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	United Kingdom Special Commissioners of Income Tax Decisions
You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> Littlewood & Ors (t/a JL Window & Door Services) v Revenue & Customs [2009] UKSPC SPC00733 (29 January 2009) URL: http://www.bailii.org/uk/cases/UKSPC/2009/SPC00733.html Cite as: [2009] UKSPC SPC00733, [2009] STC (SCD) 243, [2009] STI 516, [2009] UKSPC SPC733

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Spc00733

Income tax – PAYE determinations – National Insurance – status decisions – whether workers employees or sub-contractors – the latter

THE SPECIAL COMMISSIONERS

J AND C LITTLEWOOD T/A JL WINDOW & DOOR SERVICES (1)

MARK MOLLOY (2) Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Special Commissioner: JOHN CLARK

Sitting in public in London on 12-14 November 2008

Dave Smith, Chartered Tax Adviser, Accountax Consulting Ltd, for the Appellants

David Seaman, Local Compliance Appeals Unit (Leeds), HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

1. These two appeals relate to an employment status dispute. The first Appellants, Mr and Mrs Littlewood, maintain that the individuals who worked for their firm were independent contractors and not employees. Mr Molloy, who was one of those workers, has appealed against the decision that he was an employed earner in respect of such work. The dispute concerns both income tax and National Insurance Contributions. For convenience, I refer to Mr and Mrs Littlewood's firm as "JL Windows".

The facts

2. The evidence consisted of two bundles of documents, the second, entitled "Additional Documents", mainly containing various documents supplied by the Appellants described as "not previously provided and not agreed". However, in the course of the hearing reference was made to these documents by both parties without any suggestion of objection to them. In addition, witness statements were provided by Mr Littlewood, Richard Lindley, Gary Greenwood, Ian Gilligan, Jamie Hoult and Mr Molloy on behalf of the Appellants, and by Sheena Howe and John Fakes on behalf of the Respondents ("HMRC"). All the witnesses also gave oral evidence. The parties provided a statement of facts not in dispute; this is set out below. I then set out my remaining findings of fact, except for disputed matters, which I consider later.
3. Subject to minor editorial corrections, the statement of facts not in dispute was as follows:

(1) Mr J and Mrs C Littlewood traded in partnership as JL Windows and Doors.

(2) The trade of the Partnership consisted mainly of installing windows, doors and curtain walling for commercial buildings.

(3) The Partnership ceased trading on 13 March 2006.

(4) The Partnership traded from [details omitted], which is the partners' home address.

(5) HMRC opened a review of the Partnership's operation of the Construction Industry Scheme and the status of its workers by a letter dated 26 September 2005.

(6) A meeting was held between HMRC officers and the partners on 19 October 2005.

(7) A number of the Partnership's workers were approached and meetings were held with three of them.

(8) Opinions as to the status of the workers were issued on 13 July 2006 to the Partnership and to those workers who had been interviewed.

(9) The opinion issued was that the status of workers was that of employees.

(10) Accountax Consulting Ltd were engaged to act for the Partnership on 21 September 2006 and on 28 September 2006 requested that formal determinations be made.

(11) Further discussion of the issues took place between Accountax and HMRC between 4 December 2006 and 27 November 2007.

(12) On 22 January 2008 HMRC made formal determinations under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 SI 2003/2682 for the years 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06.

(13) On the same date Notices of Decision under Section 8 of the Social Security (Transfer of Functions) Act 1999 were issued in respect of a number of workers who had been engaged by the Partnership during these years.

(14) On 18 February 2008 formal appeals against these determinations and Notices were made by Accountax Consulting Ltd with an election for the Special Commissioners.

4. Many years previously, Mr Littlewood had worked as a sub-contractor and had been asked to take over the work on a particular job. He had not been able to take the whole of it over, and had approached a Mr Gibbons to do so. Mr Littlewood had then worked for Mr Gibbons as a sub-contractor. When Mr Gibbons retired in the late 1970s, Mr Littlewood had taken over all the work. He took on a couple of sub-contractors on a self-employed basis.
5. Having obtained some larger contracts, his firm began to expand and Mr Littlewood's role changed. He no longer worked on the fitting work, and began to visit clients, examine drawings, price the jobs and meet contract managers. He could never be sure that his firm would be awarded the next contract for a major client, Dortech, at Sheffield Business Park; JL Windows had a good rapport with the main contractor, but it was never certain when the next block was going to be ready for JL Windows to be involved.
6. When Mr Littlewood had stopped doing the fitting work himself, he had had between eight and ten workers carrying out jobs for him. At first he had used some family members, but other people heard that he had work available, and they approached him or in some cases he approached them. Workers knew each other and information about possible work was circulated by word of mouth. The largest number of men working for JL Windows had been about 20, and the smallest number about 10.
7. The first thing which he would ask a new worker was whether the worker held a CIS [Construction Industry Scheme] card and whether that worker was registered as self-employed. He would ensure, for every worker whom he had engaged during the period under enquiry, that the worker had a CIS card, and would deduct tax at 18 per cent.
8. The majority of the workers were paid on "price work", but a daily rate was paid to those dealing with "snagging". Mr Littlewood estimated that about 90 per cent of the work was on a price basis. A major exception was a project at Norwich which had begun in 2005, but had been too big and too complicated to price.
9. The processes of pricing and payment worked in the following way. When Mr Littlewood was offered a contract, he discussed the details with individuals known as "charge hands", who were regarded as the representatives of teams of workers. The teams consisted of between two and five people. The charge hands were more experienced and could calculate the expected amount of work required for the team to complete the contract work. The charge hands gave Mr Littlewood a price for the contract after agreeing the prices with the other workers on their teams. How the money was divided among the team members was a matter for the charge hand or "fixer". However, the payment system involved making payments to the individual workers rather than through the charge hands, so Mr Littlewood needed to know whom to pay and how much.
10. Payments to the workers were made on the basis of a rate for a day's work. These payments continued while the contract was running. No payment was made for a day or part of a day when a worker was not on site; this also applied when the reason for absence was a training course. Once the job was completed, the costings were worked out. If the team had managed to finish the job in less time than the assumed length of the contract, there would be a balance of money left for that contract. This was split between the various members of the teams on a basis decided by the charge hand. Such further payments became known among the workers as the "bonus", but it was actually the balance of the money due for the job. The typical amount to be shared on any one job would be between £500 and £1,000, but it was sometimes bigger.
11. In relation to the customers, Mr Littlewood took into account the amount agreed with the charge hand. He also included an extra amount to take account of such things as "snagging", ie putting right items which were not considered satisfactory. The price agreed with the customer was a fixed price, but he was in a commercial position to go back to the customer if the work required to complete the contract increased unexpectedly. As he put it, if the money was running out, he would claim the money from the builders. He continually checked all the jobs on which the firm was working, in order to make sure that this situation would not arise. The workers might have claimed for day work if there had been a problem with a job that was not their fault.
12. As the workers were being paid on a "price" basis, Mr Littlewood did not discuss with them what hours they were to work. They were left to choose their own hours but were aware that if the work fell behind schedule, the contractors would charge a penalty. As long as the job was "on programme", Mr Littlewood was not bothered what they did. The workers did not receive any holiday pay or sick pay, and there was no grievance procedure. There was no written contract between JL Windows and the workers. They did not submit invoices, but the charge hands did send time sheets to JL Windows. Mr Littlewood regarded these as provided to him for his administrative purposes; they enabled him to see whether particular individuals were working and how much money the workers were taking off a particular job. He or Mrs Littlewood prepared time sheet records relating to all the workers; in some cases, the workers could not read. There was no notice period required by either party; the workers came and left as they pleased.
13. If the workers finished a job earlier than expected, Mr Littlewood considered whether he had any other work available. If he did so and they were interested, he would give it to them, but if not, they would be free to do whatever they wanted. If the job took longer than expected and the price to the customer had not been revised, there would be no extra payment.
14. Mr Littlewood did not tell the workers how to do the job; he was rarely on site. He would try to visit a site every fortnight. He had up to six jobs all over the country. He considered that his role was to see how the job was progressing and to make sure that the workers were taking the correct amount of "drawdowns". He would have a word with the charge hand, as the spokesman nominated to deal with the builders.
15. Any worker who had a problem on site would let the charge hand know. The charge hand acted as the spokesman of the team, working out the pricing of the job and the amounts to be paid to the respective team members. He would also liaise with the client's contract manager and they together would resolve any problems with the job.
16. Some of the workers needed training in order to obtain a "CSCS" card to permit them to be admitted to sites. Mr Littlewood made the initial payment for such training, and then deducted it from the amount due to the relevant worker. Expenses were normally included in the price work, although they were dealt with separately in relation to the Norwich project, and were not taken off the "price".
17. The work in relation to the Norwich project had been carried out for a company called Pendant Aluminium Ltd. While the work was continuing, Pendant had gone into administration. JL Windows notified the administrator that Pendant owed it £213,251.26, and the administrator had indicated that details would be passed to the liquidator when appointed. JL Windows did not recover any of this debt. Mr Littlewood had notified the workers on the Norwich site that they should leave the site. They were not paid; this meant that each of the men who had been on the site (about a dozen) had lost between £1,000 and £1,500 for that week. They accepted that as JL Windows was not going to be paid, they would not be paid.

