Consistent Group Ltd v Kalwak & Ors

The Court of Appeal allowed an employer's appeal against an Employment Tribunal decision finding Polish workers to be employees of an employment agency. The central legal issues were the correct characterisation of the contractual relationship (contract of service versus contract for services), the proper application of the law on sham contractual terms and the circumstances in which terms may be implied into a contract. The court emphasised the statutory definitions in section 230 of the Employment Rights Act 1996, the Ready Mixed Concrete test for a contract of service and the strict necessity test for implying terms, and found that the tribunal had misinterpreted the written contract, failed to explain why an express term was to be treated as a sham and unjustifiably implied terms inconsistent with express provisions.

The Court of Appeal concluded that the Employment Tribunal’s reasons were inadequate on a key factual and legal point (whether the obligation to accept work existed) and that the tribunal had not addressed or weighed material conflicting evidence. The result was that the tribunal’s decision and the Employment Appeal Tribunal’s dismissal of the appeal were set aside and the matter was remitted for rehearing before a differently constituted tribunal.

Background and parties:

• The claimants, Polish nationals placed in the United Kingdom by Consistent Group Limited (an agency), brought claims for unfair dismissal under section 152 of the Trade Union and Labour Relations (Consolidation) Act 1992, for breach of contract (notice pay) and for unlawful deductions from wages. Welsh Country Foods Limited was the end-user client. A preliminary issue determined whether the claimants were employees or workers and whether that status was with Consistent or with WCF.

Procedural history:

• An Employment Tribunal (Chairman Mr E. Lloyd Parry) held the claimants were employees of Consistent and allowed the claims to proceed (11 September 2006). The Employment Appeal Tribunal (Elias J, President) dismissed Consistent’s appeal (18 May 2007, UKEAT/0535/06/DM). The appeal to the Court of Appeal followed.

Nature of the issue and relief sought:

• The only ground of appeal to the Court of Appeal was that the Employment Tribunal’s decision was insufficiently reasoned; the appellant sought the setting aside of the tribunal’s decision and a re-hearing.

Issues framed by the court:

1. Whether the contractual documents established a contract of service (employee) or a contract for services (self-employed).
2. Whether provisions in the written contract (notably the “Obligations” and substitution clauses) were a sham and, if so, whether that justified implying a mutual obligation to provide and accept work (an umbrella contract).
3. Whether the tribunal had given adequate reasons and addressed conflicting evidence.

Court’s reasoning:

• The Court of Appeal examined the written documentation (a purported self-employed subcontractor’s contract and a supplemental document) and statutory definitions in section 230 ERA. It noted the Ready Mixed Concrete criteria (personal service, control and consistency) and that terms cannot be implied if they contradict express terms. The court found the Employment Tribunal had misread parts of the contract, failed to explain how it reached the conclusion that an express obligation not to accept work was a sham, and had not identified or weighed material conflicting evidence (including witnesses for Consistent and contemporaneous schedules and client evidence).
• The Court criticised the tribunal’s use of an agreement between Consistent and WCF (dated after the events) and the tribunal’s implication of mutual obligations without the requisite necessity or explanation; it held that a finding that an express term was a sham requires evidence that both parties intended to present a false picture of their agreement.
• The Employment Appeal Tribunal had attempted to justify the tribunal’s conclusion by reference to practical realities and decided implications, but the Court of Appeal nonetheless held the tribunal’s reasoning was manifestly unsatisfactory and that the parties were entitled to a properly reasoned decision.

Disposition: The Court allowed the appeal, set aside the Employment Tribunal and EAT decisions and ordered a rehearing before a differently constituted employment tribunal.

Appeal allowed. The Court held that the Employment Tribunal misinterpreted the contractual documents, failed to give adequate reasons for treating express terms as a sham and unjustifiably implied terms inconsistent with express provisions; the tribunal’s decision (and the EAT’s dismissal) was set aside and the issues remitted for rehearing before a differently constituted employment tribunal so that conflicting evidence and the proper legal tests (including the necessity test for implication and the Snook test for sham) can be addressed.

Employment Tribunal (Chairman Mr E. Lloyd Parry) decision 11 September 2006 (found claimants employees of Consistent); Employment Appeal Tribunal (Elias J, President) dismissed Consistent’s appeal 18 May 2007 (UKEAT/0535/06/DM); appeal to Court of Appeal allowed [2008] EWCA Civ 430 (29 April 2008) and matter remitted for rehearing before a differently constituted employment tribunal.