Consistent Group Ltd v Kalwak & Ors

An employment tribunal must give sufficient reasons for resolving a central factual dispute. It must identify material conflicting evidence and explain why one account is preferred. A bare finding that a contractual term is a sham is insufficient.

Contractual obligations arise from the parties’ legal agreement. An express term cannot be displaced by an implied term, and implication requires strict necessity. A term may be rejected as a sham only on a clear finding that both parties intended it to misrepresent their true obligations when the contract was made. Actual conduct alone does not permit the tribunal to rewrite the bargain. These principles apply when determining employee or worker status under the Employment Rights Act 1996.

Claimants recruited from Poland signed documents describing them as self-employed subcontractors. Consistent Group Ltd placed them in work at Welsh Country Foods Ltd. They claimed unfair dismissal compensation and other monetary relief, asserting that they were employees or workers of Consistent.

The Employment Tribunal held that the claimants were employees of Consistent, but neither employees nor workers of Welsh Country Foods. The Employment Appeal Tribunal dismissed Consistent’s appeal. On this further appeal, the central issue was whether the Tribunal had adequately reasoned its findings that the written contract did not reflect the true relationship, that its obligations clause was a sham, and that mutual obligations continued between specific engagements.

Rimer LJ gave the leading judgment. Wilson LJ agreed with both judgments, and May LJ agreed with Rimer LJ and added reasons of his own. The appeal was allowed.

1. The written contract, properly construed, imposed no obligation on Consistent to offer work or on the claimants to accept work. The substitution clause operated only after a particular engagement had been accepted and allowed substitution where the claimant could not perform personally. Such a limited power was not inconsistent with employee or worker status during the engagement, having regard to the requirement of personal service under the Employment Rights Act 1996. The approach in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 was relevant to that analysis.
2. The lower courts’ implied-term reasoning was defective. An implied term cannot contradict an express term: Equitable Life Assurance Society v Hyman [2002] 1 AC 408. Any implication must satisfy strict necessity. The agreement between Consistent and Welsh Country Foods, of which the claimants were unaware, could not by itself justify an implied obligation in the claimants’ contracts.
3. A contractual term can be rejected as a sham only on a clear finding that, when the contract was made, both parties intended it to present a false picture of their true obligations. The tribunal must distinguish a sham from a subsequent failure to respect genuine contractual rights. Snook v London and West Riding Investment Ltd [1967] 2 QB 786 and Shalson and others v Russo and others [2005] Ch 281 supported that principle. The court must identify the parties’ legal obligations rather than infer them solely from performance: Express and Echo v Tanton [1999] ICR 693.
4. The Employment Tribunal had failed to explain why it rejected directly contrary evidence on the central sham issue. It did not analyse the competing witnesses, the work schedules, or the evidence concerning the alleged 48-hour arrangement. This breached the duty to give reasons sufficient to enable the parties and an appellate court to understand why the decision was reached, affirmed in English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605; [2003] IRLR 710.

The order of the EAT and the Employment Tribunal’s judgment were set aside. The relevant issues were remitted for rehearing before a differently constituted employment tribunal.

1. Court of Appeal (Civil Division). By judgment dated 29 April 2008, allowed the appeal, set aside the EAT order and Employment Tribunal judgment, and directed a rehearing before a differently constituted tribunal: [2008] EWCA Civ 430.
2. Employment Appeal Tribunal. On 18 May 2007, Elias J dismissed Consistent’s appeal from the Employment Tribunal: UKEAT/0535/06/DM.
3. Employment Tribunal. Reasons promulgated on 11 September 2006 held that the claimants were employees of Consistent under contracts of employment, but were neither employees nor workers engaged by Welsh Country Foods.