Massey v Crown Life Insurance Company
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LAWTON |
| Judgment Date | 04 November 1977 |
| Judgment citation (vLex) | [1977] EWCA Civ J1104-7 |
| Date | 04 November 1977 |
| Court | Court of Appeal (Civil Division) |
[1977] EWCA Civ J1104-7
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the Employment Appeal Tribunal
The Master of Roll
(Lord Denning)
Lord Justice Lawton and
Lord Justice Eveleigh
MR. A. SHARP (instructed by Messrs. Rosling King Aylett & Co., Solicitors, London) appeared on behalf of the Appellant.
MR. A. BOSWOOD (instructed by Messrs. Coward Chance. Solicitors, London) appeared on behalf of the Respondents.
.
THE MASTER OF THE ROLL: John Massey was the manager of the Ilford the branch of the Crown Life Insurance Co. of Canada. He was employed there from 1971 until 1975. On the 17th November, 1975 the company gave him one month's notice to terminate his agreement He claims that he was unfairly dismissed and is entitled to compensation under the Trade Union and Labour Relations Act 1974.
A man can only claim compensation for unfair dismissal if he is an employee employed under a contract of service, what appears from section 50, subsection (1), of the Act, It defines an "employee" as an individual who has entered into or has worked under a contract of employment; and it defines "contract of employment" as a contract of service or apprenticeship. So it is essential that the person concerned should be an employee under "a contract of service".
For the last 100 years the law has drawn a distinction between a "contract of service" on the one hand and a "contract for services" on the other: or, as it is sometimes nut, between a master and servant relationship on the one hand, and between an employer and an independent contractor on the other. The distinction is. important in the common law. A master is liable for all the wrongdoings of his servant in the course of his employment; but an employer is not liable for all the wrongdoings of an independent contractor. The distinction has also very important consequences under the statute law. In many trades and occupations, the employer is liable to pay taxes and in surance contributions and so forth in respect of servants who are employed under a contract of service; but not for independent contractors who are employed under a contract for services.
I will not today attempt to formulate the distinction except to repeat what I said in Stevenson v. Macdonald (1952)T.L.R. 101: "It is often easy to recognise. a contract of service when you see it, but difficult to say wherein the difference lies. A ship's master, a chauffeur, and a reporter on the staff of a newspaper are all employed under a contract of service; but a ship's pilot, a taximan, and a newspaper contributor are employed under a contract for services".
In recent years the distinction has often cone before the courts in one context or another, Modern cases start with the case of Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance (1968) 2 Queen's Bench 497, and go on to Construction Industry Training Board v. Labour Force Ltd. (1970) 5 Industrial Tribunal Reports 290. Then Global Plant Ltd. v. Secretary of State for Social Services (1972) 1 Queen's Bench 139, on to Maurice Graham Ltd. v. Brunswick -1974 (1974) Volume 16 Knights Industrial Reports 158. Then Ferguson v. John Dawson a Partners (1976) 1. Weekly Law Reports 1213, and finally David v. New England College of Arundel (1977) 1 Industrial Cases Reports 6.
So there is the distinction running through the common law and running through the statute law, and here we have it again: What was the position of Mr. Massey?.
He was the manager of the Ilford branch of the insurance company. For a couple of years, from 1971 to 1973, the company treated him as though he were a servant. They gave him a memorandum under the Contract of Employment Act. They paid him wages: and, before paying him, they deducted the tax, they deducted the stamp, and they deducted graduated pension contributions from the amount they paid him. Further, they had a pension scheme of their own and he had to make contributions towards his pension. Being regarded as a servant, he was taxed for his income tax payments under ScheduleBut then in 1973 Mr. Massey went to his accountant who advised him to change his relationship with his employers. The accountant said; "I think you would be much better off if you so arranged your affairs so as to be self-employed instead of being a servant. Then you will come under Schedule instead of Schedule d". That is what was proposed. Instead of wanes subject to deductions, the company would pay him the full amount each week but they would not deduct tax or national insurance contributions or anything like that. He would get the full amount. It would be for him to account for tax to the Inland Revenue under Schedule D).
He went to his employers, the Crown Life Insurance Co., and told there: "I have been advised by my accountants to change over to Schedule D. Will you agree?" They said: "Oh, yes; we are agreeable". So it was put through. They did it in this way: Instead of calling him "Mr. John L. Massey", he was called "John L. Massey & Associates". It was really; just the same man under another name. He registered that new name with the Register of Business Names. With that new name he entered into a new agreement with the Grown Life. So far as his duties were concerned, it was in almost identical terms as the previous agreement. As a result of that new agreement, he said he was no longer a servant, he was an independent contractor, He was therefore liable to be taxed under Schedule D. The position was placed before the Inland Revenue, and the Inland Revenue seem to have thought it was all right.
In order to get it regularised, the company wrote a letter to the Inspector of Taxes. It said: "Re: J.L. Massey — I am enclosing a Form P45" - that is the one you have for employees "- "in respect of the above named who is the Manager of our Ilford Division and who resigned from his agreement on the 1st September1973. I would advise you that Mr. Massey has now formed a Company called John L. Massey,.& Associates, and they have been appointed Manager of our Ilford Division with effect from the 2nd September 1973. All future remuneration will be paid to John L. Massey & Associates, and in view of the fact that they are a Company no tax deductions will be made by us. If there is any further information you require, please do not hesitate to contact me". That letter was not accurate, Mr. Massey had not formed a company. He was just himself calling himself by a new name. But at any rate the company let the tax people see the two agreements. After seeing them, the tax people were quite content that Mr. Massey should change over to a Schedule basis. The insurance company paid him the gross amount without any deductions thereafter. In consequence he himself would be for liable under Schedule D for tax on the gross amount, and he would have to pay tax under that Schedule. So the accounts were conducted from 1973 to 1975.
Then in November 1975 Mr. Massey was dismissed. Thereafter he said: "I want to claim for unfair dismissal".
A claim for unfair dismissal was quite admissible if he was employed by the company under a contract of service, but not if he was employed under a contract for services. So here he was claiming as a servant whereas, for the last two years, he had been paid on the basis that he was an independent contractor.
The law, as I see it, is this: If the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label upon it. If they should put a different label upon it and use it as a dishonest device to deceive the Revenue, I should have thought it was illegal and could not be enforced by either party and they could not getany; advantage out of it - at any rate not in any case where they had to rely upon it as the basis of a claim. See Alexander v. Rayson (1936) 1 King's Bench 169. An arrangement between two parties to put forward a dishonest description of their relationship so as to deceive the Revenue would clearly be illegal and unenforceable, on the other hand, if their relationship is ambiguous and is capable of being one or the other, then the parties can remove that ambiguity, by the very agreement itself which, they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them. This is clearly seen by referring back to the case of The Commissioners of...
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