Launahurst Limited v Mr Nigel Larner

The appellant employer challenged an employment tribunal's finding that the respondent was an employee for the purposes of Part X of the Employment Rights Act 1996. The employment judge held that clause 11 of a 2004 Contract Supply Agreement was a sham and therefore could be disregarded; on the basis of other factual findings the tribunal concluded the respondent was an employee with continuous service from 1995. The Employment Appeal Tribunal upheld that decision. The Court of Appeal found a procedural error in treating clause 11 as a sham without giving Launahurst notice or an opportunity to address that issue, set aside the ET and EAT decisions, but on the facts found by the ET concluded that the overall relationship was that of a self-employed sub-contractor and dismissed the unfair dismissal claim.

Background and parties: The claimant, Mr Nigel Larner, alleged unfair dismissal by Launahurst Limited (trading as Launa Windows). Launahurst denied an employment relationship, contending that Mr Larner was a self-employed sub-contractor under a Contract Supply Agreement dated 5 December 2004.

Procedural history: The matter was considered on a pre-hearing review in the Employment Tribunal (ET) in Exeter, which found clause 11 of the Contract to be a sham and that Mr Larner was an employee. The Employment Appeal Tribunal (EAT) dismissed Launahurst's appeal. Launahurst then obtained permission to appeal to the Court of Appeal.

Nature of the claim/application: A claim for unfair dismissal raising the preliminary issue of whether the ET had jurisdiction, which depended on whether Mr Larner was an "employee" under the Employment Rights Act 1996 (Part X).

Issues framed by the court:

• whether the ET was entitled to treat clause 11 of the Contract as a sham without giving the employer notice or hearing evidence on that issue;
• whether, putting the sham question aside, the overall factual matrix supported a finding that Mr Larner was an employee or a self-employed contractor; and
• whether procedural irregularity required remittal to the ET for rehearing or whether the Court of Appeal could decide the matter on the factual findings already made.

Court's reasoning and conclusion: The Court of Appeal held that the ET erred in treating clause 11 as a sham without prior notice to Launahurst and without exploration of the point in evidence or submissions; that procedural error required setting aside the ET and EAT decisions. Given the claimant's failure to participate in the appeals, the Court considered the factual findings made by the ET about the working arrangements both before and after the Contract. Those findings — including operation under the Construction Industry Scheme for tax deduction, the contractor's public liability insurance, payment per assignment/commission, absence of holiday pay or sick pay or pension, absence of disciplinary procedures, the Company's no-obligation-to-offer and contractor no-obligation-to-accept provisions (clause 8), and clause 11 — were, on balance, more consistent with self-employment. The Court therefore allowed the appeal and dismissed the claim for unfair dismissal, while noting that the law on sham contractual terms was likely to receive further consideration in the impending Autoclenz appeal to the Supreme Court.

Appeal allowed. The ET erred in treating clause 11 of the 2004 Contract Supply Agreement as a sham without notice to the employer and without evidence on that point; having set aside the ET and EAT decisions, the Court concluded on the factual findings made at first instance that the claimant was a self-employed sub-contractor and dismissed the unfair dismissal claim.

Claim determined at a pre-hearing review in the Employment Tribunal (decision sent 16 March 2009). Employment Appeal Tribunal (HHJ Reid QC) dismissed Launahurst's appeal on 18 August 2009 (UKEAT/0188/09/MAA). Permission to appeal to the Court of Appeal was granted on 19 October 2009; Court of Appeal allowed the appeal ([2010] EWCA Civ 334).