Arguments for the Appellants

18. Mr Smith's submissions relating to the facts are considered below.
19. He relied on Ready Mixed Concrete v Minister of Pensions and National Insurance [1968] 2 QB 497, which he described as a seminal authority on determining whether a contract is one of service or for services. This had laid down the fundamental approach that, before a person can be an employee, certain factors must be in place; these are the pre-requisites of a contract of service without which the worker cannot be an employee. McKenna J had set out three conditions which had to be fulfilled.
20. Mr Smith described the first condition as referring to mutuality of obligation and personal service. Mutuality of obligations was concerned with whether there were obligations on the work provider to offer work, with corresponding obligations imposed on the worker to accept and do the work. It was important that this should not be confused with a situation where a worker merely in fact turned up and then was paid for the work undertaken. Mutuality referred to an obligation to accept and perform work. According to the House of Lords in Carmichael v National Power [1999] 4 All ER 897 at 902, it was the "rock" on which a contract of service was based. As such, Mr Smith contended, it was a key differentiator between employment and self-employment.
21. HMRC argued that mutuality was necessarily established where work was simply undertaken and the worker was paid. This confused the true meaning of mutuality with mere consideration that flowed under any bargain. Mr Smith submitted that HMRC's proposition re-stated a misinterpretation of what mutuality of obligation meant. He referred to the comments of His Honour Judge Peter Clark in Propertycare Ltd v Gower [2003] UK EAT/0547/03/GT at paragraph 9(3), and to those of Park J in Usetech Ltd v Young [2004] STC 1671 at [60]. Mr Smith argued that the necessary mutual obligations did not exist in the present case.
22. HMRC might argue on the authority of Cornwall County Council v Prater [2006] EWCA Civ 102 (reported as Prater v Cornwall County Council [2006] 2 All ER 1013) that it might be possible to have mutuality within specific contracts. The Appellants did not disagree with this as a broad statement. However, the principle laid down in Prater was that mutuality might exist in one-off jobs. Mr Smith contended that it was then necessary to consider whether in fact mutuality existed in those one-off jobs. In Prater the worker was obliged to complete a teaching assignment once she had accepted it. She had to perform what she had agreed to do once the work was allocated to her. Mr Smith argued that, when looking at an ongoing relationship it was necessary to look at the lack of mutuality of obligation to offer further or future work but also lack of mutuality of obligations during the ongoing assignment. Where the assignment was of an ongoing nature, one had to establish that there was no obligation to offer work throughout the duration of the assignment.
23. Mr Smith cited Buckley J in Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318 (reported at [2001] IRLR 269). The Court of Appeal had referred back to Ready Mixed Concrete and the necessary existence of the "irreducible minimum" (mutuality and control) in order for a contract of service to exist. Buckley J had referred to the comments of Waite LJ in McMeechan [1997] ICR 549 at [9]. Also in Montgomery, Brooke LJ had commented at [47] on the possibility that the decision in McMeechan might be interpreted as avoiding the obligation to identify the irreducible minimum requirements of a contract of employment, and he had indicated that there was a consistent line of authority to the contrary.
24. In Stuncroft Limited v Havelock [2001] EAT/1017/00, His Honour Judge Wilkie QC had accepted Stuncroft's counsel's characterisation of lack of mutuality as "a knockout blow". He said:

"[8]. It is clear that the Employment Tribunal in this case did not have the advantage of having cited to it any of these authorities nor does it appear, that the case was argued on the basis that want of mutual obligation was a knockout blow. Certainly the majority did not consider the question of the want of mutuality of obligation at all and the minority Chairman, in our judgment mistakenly regarded want of mutuality of obligation as merely a persuasive factor whereas repeatedly the courts at Court of Appeal level and above have said that it is an irreducible minimum and so a determinative issue."

25. In Bunce v Postworth Ltd trading as Skyblue [2005] EWCA Civ 490 (reported at [2005] IRLR 557), a case involving an agency worker, the Court of Appeal had again underlined the need to find the irreducible minimum of mutuality and control. Keene LJ had referred to the earlier judgment of the Court of Appeal in Dacas v Brook Street Bureau UK Limited [2004] EWCA Civ 217 (reported at [2004] IRLR 358) at [49]); this set out the irreducible minimum of mutual obligation necessary for a contract of service, "ie an obligation to provide work and an obligation to perform it . . . "
26. Mr Smith submitted on the authorities that the need for mutual obligations, ie the obligation on the engager to offer work and the obligation on the workers to accept and perform it, was an essential pre-requisite for a contract of service. He submitted that in the present case such obligations were absent and the "irreducible minimum" had not been met. On the current authorities including a powerful line of authority from the Court of Appeal, the workers could not be classified as employees in these circumstances.
27. Mr Smith referred to personal service and substitution. Where a person had the right to use a substitute and was not obliged to perform the work personally, the requirement for personal service would not have been fulfilled and McKenna J's first pre-requisite of a contract of service would be absent. Mr Smith argued that here there was no requirement for personal service. He referred to the judgment of Peter Gibson LJ in Express and Echo v Tanton [1999] EWCA Civ 949 (reported at [1999] IRLR 367), at the penultimate paragraph of his judgment.
28. Control was referred to at point (ii) of McKenna J's test. Mr Smith argued that control could include not just how work was undertaken but when and where. He submitted that on the evidence there was insufficient control by Mr and Mrs Littlewood over the workers. In Ready Mixed Concrete at 439-440 McKenna J had said: "An obligation to do work subject to the other party's control is a necessary, though not always a sufficient, condition of a contract of service."
29. In Revenue and Customs v Wright [2007] EWHC 526 (Ch), Lewison J had considered the cases of Bunce v Postworth Limited and Global Plant Limited v Secretary of State for Health and Social Security [1971] 3 All ER 385. Mr Smith argued that the main principle established was that, where a right of control exists, it does not have to exercised by the engager; the right could be delegated to a third party such as a customer's representative, for example a project manager or office manager. In Wright, Lewison J had indicated that the law had moved on since Global Plant. In Bunce, Keene LJ had said: "The law has always been concerned with who in reality has the power to control what the worker does and how he does it." Mr Smith submitted that this was the principle which should be followed, and not the tests applied in Global Plant. Control formed part of the irreducible minimum required to create a contract of employment, as made clear in Montgomery. The required element of control was missing in the present case.
30. In their skeleton argument, HMRC had quoted McKenna J's second condition, set out in Ready Mixed Concrete at 440, relating to control. However, HMRC had given their view of control, indicating that it may be only very slight and that it may even be a right to control which is never exercised; when McKenna J had formulated his three tests, he had recognised that the degree of control need only be slight. The Appellants disagreed with this view; the degree of control could not be slight and had to be sufficient to create a master/servant relationship as stated by McKenna J. HMRC's view was fundamentally at odds with the current jurisprudence. HMRC had referred to the significance of control having diminished as case law had developed, but acknowledged that all authorities agreed that a measure of control had to exist in order for the relationship to be one of employer and employee. Mr Smith submitted that this was not accurate, as on the basis of several Court of Appeal authorities, control was identified as part of the irreducible minimum which must be established before the worker could be an employee.
31. Mr Smith referred to the test referred to in Market Investigations Ltd v Minister of Pensions and Social Security [1968] 2 QB 173, whether the person is "in business on his own account". This test had not received universal approval. Mr Smith argued that the majority of the factors fell in favour of the Appellants.
32. He submitted that whether the "in business on own account" approach was used, or the more fundamental test of identifying the pre-requisites of a contract of service was used, in either case the workers could not on a balance of probabilities be said to be employees of Mr and Mrs Littlewood under a contract of service.
33. He argued that the present appeals had much in common with the recent Special Commissioners cases of Mark Lewis t/a MAL Scaffolding and others v Revenue and Customs Commissioners [2006] STC (SCD) 253 (SpC 527) and Parade Park Hotel v Revenue and Customs Commissioners [2007] STC (SCD) 430 (SpC 599). These cases referred to many of the legal arguments raised in both the Appellants' and HMRC's skeleton arguments and contained useful summaries of the case law principles. Mr Smith argued that HMRC's skeleton argument failed to attach the requisite level of importance to the "irreducible minimum" as clarified in the Parade Park Hotel case.

