Autoclenz Limited v Belcher and others

When employment or worker status is disputed, written terms do not necessarily represent the parties’ true agreement. The tribunal must determine their actual legal obligations from all the circumstances. It must consider the written agreement, the parties’ conduct and expectations, and their relative bargaining power.

Conduct may show that a written term is not genuine, although non-exercise of a contractual right is not conclusive. A genuine substitution right is inconsistent with an obligation of personal service. An unrealistic substitution clause may, however, be disregarded where it was never part of the actual agreement. Labels such as “self-employed” cannot displace obligations which, objectively assessed, establish personal service for remuneration, mutuality of obligation and sufficient control.

Autoclenz Limited v Belcher and others concerned 20 car valeters who claimed minimum-wage payments and paid annual leave. Their written agreements described them as self-employed subcontractors, denied mutual obligations and contained a substitution clause. The practical arrangements required the valeters to attend, perform the work personally and work under Autoclenz’s direction.

The Employment Tribunal decided as a preliminary issue that the valeters were workers under both limbs of regulation 2(1) of the National Minimum Wage Regulations 1999 and regulation 2(1) of the Working Time Regulations 1998. The Employment Appeal Tribunal held that they fell outside limb (a), but remained workers under limb (b). The Court of Appeal, [2009] EWCA Civ 1046, restored the tribunal’s decision under both limbs.

The central issue before the Supreme Court was whether the tribunal could find that the written terms did not state the parties’ true agreement and could consequently classify the valeters as employees and workers.

1. Disposition. The Supreme Court unanimously dismissed the appeal. Lord Clarke delivered the judgment, with which Lord Hope, Lord Walker, Lord Collins and Lord Wilson agreed. The Employment Tribunal was entitled to find that the valeters worked under contracts of employment and were therefore workers within limb (a) of regulation 2(1) of both the National Minimum Wage Regulations 1999 and the Working Time Regulations 1998. The limb (b) issue did not arise, although the Court would also have decided it in the valeters’ favour.

2. Identifying the true agreement. Ordinary principles governing written commercial contracts remained unchanged. Contracts concerning work or services may, however, arise in circumstances where the organisation offering work dictates terms to an individual with substantially weaker bargaining power. If the genuineness of a written term is disputed, the tribunal must ascertain the actual legal obligations agreed by the parties. Rectification principles and proof that both parties intended a sham are not prerequisites. The narrow approach taken by the Court of Appeal in Consistent Group Ltd v Kalwak [2008] EWCA Civ 430 was disapproved.

3. Evidence and bargaining power. The tribunal must examine all relevant evidence. This includes the written terms read in their full context, how the parties conducted themselves, and their objectively discernible expectations. Relative bargaining power must be considered when deciding whether the documents truly represent the agreement. Conduct may justify an inference about the parties’ obligations, but conduct alone is not conclusive. In particular, failure to exercise a genuine contractual right does not make that right ineffective. The reality-based approach of the Employment Appeal Tribunal in Consistent Group Ltd v Kalwak [2007] IRLR 560 and of the Court of Appeal in Firthglow Ltd (t/a Protectacoat) v Szilagyi [2009] EWCA Civ 98 was approved.

4. Employment status. The established conditions for a contract of service include personal work for remuneration, sufficient control and other contractual terms consistent with employment. There must also be an irreducible minimum of obligation on each side. A genuine substitution right negates personal service, but an unrealistic written possibility which was not truly agreed does not do so.

   The tribunal was entitled to find four actual terms: the valeters would perform the services; they would be paid; they were obliged to accept work which Autoclenz undertook to offer; and they had to perform the work personally. The purported substitution and no-obligation clauses did not reflect the true agreement. The required personal service, mutual obligations and degree of control established contracts of employment. Descriptions of the valeters as subcontractors and the fiscal treatment of their earnings did not alter that conclusion.

1. United Kingdom Supreme Court: In Autoclenz Limited v Belcher and others [2011] UKSC 41, the Court unanimously dismissed Autoclenz’s appeal and upheld the determination that the valeters were employees and workers within limb (a).
2. Court of Appeal: In [2009] EWCA Civ 1046, the Court restored the Employment Tribunal’s decision and held that the valeters fell within both limbs (a) and (b) of the statutory definition.
3. Employment Appeal Tribunal: The EAT held that the valeters did not fall within limb (a), but were workers within limb (b). Both sides appealed.
4. Employment Tribunal: The tribunal determined the preliminary issue in the valeters’ favour, holding that they worked under contracts of employment within limb (a) and, alternatively, contracts within limb (b).