Revenue and Customs v Thorn Baker Ltd & Ors

For statutory sick pay, agency workers are treated as employees working under contracts of service by the Social Security Contributions and Benefits Act 1992 and regulations made under it. That statutory assumption means that an agency worker is employed under a fixed-term contract for the purposes of Regulation 19 of the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. Regulation 19 therefore excludes agency workers from the effect of Regulation 11, including its repeal of the short-contract exclusion in Schedule 11. The result is unaffected by the contractual terms between the worker, the employment business and the recipient. The court rejected an interpretation designed to preserve the exclusion for one category of worker and declined to speculate about the Regulations’ purpose.

Thorn Baker supplied agency workers to a factory. Two workers claimed statutory sick pay during periods of incapacity, but Thorn Baker refused payment because their contracts of service were for periods not exceeding three months. The General Commissioners and Lewison J held that neither worker was entitled to payment under Schedule 11 paragraph 2(b) of the Social Security Contributions and Benefits Act 1992 ([2006] EWHC 2190 (Ch)). HM Revenue and Customs appealed. The central issue was whether Regulation 11 of the 2002 Regulations repealed the exclusion for agency workers, having regard to Regulation 19. A fallback issue concerned whether the workers’ actual arrangements were contracts for services rather than contracts of service.

The appeal was dismissed unanimously. Moses LJ gave the leading judgment, with Hallett and Auld LJJ agreeing.

1. Statutory status. Section 151(1) of the Social Security Contributions and Benefits Act 1992 requires incapacity in relation to an employee’s contract of service. By section 163(1), the Social Security (Categorisation) Regulations 1978 and the Statutory Sick Pay (General) Regulations 1982, agency workers are treated as employees working under contracts of service for Part XI. Without that statutory route, no entitlement to statutory sick pay would arise.
2. Effect of Regulation 19. Regulation 11 of the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 omitted Schedule 11 paragraph 2(b), which excluded entitlement where a contract of service was entered into for a specified period of not more than three months. Regulation 19 excluded agency workers from the effect of those Regulations in relation to employment under a fixed-term contract. Since agency workers are statutorily treated as employed under contracts of service, Regulation 11 fell within that exclusion.
3. Scope of the exclusion. The exclusion applied whatever the terms of the workers’ engagement with Thorn Baker or the persons to whom they were supplied. It was unnecessary to determine whether the underlying arrangements were contracts of service or contracts for services.
4. Construction and purpose. The court rejected the proposed canon that an interpretation should be avoided merely because it preserved a statutory condition for one category of earner while removing it for another. The words referring to the Regulations as a whole made an express statement subjecting Regulation 11 to Regulation 19 unnecessary. The court also declined to infer the purpose of the Regulations from the National Insurance consequences.
5. Vires. It was unnecessary to decide the vires argument under sections 45 and 51(1) of the Employment Act 2002. The construction adopted was consistent with Directive 99/70/EC and maintained the statutory restriction on statutory sick pay for agency workers on short-term assignments.

1. Court of Appeal (Civil Division) dismissed HM Revenue and Customs’ appeal.
2. High Court, Chancery Division Lewison J upheld the General Commissioners’ conclusion that the agency workers were not entitled to statutory sick pay: [2006] EWHC 2190 (Ch).
3. General Commissioners held that the agency workers were excluded from statutory entitlement because their contracts of service were for specified periods not exceeding three months.