Arguments for HMRC

34. Mr Seaman referred to the agreed question for determination as being the employment status of workers, ie whether or not they were employed under contracts of service. The onus of proof rested with the Appellants to show that the Determinations and Decisions should be varied.
35. Mr Seaman cited Ready Mixed Concrete, and referred to McKenna J's three conditions. Unless the three tests were satisfied, the relationship could not be one of employment. McKenna J had added a final test, that the other provisions of the contract were consistent with it being a contract of service. Mr Seaman referred to the test set out by Cooke J in Market Investigations, whether the person who had engaged himself to perform the services was performing them as a person in business on his own account. This had been re-stated by Mummery J in Hall v Lorimer (1993) 66 TC 349 at 366, ([1992] STC 612) and approved by Nolan LJ (66 TC at 375F, [1994] STC 23 at p 29) in the Court of Appeal.
36. HMRC argued that the three basic requirements for employment were satisfied, and would consider the range of other tests, none of which would be decisive, in order to present the full picture.
37. Mr Seaman referred to the passage in Ready Mixed Concrete in which McKenna J had set out the three conditions. In Montgomery, Buckley J had said that this was the safest starting point in considering whether a person was an employee. He had shown how it had been approved by the House of Lords (for example, in Carmichael) and by the Court of Appeal as setting out the irreducible minimum by way of legal requirement for a contract to exist. Mr Seaman cited Buckley J's comments at [23].
38. McKenna J's dictum, and the cases which had built upon it, had led to the question of employment status being considered under a series of tests or factors.
39. In relation to mutuality of obligation, it was a regular feature of arguments against a contract being one of employment that this test required there to be an ongoing obligation for the employer to provide work and on ongoing obligation for the worker to do that work. This was not the case. All that was meant by the term mutual obligation was that there must be a contract, whether written or oral, that was an agreement by one party to work and by the other party to pay for that work. The existence of such an agreement, which in most cases would be self-evident, did not necessarily mean that the contract was one of employment. Mr Seaman cited Elias J in Stephenson v Delphi Diesel Systems Ltd [2002] UK EAT 1314 at [14] and Park J in Usetech at [56]-[57], [60] and [64]. The comments at [60] showed that Park J considered that the mutuality test was "satisfied by the obligation, on the one hand, to work, and on the other, to remunerate", but that this did not necessarily mean that the contract was one of employment. Mr Seaman stressed Park J's use of the word "continuing" at [57] and [64].
40. In some situations under employment law it was important to the claimant to establish that there was a continuing contract of employment. Mr Seaman referred to the circumstances in Carmichael. Other examples in which the absence of continuity was given little significance in relation to the question whether for tax purposes there was an employment were the kitchen hand, cited by Cooke J in Market Investigations, and the circumstances of Market Investigations itself. The relative unimportance of continuity and the relative importance of the conditions which existed while the engagement was in progress (where the existence of a continuing contract of employment was not the issue) had been emphasised by the Court of Appeal in Prater, about 18 months after the judgment in Usetech. Mr Seaman referred to the judgments in Prater of Mummery LJ at [40] and Longmore LJ at [43]. Mr Seaman contended that a relationship between a putative employer and employee, under which the engager could offer work from time to time on a casual basis, without any obligation to offer the work and without payment for periods when no work was being done, may nevertheless be an employment. The question had been considered in recent decisions by the Special Commissioners, for example in Island Consultants Limited v Revenue and Customs Commissioners [2007] STC (SCD) 700 (SpC 618) at paragraph 11.
41. The expression "irreducible minimum of obligation" was frequently encountered. Mr Seaman referred to its use by Buckley LJ in Montgomery. The expression appeared first to have been used by Stephenson LJ in Nethermere (St Neots) Ltd v Gardiner and another [1984] IRLR 240 at [22], having referred at [21] to the words of McKenna J in Ready Mixed Concrete.
42. On the basis of Stephenson LJ's comments, Mr Seaman argued that the irreducible minimum obligation between the parties was that the worker must agree to provide his work and the employer must agree to pay him for that work, no more than that. It was not necessary that there was an ongoing obligation to provide work on the one hand and to do it on the other. This had been reaffirmed in Prater. In Montgomery, Buckley LJ had extended the phrase to "irreducible minimum by way of legal requirement for a contract of employment to exist", and, for this extra step to be satisfied, he had included a sufficient degree of control.
43. In the present case the irreducible minimum of obligation clearly existed; the workers agreed to provide their work and JL Windows agreed to pay for that work. This did not necessarily mean that the contract was one of employment; see Park J in Usetech. It had been mentioned on a number of occasions that there was no obligation on JL Windows to offer further work and no obligation on the workers to accept work if offered, but, as indicated in Stephenson and Prater, this was irrelevant.
44. Mr Seaman referred to Island Consultants Ltd [2007] STC (SCD) 700 (SpC 618). This was an "IR 35" case. The Special Commissioner, Dr Avery Jones, had indicated at paragraph 11 that, as in Prater, it was sufficient that within each contractual period there was an obligation on STW (the hypothetical potential employer) to provide work and pay the agreed rate. Mr Seaman also relied on a further IR 35 decision, Dragonfly Consultancy Ltd [2008] STC (SCD) 430 (SpC 655) at paragraphs 50, 57 and 58. He described this as the crux of HMRC's position on mutuality.
45. The factor of termination without notice had been relied on by the Appellants to support the view that here was a lack of mutuality of obligation, but the absence of an obligation to give notice had been commented on by Elias J in Stephenson at [13]. The case showed that the fact that an engagement might be terminated without notice did not exclude the possibility that the relationship was one of employment.
46. Mr Seaman referred to other factors arising from McKenna J's judgment in Ready Mixed Concrete, including exclusivity and substitution and the use of helpers. (These are considered below in relation to the relevant facts.)
47. In relation to McKenna J's second condition, it had to be established that an element of control existed, even if it was only very slight and even if it was merely a right to control which was never exercised. In formulating his three tests, McKenna J had recognised that the degree of control need only be slight.
48. Mr Seaman argued that the significance of control had diminished as the case law had developed, but all authorities agreed that a measure of control must exist in order for the relationship to be one of employer and employee. He derived the following principles from the case law:

(1) Control over how the work should be done was relevant but not essential;

(2) However, some sufficient framework of control must exist. A contractual relationship concerning work to be carried out in which the one party had no control over the other could not sensibly be called a contract of employment;

(3) The question was not whether in practice the work was in fact done subject to a direction and control exercised by any actual supervision or whether any actual supervision was possible, but whether ultimate authority over the worker in the performance of his work resided in the engager so that the worker was subject to the engager's orders and directions;

(4) It was the right to exert control which was significant, regardless of whether that right was exercised;

(5) In practice, the engager might rarely (or never) exercise this right, particularly where the worker was a skilled individual;

(6) Control might be exercised by a third party.

49. In support of these propositions, Mr Seaman cited McKenna J's comments in Ready Mixed Concrete in his third paragraph at 440 relating to the second condition, Buckley J in Montgomery at [19], Nolan LJ in Hall v Lorimer, and Widgery LJ in Global Plant. (These propositions are considered below, in the context of Mr Seaman's submissions on the facts.)
50. In relation to McKenna J's third condition, that the other provisions of the contract are consistent with its being a contract of service, Mr Seaman referred to the first four examples set out by McKenna J at the second part of 440. Mr Seaman argued that, although greatly simplified, the examples assisted in deciding on which side of the line the workers in the present case fell.
51. The consideration of whether the other provisions of the contract were consistent with its being a contract of service had developed over the years into a principle that a broad view should be taken of the conditions of engagement, and that it was not a mechanical process. Mr Seaman referred to Cooke J in Market Investigations at 184G-185B. Mummery LJ had re-stated this principle in Hall v Lorimer in the passage already cited, and this had been approved and quoted by Nolan LJ in the Court of Appeal. Buckley J's comments in Montgomery at [23] had been to a similar effect.
52. Mr Seaman considered the test whether the workers were in business on their own account in the context of the facts; this question is reviewed below.
53. He referred to the reservations expressed by McKenna J in Ready Mixed Concrete concerning the reference by Denning LJ in an earlier case to whether a person was "part and parcel of the organisation". Mr Seaman indicated that despite McKenna J's lack of enthusiasm for this test, it was still frequently considered in status cases, such as Island Consultants.
54. In relation to the intention of the parties, Mr Seaman cited the comments of Lord Denning MR in Massey v Crown Life Insurance Co [1978] 2 All ER 576 at 579-580.
55. Mr Seaman submitted that the three considerations for the irreducible minimum were satisfied. The evidence should be considered in order to "paint the picture". He argued that the evidence gathered by the HMRC officers was better than the accounts presented by the workers. The appeal should be dismissed.

