlled from Hudson's head office and whilst members of the directly employed team may visit construction sites for audit purposes (to check that operatives who state they are self-employed, are self-employed), typically, operatives will never visit the office in Bridlington (or Manchester) and few will ever need to speak to the Hudson directly employed team.
The function served by Hudson's business model is two-fold. It has the effect of transferring to Hudson (a) the administrative burden of operating a payroll function and (b) responsibility for and dealing with compliance issues (including compliance with the terms of the Construction Industry Scheme) and thus shifting to Hudson the risk of Employment Tribunal proceedings and HMRC status enquiries and adverse findings. For each operative engaged by Hudson, Hudson is paid £15 per week. The Employment Tribunal recorded that Hudson was currently paying around 27,000 operatives per week and that, in the levy period under dispute, it paid around 20,702 operatives per week.
The Board
The Board was founded in 1964 (see below) with headquarters now near King's Lynn, Norfolk. Originally there were as many as 20 such boards associated with various industries, but now there are only two, the other being in engineering construction.
The Statutory Framework
The Industrial Training Act 1982 (“the 1982 Act”) provided for or, more accurately, maintained provision for, the establishment of industrial training boards for the purpose of the training of persons for employment in activities of industry or commerce. The CITB is one such board. It was established under the original legislation: the Industrial Training Act 1964 (“the 1964 Act”). Section 5 of the 1982 Act sets out some of the various ways in which the relevant industrial training board may facilitate, or enable, the training of persons employed or intending to be employed, in the industry; for example, by providing courses itself, or by approving courses provided by others, or by the publication of recommendations with regard to the nature and length of training and by funding persons attending courses provided or approved by the relevant board.
Section 11 of the 1982 Act, provides that a levy may be imposed on employers in the industry for the purpose of meeting the expenses of the industrial training board:
(1) An industrial training board may from time to time submit to the Secretary of State proposals (in this Act referred to as “levy proposals”) for the raising and collection of a levy to be imposed for the purpose of raising money towards meeting the board's expenses.
(2) The levy shall be imposed in accordance with an order made by the Secretary of State (in this Act referred to as “a levy order”) which shall give effect to levy proposals under subsection (1) above and shall provide for the levy to be imposed on employers in the industry, except in so far as they are exempted from it by the industrial training order, the levy order or an exemption certificate; but nothing in this Act shall be construed as requiring the Secretary of State to make a levy order in a case in which he considers it inexpedient to make one.”
The person, or body, against whom a levy may be raised must be “ an employer in the industry.” Two points of potential importance arise here. First, section 1(2) of the 1982 Act provides a definition of employee which is, as the Employment Tribunal noted (and was not disputed before me), significantly wider than either of the definitions of employment (as a contract of service in the Employment Rights Act 1996 or the Equality Act 2010 extension to include some of those working under a contract for services) with which Employment Tribunals typically work. The term employee covers not only the directly employed workforce but also those engaged under a contract of self-employment. Second, the definition of employer is not freestanding, but is subordinate to the definition of employee. Thus:
“ employee” includes a person engaged under a contract for services and “employer” shall be construed accordingly;
“employment” means employment under a contract of service or apprenticeship or a contract for services or otherwise than under a contract, and “employed” shall be construed accordingly;
The “Scope Order”
The industry is not defined in the 1982 Act, save that “ in relation to an industrial training board, means the activities in relation to which it exercises functions.” The definition of construction industry must be read across from the Schedule to the Order establishing the CITB: the Industrial Training (Construction Board) Order 1964 ( SI 1964/1079) as amended by the Industrial Training (Construction Board) Order 1964 (Amendment) Order 1992 (SI 1992/3048), the so-called “Scope Order.” Schedule 1 of the Order includes a comprehensive list of all operations which constitute “activities of the construction industry.” The list includes “ principal activities” (e.g. the construction, alteration, repair or demolition of a...
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