Launahurst Ltd v Arner

Employment status is determined by assessing the relationship in the round. Mutuality of obligation is an essential feature of employment. Regular commission payments and limited choice of assignments may indicate employment, but carry little weight where the wider arrangement shows independent commercial activity, including responsibility for tax and insurance, task-based work, own tools and no employee benefits. A tribunal must give a party notice and a fair opportunity to address any proposed finding that contractual terms are a sham. Where the relevant facts have already been found and a further hearing would serve no useful purpose, the appellate court may decide the status issue itself.

Mr Nigel Larner complained that Launahurst Limited had unfairly dismissed him. Launahurst denied employing him and relied on a Contract Supply Agreement describing him as a self-employed subcontractor. The Employment Tribunal held that he was an employee and treated the agreement’s entire-contract clause as a sham. The Employment Appeal Tribunal dismissed Launahurst’s appeal in UKEAT/0188/09/MAA. Launahurst appealed to the Court of Appeal, challenging the sham finding, the assessment of employee status and the resulting jurisdiction to determine the unfair-dismissal complaint. The central issue included how the appeal should be disposed of given that the sham issue had not been raised or tried before the tribunal.

1. Appeal allowed. The Employment Tribunal committed a serious procedural error by finding that clause 11 was a sham without informing Launahurst that the issue was under consideration or giving it an opportunity to adduce evidence and make submissions. The Employment Tribunal and Employment Appeal Tribunal decisions were set aside.

2. The Court of Appeal declined to determine the sham issue itself. Mummery LJ expressed no view on the current state of the law, noting that the issue was expected to receive fuller treatment in Autoclenz Ltd v Belcher [2009] EWCA Civ 1046; [2010] IRLR 70. Richards LJ additionally considered that there was no evidential basis for finding a sham where neither party had suggested that the agreement failed to reflect their true intentions.

3. Remission was unnecessary. The relevant facts had been found after evidence from both parties, the case had already been heard at three levels, and Mr Larner had not participated in the appeals. In the interests of justice, the court could determine the issue on the existing findings.

4. Looking at the relationship in the round, the facts were more consistent with self-employment. Mr Larner was responsible for his own tax and insurance, was paid per assignment, used his own tools, had no sick pay, holiday pay, pension or disciplinary procedure, and could work in his own way and at his own pace. Regular remuneration and lack of direct control over job allocation were weak indications of employment, while outward appearance carried little weight.

5. Richards LJ held that clauses 8 and 11 strongly supported the conclusion. Clause 8 imposed no obligation on Launahurst to offer work and no obligation on Mr Larner to accept it. Such mutuality was an essential feature of employment, as recognised in Clark v Oxfordshire Health Authority [1998] IRLR 125. Rimer LJ agreed with both judgments. The relationship fell outside a reasonable expectation of statutory protection under Part X of the Employment Rights Act 1996. The appeal was allowed and the claim for unfair dismissal was dismissed.

• Court of Appeal (Civil Division): [2010] EWCA Civ 334, 30 March 2010. Appeal allowed and claim dismissed.
• Employment Appeal Tribunal: UKEAT/0188/09/MAA, judgment of HHJ Reid QC dated 18 August 2009. Appeal dismissed and Employment Tribunal decision upheld.
• Employment Tribunal, Exeter: held that Mr Larner was an employee and that clause 11 of the Contract Supply Agreement was a sham.