Discussion and conclusions

56. I first consider the law, and then the application of the law to the facts of this case. As Mr Smith mentioned, the relevant law was considered at some length in the cases of MAL Scaffolding and Parade Park Hotel. As I set out the principles in detail in my decision in Parade Park Hotel, I do not propose to repeat those comments here. However, on the basis of Mr Seaman's submissions, there is one element which I need to review at some length; this is mutuality of obligations.

Mutuality of obligations

57. In Dragonfly Consultancy Ltd, the Special Commissioner, Charles Hellier, said at paragraph 50:

"In Ready Mixed Concrete MacKenna J's first condition was:

'The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.'

This first condition is often referred to as a requirement for mutual obligation, but as described by MacKenna J that mutuality is fairly one-sided: his condition relates to an obligation of the employee to perform a service for a consideration. There is nothing in these words suggesting that the putative employer must be obliged to provide work or even to pay if there is no work to be done; all that is clear from condition (i) is that the employer must be bound to pay for the service performed."

58. In the subsequent paragraphs in his decision, Mr Hellier reviewed various cases in which mutuality of obligations had been considered. At paragraph 58, he reviewed the observations of the Court of Appeal in Prater, in particular those of Mummery LJ at [40](5), and of Longmore LJ at [43]. Mr Hellier described the comments of Lewison J as "yet more direct"; at [51] Lewison J had said:

"[51]. The question whether there is mutuality of obligation is not the complete test for determining whether a contract of service exists. I would have thought that the question of mutuality of obligation goes to the question whether there was a contract at all, rather than what kind of contract there was, if a contract existed."

59. Mr Hellier continued, at paragraph 59 of Dragonfly Consultancy Ltd;

"The sentiments expressed by the Court of Appeal in this case are to my mind more aligned with the approach taken by the tribunal in Usetech than the judgment of the EAT in Propertycare. In these circumstances it is with some diffidence that I set out my conclusions in relation to mutuality:

(i) For there to be an employment contract there must be a contract. That requires some mutual obligations.

(ii) That contract cannot be an employment contract unless the 'employee' is obliged to provide his labour.

(iii) An obligation on the employer to provide work or in the absence of available work to pay is not a precondition for the contract being one of employment, but its presence in some form (such as for example an obligation to use reasonable endeavours to provide work, to allocate work fairly, or not to remove the ability to work eg by removing the pupil to be taught) is a touchstone or a feature one would expect to find in an employment contract and where absence would call into question the existence of such a relationship."

60. I think it appropriate to consider the contexts in which the various cases relied on by the parties for their respective contentions on mutuality of obligations were decided. Ready Mixed Concrete was an "employment status case", decided for the purposes of National Insurance. (Market Investigations was also a status case, but the question of mutuality of obligations was not considered.) Global Plant was also a status case. At p 389, Lord Widgery CJ commented:

"Under the new arrangement, there is no obligation on Mr Summers to work at all; it merely provides that if and when he works he shall be remunerated on a particular basis. I fully recognise that there is here a difference, and a difference which might be of some significance, because it is much more consistent with a contract for services that contract of service that the employee may pick and choose, as it were, the times when he shall work. But . . . I have little doubt that the intention of the parties was that Mr Summers should continue to work exactly as he had done before even though in terms his new bargain did not require him to do so."

61. Lord Widgery then cited a passage from Cooke J's judgment in Market Investigations referring to a series of contracts being more consistent with their being contracts for services rather than contracts of service. Cooke J had doubted whether this factor should be considered in isolation; it should be considered in connection with the question whether the worker could be said to be in business on her own account. Lord Widgery saw significance in the point, but did not consider it conclusive in itself or of overwhelming importance.
62. Nethermere was a case determining whether workers were entitled to make claims for unfair dismissal. Mr Blair's contention before the Industrial Tribunal on behalf of the company had been that there must be mutual obligations before a contract of service could exist, ie "a continuing obligation on the employer to provide work and pay and a continuing obligation on the employee to do the work provided". At [26] Stephenson LJ cited a passage from the judgment of Slynn J in Airfix Footwear [1978] IRLR 396, in which it had been recognised that sporadic provision of work in circumstances where the worker could choose whether to accept it might well not amount to a contract of employment; however, this could amount to a number of separate contracts of employment. Stephenson LJ rejected Nethermere's argument that there were no reciprocal obligations. It had not been argued that the workers in Nethermere were employed under a series of separate contracts. He considered that the Tribunal had held that the work done by the workers for Nethermere "had created a continuing contract of service".
63. Dillon LJ said:

"[60]. For my part I would accept that an arrangement under which there was never any obligation on the outworkers to do work or on the company to provide work could not be a contract of service. But the mere facts that the outworkers could fix their own hours of work, could take holidays and time off when they wished and could vary how many garments they were willing to take on any day or even to take none on a particular day, while undoubtedly factors for the Industrial Tribunal to consider in deciding whether or not there was a contract of service, do not as a matter of law negative the existence of such a contract."

64. Carmichael involved a claim by the workers for written particulars of the terms of their employment. The Industrial Tribunal had held that their case had "founder[ed] on the rock of absence of mutuality, that is when not working as guides, they were in no contractual relationship of any kind with CEGB". Lord Irvine LC said, at p 391:

"If this appeal turned exclusively—and in my judgment it does not—on the true meaning and effect of the documentation of March 1989, then I would hold as a matter of construction that no obligation on the CEGB to provide casual work, nor on Mrs Leese and Mrs Carmichael to undertake it, was imposed. There would therefore be an absence of that irreducible minimum of mutual obligation necessary to create a contract of service (Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at 623 per Stephenson LJ and Clark v Oxfordshire Health Authority [1998] IRLR 125 at 128 (para 22) per Sir Christopher Slade)."

65. Montgomery was an unfair dismissal case. The question was whether the worker was an employee of the employment agency which had placed her with a company where she had worked for two and a half years. Buckley J in the Court of Appeal indicated at [27] that there had been no finding of any overall contract. In reviewing the decision of the Employment Appeal Tribunal, Buckley J said:

"[40]. For my part I would accept that an offer of work by an agency, even at another's workplace, accepted by the individual for remuneration to be paid by the agency, could satisfy the requirement of mutual obligation. I put it no higher because it would be necessary to look at the circumstances carefully and realistically. It may, for example, be more difficult to find that necessary mutuality in a very short assignment as opposed to one which was or had become more permanent. Since I have reached the conclusion that I have on "control", I prefer to say no more on this aspect of the matter, particularly as it was not really explored before the Tribunal."

66. Stephenson v Delphi Diesel Systems Ltd also concerned unfair dismissal. It related to the question whether Mr Stephenson had sufficient continuity of employment. His initial work had been provided through an employment agency. Elias J said:

"[11]. The significance of mutuality is that it determines whether there is a contract in existence at all. The significance of control is that it determines whether, if there is a contract in place, it can properly be classified as a contract of service, rather than some other kind of contract".

He continued:

"[12]. The issue of whether there is a contract at all arises most frequently in situations where a person works for an employer, but only on a casual basis from time to time. It is often necessary then to show that the contract continues to exist in the gaps between the periods of employment. Cases frequently have had to decide whether there is an over-arching contract or what is sometimes called an "umbrella contract" which remains in existence even when the individual concerned is not working. It is in that context in particular that courts have emphasised the need to demonstrate some mutuality of obligation between the parties but, as I have indicated, all that is being done is to say that there must be something from which a contract can properly be inferred. Without some mutuality, amounting to what is sometimes called the "irreducible minimum of obligation", no contract exists.

[13]. The question of mutuality of obligation, however, poses no difficulties during the period when the individual is actually working. For the period of such employment a contract must, in our view, clearly exist. For that duration the individual clearly undertakes to work and the employer in turn undertakes to pay for the work done. This is so, even if the contract is terminable on either side at will. Unless and until the power to terminate is exercised, these mutual obligations (to work on the one hand and to be paid on the other) will continue to exist and will provide the fundamental mutual obligations.

[14]. The issue whether the employed person is required to accept work if offered, or whether the employer is obliged to offer work as available is irrelevant to the question whether a contract exists at all during the period when the work is actually being performed. The only question then is whether there is sufficient control to give rise to a conclusion that the contractual relationship which does exist is one of a contract of service or not."

