SHIM SHAM

Autoclenz Ltd v Belcher and ors

Although section 230 of the Employment Rights Act 1996 defines who is an employee and who is a worker, it can often be hard for tribunals to decide their status in reality. In Autoclenz Ltd v Belcher and ors (IDS 861) the Employment Appeal Tribunal (EAT) looked at how far the written terms of a contract actually reflected the real working relationship.

Basic facts

Mr Belcher and his colleagues were engaged by Autoclenz, cleaning cars for British Car Auctions (BCA). The company provided them with cleaning equipment for which they were charged five per cent of weekly pay. It also charged them £9 per week for insurance. The valeters were paid on a piecework basis and had to pay their own public liability insurance. When working they had to wear overalls with the BCA logo.

All the valeters worked as sub-contractors. In 2007 Autoclenz introduced revised terms of contract which stated that the valeters did not have to carry out the work personally (the “substitution clause”). There was no obligation on Autoclenz to provide work nor on the valeters to accept work on a particular occasion (known as “mutuality of obligation”). The valeters paid their own tax and National Insurance.

In November 2007 Mr Belcher and a number of his colleagues claimed that they were employees and were therefore entitled to unpaid wages and holiday pay.

Tribunal decision

At a preliminary hearing the employment judge decided that the valeters were employees (or if not then workers) because of the degree of control the company had over them and the fact that the substitution clause did not reflect what happened in reality.

In reaching its decision the tribunal relied on the EAT’s decision in Consistent Group Limited v Kalwak (see weekly LELR 33) which had held that there was necessarily an implied term in the contract requiring the agency to offer work as a priority to those claimants for whom it provided accommodation, and an implied duty on the claimants to perform any work offered.

Relying on that decision, the employment judge decided that the substitution clause was a sham and did not reflect the reality of the situation.between the valeters and Autoclenz. The company appealed.

EAT decision

The EAT, however, disagreed that they were employees mainly because after the tribunal had given its judgement, the Court of Appeal had overturned the decision in Kalwak (see weekly LELR 77).

It made clear that the guiding principle to draw from the Court of Appeal’s judgement “is that it is not the function of an Employment Tribunal to recast the parties' bargain. If a relevant term of the contract between them is to be rejected in favour of a different one, that can only be done by a clear finding that the real agreement was to that different effect and that the term in the contract was included by them so as to present a misleadingly different impression...Further, to reach such a finding it is necessary...to conclude that the relevant term or terms of the contract are a sham - that is, that both parties intended the contract in that respect to paint a false picture of their respective obligations under the contractual term. In short, a joint intention to mislead.”

In so finding against the claimants, the EAT held that the written terms were not a sham, because there was no intention to mislead and therefore there was no mutuality of obligations. The valeters could not therefore be deemed to be employees of Autoclenz. The EAT rejected the claimants’ request that the matter be remitted back to the employment tribunal to consider whether there was a “sham” agreement.

However, the EAT did agree with the tribunal that they were "workers" for the purposes of the National Minimum Wage Regulations and the Working Time Regulations, and this part of the appeal was therefore dismissed. In so holding, the EAT applied the test in Byrne Bros (Framework) Limited v Baird [2002] finding that lack of mutuality of obligation does not prevent someone from being a worker.