67. After citing Buckley J's comment in Montgomery at [40], set out above, Elias J said at [16]:

"With due respect to those observations, it seems to us that in fact however short the assignment there will be the necessary mutuality of obligation so as to establish the existence of a contract with someone, when work is accepted and the obligation to pay arises."

68. Dacas was concerned with the question whether a person who had been supplied by an employment agency to a local authority was able to make an unfair dismissal claim, having provided her services to the local authority for a period of four years. In the Court of Appeal, Mummery LJ referred at [49] to the irreducible minimum of mutuality necessary for a contract of service as being "an obligation to provide work and an obligation to perform it, coupled with the presence of control".
69. Propertycare was an employment rights case. The facts are not fully set out in the Employment Appeal Tribunal's decision, but it is stated at paragraph 9(1) of the decision that: "Each Applicant at various times accepted engagement under the terms of that Agreement which the Employment Tribunal, we are satisfied, found amounted to a contract for services." This indicates that the question involved mutuality of obligation over the series of engagements, rather than looking at each individual engagement. The Employment Tribunal had explained mutuality of obligations as "a wage in return for work". The Appeal Tribunal disagreed; at paragraph 9(3) Judge Peter Clark stated: "The cases, starting with Ready Mixed Concrete [1968] 2QB 497, show that mutuality of obligations means more than a simple obligation on the employer to pay for work done; there must generally be an obligation on the employer to provide work and the employee to do the work."
70. Stuncroft was also an employment rights case. Again, the question related to a series of assignments offered to the worker. As the worker stated that he was not obliged to accept work, the Employment Appeal Tribunal held that there was no mutual obligation.
71. Bunce was an unfair dismissal case. The worker sought to overturn a decision that he had not been an employee either of an employment agency or of a company to which that agency had supplied his services. He had provided his work to the latter company for a period of just over a year. The Appeal Tribunal had upheld the Employment Tribunal's decision that the worker was not entitled to expect a constant stream of work, and did not do so, and that conversely the agency and its client could not rely upon or insist upon the worker's acceptance of assignments offered to him. In examining mutuality, those Tribunals were not considering the individual engagements; this is made clear in the judgment of Keene LJ at [20]-[24], who found that the documentation did not support the argument that there was any form of contract for each individual engagement.
72. Prater examined the question of a working relationship lasting ten years, in which Mrs Prater was offered individual teaching assignments by the Council. She was not obliged to accept an assignment, but if she did, she was required to carry it out and complete it. It was accepted that there was no single "umbrella" contract. She relied on the succession of contracts during the period and on the provisions of the Employment Rights Act 1996 relating to continuity of employment to bridge the gaps between the individual teaching contracts. In these somewhat unusual circumstances, she had to establish continuity by the combination of these two elements.
73. The tribunal had found that there was mutuality of obligation between the Council and Mrs Prater while the individual contracts were in force. For the Council, it was argued in the Court of Appeal that mutuality of obligation within each separate contract was insufficient to create a contract of service if, after the end of the separate contract there was no continuing or further obligation on the Council to offer more work or on Mrs Prater to accept more work. The Court of Appeal held that there was mutuality within the individual contracts. Mummery LJ said:

"[40]. (5) Nor does it make any difference to the legal position that, after the end of each engagement, the Council was under no obligation to offer her another teaching engagement or that she was under no obligation to accept one. The important point is that, once a contract was entered into and while that contract continued, she was under an obligation to teach the pupil and the Council was under an obligation to pay her for teaching the pupil made available to her by the Council under that contract. That was all that was legally necessary to support the finding that each individual teaching engagement was a contract of service."

74. Longmore LJ said:

"[43]. I cannot accept this submission. There was a mutuality of obligation in each engagement namely that the County Council would pay Ms Prater for the work which she, in turn, agreed to do by way of giving tuition to the pupil for whom the Council wanted her to provide tuition. That to my mind is sufficient "mutuality of obligation" to render the contract a contract of employment if other appropriate indications of such an employment contract are present."

He commented that if Mrs Prater had been seeking to prove that there was a long-term or global contract of employment, the absence of obligations on the Council's part to offer her work and on her part to accept such an offer would mean that no such long-term or global contract existed.

75. Lewison LJ said:

"[51]. The question whether there is mutuality of obligation is not the complete test for determining whether a contract of service exists. I would have thought that the question of mutuality of obligation goes to the question whether there was a contract at all, rather than what kind of contract there was, if a contract existed. However the alleged lack of mutuality of obligation is the only ground of appeal."

76. Thus, with the exception of Prater, and ignoring for the present the "status" cases, all the above cases in which mutuality of obligation has been considered have related to the question of mutuality in a series of assignments and not to mutuality within an individual assignment. Within a single assignment, I question whether it is necessary to look for "an obligation to provide work and an obligation to perform it", to use the phraseology adopted in Dacas at [49]. The bargain is that the putative employer actually provides the work, and the putative employee agrees for a consideration to perform that work.
77. An illustration may assist. A shopkeeper needs help for a single Saturday morning. He asks a nephew to help by working in the shop on that day, for an appropriate payment. There is no suggestion that the arrangement will ever be made again. Whether the bargain amounts to a contract of employment (albeit for a very short term) does not depend on the mutual obligations which the parties have entered into; those obligations already exist, and the contract will either be performed or not. The only way of establishing whether the arrangement amounts to a contract of employment is to look at the other factors mentioned by McKenna J in Ready Mixed Concrete.
78. I am persuaded by the comments of all three members of the Court of Appeal in Prater, as set out above, that mutuality in relation to individual assignments does not require the elements mentioned in the cases relating to a series of assignments. As Mr Seaman argued, the employment rights cases are set in a different legal framework; in employment status cases, an ongoing relationship is not required. (As an example, the workers in Carmichael were on the payroll for PAYE purposes when they were working on their individual assignments, even though at the beginning they worked about three and a half hours a week; there was no suggestion that this was affected by the decision that there was no mutuality over the continuing period of their relationship with CEGB.) Whether mutuality in the context of continuing assignments has a different meaning is a question that I consider better to leave to those who have to examine questions relating to employment rights; as will be seen from the various passages cited above, views on this question differ.
79. I regard this conclusion on the meaning and application of mutuality in relation to individual assignments as entirely consistent with the comments of McKenna J in Ready Mixed Concrete at pp 439-440, and in particular with the first condition:

"(i) The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master."

80. Both Mr Smith and Mr Seaman referred to the "irreducible minimum of obligation". In Montgomery at [23], Buckley J referred to:

". . . the quoted passage from Ready Mixed Concrete as still the best guide and as containing the irreducible minimum by way of legal requirement for a contract of employment to exist."

The passage quoted was McKenna J's statement of the three necessary conditions. Buckley J cited Stephenson LJ in Nethermere:

"There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service. I doubt whether it can be reduced any lower than in the sentences I have just quoted . . ."

81. It is not entirely clear which sentences Stephenson LJ was referring to; at [21] he set out McKenna J's amplification (at [1968] 1 All ER 440) of condition (i):

"As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind."

82. Stephenson LJ had previously set out at [20] McKenna J's explanation of the three conditions. It is possible to read Stephenson LJ's judgment as confining the "irreducible minimum" to the necessity for consideration in terms of mutual obligations, rather than bringing in all three of McKenna J's conditions. In Montgomery, Buckley J referred at [23] to the quoted passage from Ready Mixed Concrete as permitting Tribunals "appropriate latitude in considering the nature and extent of "mutual obligations" in respect of the work and the "control" an employer has over the individual."
83. Thus Buckley J's conclusion is that the irreducible minimum requires examination of the two elements, mutuality of obligations and control.
84. Having reviewed the question of mutuality in some detail, I consider that my comments in Parade Park Hotel in relation to mutuality of individual assignments should be seen as having been made in the context of the unusual (if not unique) circumstances of that case. The threshold for mutuality in individual assignments is modest, but the question of mutuality on its own cannot establish the nature of the contract. For this, the other factors must be examined. Before turning to the review of the facts in the light of all the relevant tests, I need to comment on the nature of the evidence.

The nature of the evidence

85. In the course of reviewing JL Windows' operation of the Construction Industry Scheme and the terms and conditions applying to the workers, officers of HMRC held a meeting with Mr and Mrs Littlewood and individual meetings with four of the workers. No professional advisers were present at these meetings. HMRC produced notes of each meeting. The note was sent to the relevant person with a request for any amendments and a further request for that person to sign and date one copy and return it to the officer within 21 days. The officer stated: "in the absence of any response, I will assume the notes accurately reflect our record of the meeting which took place on [date]."
86. Mr and Mrs Littlewood signed and returned without amendment the note of the meeting between them, Mrs Howe and Mr Fakes. Mr Lindley signed and returned the note of the meeting between him, Mrs Kahler and Mr Rees of HMRC, but made a number of amendments and additions to the note. Mr Worth (who did not give evidence) signed and returned the note of the meeting with Mrs Howe, but also made various amendments. Mr Greenwood did not sign or return a copy of the note of the meeting between him, Mrs Howe and Mrs Fakes. In evidence he explained that he had refused to do so, as he did not think that the note looked as if it showed what he had said. Mr Lindley said that he had not expected the note to be used in evidence, and pointed out that he had been interviewed at a time when he was looking after his three children at home, they having learning difficulties of Asperger syndrome and dyspraxia.
87. Mr Smith argued that the evidence given by the witnesses under oath or affirmation should be preferred to the records in HMRC's notes; Mrs Howe had accepted that the notes were not verbatim records of the responses given at the meetings. The original notes on which the meeting notes had been based had not been produced in evidence by HMRC. Mr Seaman submitted that the evidence gathered by the officers was better than the accounts presented by the workers.
88. As indicated in Parade Park Hotel, I think it inappropriate to treat notes of meetings as uncontested accounts of contemporaneous discussions. The meetings in the present case were held without any form of professional representation. It is not possible to tell to what extent the answers given were the result of questions being put in such a way as to lead the interviewee to give answers in a particular form. Nor were the notes considered after the meetings by any professional advisers in order to check whether they gave a fair indication of the position. However, the subsequent involvement of professional advice in the preparation of evidence could also have resulted in an approach to the evidence tending to prefer particular conclusions. In the circumstances, I do not feel that I should disregard the notes of meeting, but I treat them with some caution in deciding what weight to place on the answers given. In relation to the witness evidence, I also exercise caution in deciding on its strength.

The tests as applied to the facts

89. Mr Smith argued that there was no mutuality in the overall relationship between workers and JL Windows, because there was no obligation on JL Windows at any stage to offer work to any of the workers and no obligation on them to accept it. This reflected Mr Littlewood's evidence; he referred to occasions when workers would not turn up for a job, and other times when they would leave the site without telling him or anyone else. Mr Gilligan's evidence was that JL Windows did not have to offer him a job and he did not have to accept the work which they offered him; he had refused various jobs for a number of reasons, in some cases because he did not want to work away from home. A number of the other witnesses indicated that they had refused offers of work.
90. Mr Seaman did not seek to rely on continuity of the relationship, but drew attention to the payment sheets shown in the evidence. These indicated a great deal of continuity for some workers, for much of the year. Thus continuity was a part of the picture.
91. Although in practice some of the workers did have continuity, I do not think that there was mutuality in the long-term sense of providing continuity of the engagement. If mutuality in this sense does require an obligation to provide work and an obligation to perform it, both on a continuing basis, I do not find sufficient evidence of these obligations on either side. The records show, with hindsight, that various workers did have continuity in their assignments, but I do not feel that this can be taken as evidence of obligations in respect of that continuity.
92. Mr Seaman's argument as to mutuality was directed towards the individual engagements; he submitted that there was mutuality for as long as each contract and related engagement lasted. Mr Smith argued that there was no mutuality within individual engagements; he cited the example of the Pendant project at Norwich. All involved had thought that it was an ongoing commitment; it could not be priced as it was to continue for so long. The job had just simply stopped. Mr Smith argued that this had demonstrated the lack of mutual obligations within that contract. About ten or twelve men had been working on the job, and all had lost the outstanding payment for the final week's work.
93. For the reasons set out above, I do not regard it as necessary in relation to an individual engagement to show that there is an obligation to provide work and an obligation to perform it. I consider that there was mutuality of obligation in each of the individual assignments undertaken by each of the workers. The worker agreed to carry out the work, and JL Windows agreed to pay the worker for that work. (This was as much the case for the Pendant project as for any of the other assignments, even though the contracts were terminated as a result of Pendant going into administration.) The possibility of termination without notice does not affect the question whether there was mutuality of obligations, as confirmed by Elias J in Stephenson at [13]. This must be the case whether the termination is made by the person engaging the worker, or by the worker. As I have indicated, this finding that there was mutuality of obligations within each assignment is not enough to determine the nature of the contract.

Personal service

94. The next element of the first condition is derived from McKenna J's words as cited above, "he will provide his own work and skill". This is the question of personal service and substitution. Mr Smith accepted that a right of substitution had not been discussed. However, whether a worker took on a substitute, or merely someone to help, the requirement for personal service was broken. This went to the question whether the terms of the arrangement were consistent with a contract of service. On the question of personal service, he referred to the comments of McKenna J in Ready Mixed Concrete [1968] 1 All ER 433 at 440 that it was the power of delegation which mattered, not the frequency of its use; occasional use was not the test. I do not interpret McKenna J's comments in this way; what he said was:

"Freedom to do a job either by one's own hands, or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be."

Thus he was saying that a power of delegation, if limited or occasional, could still exist without preventing the conclusion that the contract in question was one of employment.

95. Mr Littlewood's evidence was that he would assume that on most jobs they would use their own helpers. He said that a worker called Darren Rimmington had brought and paid his own men. In the same way, Alan Furniss had brought in a helper; Mr Littlewood had paid Mr Furniss, and assumed that the latter had in turn paid the helper. The same had happened with a worker named Gooch. On one occasion Ian Gilligan had told Mr Littlewood that he was due to be away on holiday and arranged for his father to work for two weeks in his place; as what Mr Gilligan described as "a favour", Mr Littlewood had paid Mr Gilligan senior direct. At some point in the year 2000 Jamie Hoult had used a helper to finish a job in Sheffield; he had taken him on for about a month and then paid him direct by way of "cash in hand", with no CIS deduction. Mr Hoult did not think that Mr Littlewood had been aware of this.
96. Mr Seaman referred to Mr Littlewood's statement in correspondence that he had paid Mr Furniss' helper, Paul Naylor, direct, as he had brought along his own "CIS 4" card. Mr Seaman argued that where the helper was paid direct, this created a separate contract with that helper and that this contract was a contract of service; at the very least it was a separate contract, and did not show that the earlier contract with the worker was itself a contract for services. He accepted that there had been confusion over HMRC's treatment of the arrangements with Mr Gooch, but in any event Mr Gooch had been left out of the determinations and decisions. Mr Hoult had been unable to provide any other examples of using helpers during the ten years for which he had worked for JL Windows. In relation to Darren Rimmington, the only record of payments to him was for 2004-05, some of which in February and March 2005 having either been split between cheque payments and cash payments, or consisting wholly of cash. Appropriate inferences would have to be drawn as to the extent to which the respective workers were paid out of the money.
97. I find the evidence by no means conclusive in determining the extent to which helpers were paid direct by JL Windows, as opposed to being paid by the worker whom the relevant helper had assisted. To some extent the question is linked to the separate questions of the basis on which the workers were paid, and of whether the workers could be said to be in business on their own account. Both of these questions are considered below. However, on the evidence the use of helpers can only be described as occasional. I do not see this as a significant factor in determining the nature of the contracts between the workers and JL Windows, in the light of McKenna J's reference to "a limited or occasional power of delegation".

Control

98. The next condition to consider is that of control, confirmed by Buckley J to be part of the "irreducible minimum". McKenna J's second condition is:

"(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master."

Mr Smith submitted that on the evidence there was no actual day to day control of the workers. Mr Littlewood did not necessarily know what was going on all the time. He had not retained control. The workers were not highly technical specialists. There was a certain amount of liaising and discussing, but instructions to the workers came mainly from the door company or the end client. In Mr Smith's submission, it was clear from MAL Scaffolding and Revenue and Customs Commissioners v Wright that control was not to be delegated to a third party; this superseded the view expressed in Global Plant. On questions such as the way in which the workers did their work, it was impossible on the evidence to reach the view that JL Windows had control over them.

99. Mr Smith argued that Mr Seaman's interpretation of "control" watered down 40 years of case law. It was not correct to refer to "incidental interference". In Ready Mixed Concrete at 440, in explaining the second condition relating to control, McKenna J had cited the Zuijus v Worth Brothers case. Mr Smith argued that it was misreading the passage to suggest that control in incidental matters was enough. The crucial question was whether the degree was enough for the control to amount to a relationship between a master and a servant.
100. As the workers could choose in relation to the various matters mentioned by McKenna J in the latter passage, the requirements set out there were not fulfilled. Mr Littlewood was not on the site telling the workers how to do their work. The workers operated in gangs of fixers. The charge hand would have discussions with the door company or the main client. Mr Smith considered that the choice of place of work was a neutral factor. He argued that there was a minimal amount of interference, and that this was not enough to amount to control. He compared the involvement of the charge hands to that of the senior scaffolders in MAL Scaffolding. All the scaffolders in that case had been held to be self-employed. The jobs had been run by the senior scaffolders, but this had not been regarded as amounting to control.
101. Other factors referred to by Mr Smith were working in teams in which the charge hands were spokespersons, the arrangements for pricing work and dividing the price among the members of the teams, absence of control as to hours worked or working for other clients, choice whether to move from one site to another, and choice of when to take leave.
102. Mr Seaman argued that even when McKenna J had formulated his three tests, he had recognised that the degree of control need only be slight. Mr Seaman also contended that the significance of control had diminished as the case law had developed, but that all authorities agreed that a measure of control must exist in order for the relationship to be one of employer and employee. It was the right to exert control that was significant, regardless of whether that right was exercised. He referred to a number of factors as relevant to the question:

(1) He argued that the charge hands carried out a supervisory function.

(2) Movement of workers between sites.

(3) Completion of time sheets.

(4) Arrangements for training; Mr Littlewood sent workers on courses, whether or not he ultimately bore the cost.

Mr Seaman argued that the first and second of these factors were sufficient to constitute "control" within McKenna J's second test.

103. Mr Seaman referred to Mr Littlewood's responses at the interview with Mrs Howe. Mr Littlewood had said that there was a charge hand on each site; the charge hands checked the work and compiled lists showing work details of the people on site and which days they had worked. He had said that he appointed the charge hands. The extent to which the workers needed instruction varied with their experience; the charge hands were needed for the less experienced workers. The charge hands told the other workers what to do day by day. In his interview with Mrs Howe, Mr Lindley had described himself as a "window fixer foreman". Mr Seaman argued that the quality and accuracy of the work would be checked by the charge hands and by Mr Littlewood and his son Darren. Although I accept that the charge hands checked the work, the evidence was that Mr Littlewood checked the overall progress of the work. There was no specific evidence that Darren Littlewood had carried out the latter task, although he had worked as a charge hand, before becoming seriously ill.
104. Mr Seaman argued on the basis of answers given at the interviews that the movement of workers between sites showed that Mr Littlewood controlled them and used them as resources of JL Windows' business. In relation to time sheets, if the workers were sub-contractors they might have been expected to invoice for their services or at least to complete their own time sheets. Sending workers on training courses was also an indication of a degree of control.
105. I accept that what is required for the control test can be satisfied by the retention of a right of control, although I am not persuaded that control over merely incidental matters is likely to suffice. I do not consider that the arrangements amount to a "control" relationship. The workers operated in teams, and the charge hands spoke for those teams, both in dealing with Mr Littlewood in relation to the pricing of a particular job, and in dealing with either the door company or the site contractor. On the basis of a particular worker's experience, Mr Littlewood might choose him to be a charge hand to represent a team of workers, but I am not convinced that this amounted to a process of appointment. The question is whether the charge hands could be seen as representing Mr Littlewood and acting on his behalf in giving instructions to the other workers.
106. Taking into account the evidence from Mr Littlewood and the various workers, my conclusion is that the workers acted independently of Mr Littlewood and agreed matters within their teams, membership of which was not chosen by Mr Littlewood. The team members had to act within the instructions of the persons running the site. Mr Littlewood's site visits were to check the progress of the job, to ensure that the contract was being fulfilled and to take account of any changes needed to the pricing to allow for extra work which had not been included in the fixing of the price charged by JL Windows to its client.
107. In relation to movement of workers between sites, the evidence of several workers was that they could not be made to move from one site to another if they did not want to. They said that requests to move did not come from Mr Littlewood but from the window company or door company, although Mr Littlewood's evidence was that he could ask them but that they did not have to move if they did not want to. There was no evidence that any worker had refused to move site, although several workers said that they had not accepted offers of work in locations where they did not wish to work. Although Mr Littlewood said at the meeting with Mrs Howe that the workers could be moved to jobs for which a price had not been agreed, it is not clear from the note of interview whether Mr Littlewood had been asked whether the decision to make the move was his or that of the company for which the work was being carried out. As it is not clear that this was within his control, I do not think that it can be included as a factor in assessing whether he had control over the workers in such a way as to fulfil the test.
108. Preparation of the full time sheets was carried out by Mrs Littlewood; time sheets were not submitted by all the workers, although some did so. Although the full time sheets were produced by Mrs Littlewood, I do not think that this suggests control. Records needed to be collected to show how much work had been done on a particular job, not least because JL Windows needed to know what proportion of the agreed price payable to a team had been paid out, based on the agreed day rates; this enabled Mr Littlewood to decide whether to approach JL Windows' client to seek extra payment to cover unexpected cost. Not all the workers would have been able to produce time sheets or invoices themselves; in some cases they had difficulty with reading or writing. I regard the preparation of time sheets as a neutral factor in relation to control.
109. In the same way, the provision of training is a neutral factor. The evidence was that if the cost was initially paid by JL Windows, it was recovered from the worker's "price" for a job. It was also stated that if a worker arrived at a site without evidence of relevant training, he could not be allowed on to the site; the appropriate "ticket" was required. My conclusion is that as it was in JL Windows' commercial interest to ensure that workers were properly qualified to carry out the work, this was not a matter of control but of protection of that interest.
110. My overall conclusion on control is that JL Windows did not exercise control over the workers within the terms of the second test laid down by McKenna J. In Montgomery, Buckley J said at the end of [23]:

"As several recent cases have illustrated, it directs Tribunals to consider the whole picture to see whether a contract of employment emerges. It is though important that "mutual obligation" and "control" to a sufficient extent are first identified before looking at the whole."

111. Together with his reference to the "irreducible minimum", considered above, this makes clear that mutuality and control must both be established before it is appropriate to move on to other tests to examine the nature of a contract; in other words, in the absence of either of these elements, the contract cannot be seen as one of service and so other tests become irrelevant. On the basis of my finding that there was insufficient control over the workers to meet McKenna J's second condition, the contracts are not contracts of service. This is sufficient to determine the appeal in the Appellants' favour, but in case for any reason my finding as to absence of sufficient control is not upheld, I apply the other tests mentioned by the parties.

Other provisions of the contract

112. McKenna J's third condition for a contract to be one of service is that: "The other provisions of the contract are consistent with its being a contract of service." In the present case, as in MAL Scaffolding, there were no written contracts. With suitable adaptations, the comments of the Special Commissioner, Dr David Williams, at paragraphs 41 and 42 of his decision apply here. Mr Littlewood's evidence was that he took for granted that the workers were self-employed; his practice when taking on a worker was to ask the worker whether he held a CIS card and whether he was registered as self-employed. For every worker he took on during the relevant period, he would ensure that the worker had a CIS card, and would deduct tax at 18 per cent. Mr Lindley said he had been advised by Darren Littlewood to obtain a registration card. From various elements of the evidence, I find that the workers regarded themselves as self-employed; their tax affairs were dealt with on that basis.
113. Mr Seaman referred to the first four examples given by McKenna J in Ready Mixed Concrete [1968] 1 All ER at p 440. He contrasted the first and third, the first being a contract to produce a thing or a result for a price, whereas the third involved the worker helping to produce that thing, but doing so for a wage and not for a price for the finished article.
114. My interpretation of the evidence is that the worker teams, through the charge hands, negotiated a price for each job with JL Windows; the division of the price was arrived at as between the charge hand and the other members of the team, although in some cases the charge had simply decided what the respective team members should receive. Payments to the workers out of their shares of the price were based on the time which they spent on site, so that they were only entitled to "draw down" the proportion calculated by reference to the "day rate" applying to them. The day rates were set in a way designed to leave a balance within the particular contract; once the contract was completed, the balance was divided up on a basis decided by the charge hand. These further payments were described as "bonuses", but really represented the balance of the price due to each worker.
115. Mr Seaman questioned the pricing arrangement on two grounds. The first was that there might be occasions when the time to complete the job resulted in there being no balance left from which to pay the workers for the additional time spent on site. On the basis of Mr Littlewood's evidence that he kept the work under review and was able to negotiate price adjustments with JL Windows' customers, I do not think that the arrangement is inconsistent with carrying out a job for a fixed price. The basis of the contracts between JL Windows and the workers was similar, to provide flexibility to deal with unforeseen additional work.
116. The second ground was that a worker might move from one site to another, so that instead of taking a share of one price, he would be taking a share of another (assuming that share had been negotiated). I do not see the flexibility of being able to ask sub-contractors to move between sites as inconsistent with the concept of "a price for the job"; in each case, the worker would be working on a job for which a price had been agreed. The one major exception was the Pendant project, where JL Windows' pricing, and similarly the work teams' pricing, had to be based on time spent because of the uncertainty as to the length of the project and the amount of work involved. I am satisfied on the evidence that the decision whether to move from one site to another was made by the worker, whether in response to a request from Mr Littlewood or from JL Windows' client or the person controlling the site.
117. Mr Smith drew attention to occasions when workers had to carry out remedial work in their own time and at their own expense. Mr Seaman questioned whether in one case, involving Mr Lindley, this had been the case; at his interview with Mrs Kahler he had said that he had told Darren Littlewood that he should not be paid, but thought that he had been. Mr Lindley, Mr Greenwood and Mr Molloy all gave evidence that they had had to correct defective work at their own expense. On balance I am satisfied on the evidence that this was the case, although the number of occasions was small. I regard this as a minor factor in determining the nature of the contracts between JL Windows and the workers, but more consistent with a contract for services.
118. Other factors which Mr Seaman contended were inconsistent with a contract for services were expenses, training and insurance. Although certain parts of the interview notes can be interpreted as indicating that Mr Littlewood paid the expenses and the costs of training, the notes do not deal with the distinction between payment and ultimately bearing the cost. The evidence was that the expenses and the training costs came out of the "price", even if they had initially been paid by Mr Littlewood. The Pendant project was an exception, because of the different approach to pricing, which is the explanation for the description, in the interview with Mr and Mrs Littlewood, of payment of expenses to two workers. Subject to this, I find that the expenses and training costs were ultimately borne by the workers, and that this is more consistent with the analysis that they were not employees of JL Windows.
119. Mr Littlewood did take out employer's liability insurance. I do not regard this as a persuasive factor. The Health and Safety Executive's Guide to the Employer's Liability (Compulsory Insurance) Act 1969 makes the following comment, after the question: "Do I need Employer's liability insurance for all the people who work for me?" —

"You are only required by law to have employer's liability insurance for people who you employ. However, people who you normally think of a self-employed may be considered as your employees for the purposes of employer's liability insurance."

Whatever the actual status of workers, a person engaging them might well feel, on the basis of this advice, that the prudent course would be to take out insurance rather than risking the possibility of some form of claim based on an allegation that the workers were to be regarded as employees.

120. The one factor less consistent with contracts for services is that the workers did not have their own public liability insurance, and relied on the policy taken out by Mr Littlewood. On its own, I do not find this a persuasive factor.

In business on own account

121. Mr Seaman argued that this test, set out in the judgment of Cooke J in Market Investigations, had developed from McKenna J's third condition. Mr Smith commented that this test had not received universal approval. He argued that the question of the status of the workers in the present case should not be decided by asking whether they were "employed or self-employed"; the question was whether they were employees of JL Windows. He referred to Lewison J's comments in Wright at [4], citing a passage from the judgment of Mummery LJ in Dacas; Lewison J said:

"There is, it seems to me, in modern law no rigid dichotomy between a contract of employment and self-employment."

Mummery LJ had said in Dacas at [49]:

"A tribunal must, however, resist the temptation to conclude that an individual is an employee simply because he is not a self-employed person carrying on a business of his own."

122. If the "in business on account" test can be seen as testing whether the worker is self-employed rather than employed, these comments seem to me to suggest that there is some doubt how appropriate it now is to apply the test. However, in Market Investigations, Cooke J referred to the fact that Mrs Irvine was free to work as an interviewer for others; he had previously said (at [1969] 2 QB 186F): "It is by no means a necessary incident of a contract of service that the servant is prohibited from serving any other employer." As all Cooke J's comments were made in the context of examining whether Mrs Irvine was employed under a series of contracts of service, I do not think that in applying the test he was considering whether she might be self-employed.
123. The workers provided their own hand tools. Mr Seaman referred to McKenna J's third example in Ready Mixed Concrete at p 440, in which the obligation to provide tools was not inconsistent with a contract of service; it was not sufficiently important to affect the substance of the contract. The note of interview with Mr and Mrs Littlewood shows that other equipment was either hired by Mr Littlewood or supplied by the main contractor.
124. Mr Seaman also referred to the absence of hiring helpers. For the reasons already given, I accept that the number of occasions when helpers were used was small, and thus not a material factor in applying this part of the test.
125. Mr Seaman argued that the workers did not take a significant degree of financial risk. I have accepted that the number of occasions when workers had to rectify defective work at their own expense was small; nevertheless, the possibility must have been an incentive to ensure appropriate quality of work. The pricing arrangements, already discussed, did not in practice result in significant financial disadvantage to the workers, as they were "cushioned" against loss on a particular job by Mr Littlewood's practice of reviewing progress and, if appropriate, seeking additional payment from the client, thus enabling a corresponding adjustment of the workers' price to be made. The workers did not have to provide materials, but this was because the door or window company would provide what was required. In his revisions to the note of his interview with Mrs Kahler, Mr Lindley referred to keeping spare materials left over from jobs, in order to avoid delays on later jobs while waiting for materials to be supplied.
126. Also in relation to financial risk, Mr Seaman pointed out that loss of payment when jobs were put off because of bad weather had been disregarded by Lord Widgery in Global Plant at p 391:

". . . I do not think that is the kind of financial risk, or, as it has been put in other cases, the chance of profit or loss, which is a cogent factor in determining whether an arrangement creates a contract for services."

I accept that this factor does not influence the decision.

127. The test of responsibility for investment and management was referred to by Lord Widgery in the same case. Mr Seaman argued that the workers were not required to invest in plant, as this was provided. Use of the workers' cars and the use of Mr Lindley's shed to store materials was simply use of personal assets rather than assets of a business. He argued that Mr Molloy's accounts did not really disclose business activity as such, and contained various personal elements. Mr Seaman accepted that the charge hands had control over the management of the work, but it was his case that this was as agents of Mr Littlewood. I have already concluded that the charge hands were not acting as agents for Mr Littlewood, and thus this element of management is more significant than Mr Seaman contended. The teams operated independently, either with a degree of agreed co-operation or on the basis of actual management of the job by the charge hand, to some extent dependent on the experience of the individual members of the particular team.
128. The workers did profit if the work was completed early, as they had the benefit of their share of the price and could choose whether to take up further assignments, if available, or to take time off by way of leave.
129. As already mentioned, the workers did not issue invoices. Mr Lindley had introduced slips as a form of receipt of payment. He also mentioned at the interview that he completed time sheets for himself and the workers with him. This appears to be of lesser significance, as records were also prepared by Mrs Littlewood. In relation to fixed overheads, Mr Seaman commented that there was no evidence of the workers having these or any real business structure. I do not find these factors persuasive in the context of workers who regard themselves as sub-contractors, providing their labour to others. All those workers who gave evidence made it clear that their intention was to be self-employed.
130. Mr Seaman argued that the workers lacked independence, referring to the pay having been negotiated by the charge hands and being on a "take it or leave it" basis for the workers. I do not accept the argument that the charge hands were the representatives of JL Windows. The decision as to the division of the price was arrived at as between the charge hand and the other team members. I have already referred to payment for training; those who needed to learn by working on jobs received such training from other members of their team. I do not accept that this calls into question the independence of the individual who is learning how to perform the work to the appropriate standard. It is unlikely that a client would want work to be provided by a trainee working on his own, but there is a difference between this and a team including the trainee carrying out the work.
131. The other factor mentioned by Mr Seaman under this heading was public liability insurance, which I have already considered. My overall conclusion on balance, taking into account all the evidence and allowing for the nature of "sub-contractor work", is that for the period under review, the workers were in business on their own account.

"Part and parcel"

132. Mr Seaman referred to McKenna J's lack of enthusiasm for this approach, in Ready Mixed Concrete at p 445, but pointed out that it had been used in such cases as Island Consultants, at paragraph 14(9). In the light of my conclusion that the charge hands were not representatives of JL Windows, even though they were chosen by Mr Littlewood, I do not consider that they or the other members of the teams were part of JL Windows' organisation.

Overall conclusion

133. Although there was mutuality of obligation in the separate contracts, JL Windows did not exercise a sufficient degree of control over the workers to make itself master. This is sufficient to decide that the workers were not employed under contracts of service, and therefore to upheld JL Windows' appeal against the Notices and Determinations, and Mr Molloy's appeal against the Notice of Decision. I do not find the other provisions of the contracts consistent with their being contracts of service. I find that the workers were in business on their own account, albeit in a modest way. I do not consider that the charge hands or the workers were part of JL Windows' organisation. Both the appeals are allowed.

JOHN CLARK

SPECIAL COMMISSIONER

RELEASE DATE: 29 January 2009

SC/3112/2008

SC/3199/2008