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In its recent decision in Autoclenz Ltd v Belcher & Ors [2011] UKSC 41, the Supreme Court confirmed that an employment tribunal should consider whether the terms of a written contract represent what was actually agreed between the parties, not only at the beginning of the relationship but at any later stage, where the relationship and the terms governing it may have changed. There does not need to be evidence of an intention to deceive a third party for the tribunal to look beyond the written terms of engagement.

Background

In summary, the 20 claimants in this case worked as car valeters for Autoclenz on a piecework basis, buying their own materials and uniforms from Autoclenz, paying for their own insurance and paying tax and National Insurance as self-employed contractors.

Autoclenz subsequently required the valeters to sign contracts containing a substitution clause, allowing them to engage others to work on their behalf, and a ‘right to refuse work’ clause.  The contract expressly stated that the relationship between the parties was that of client and independent contractor.  However Autoclenz expected that a valeteer not coming into work should give adequate notice of his absence.  It was also accepted in evidence during the first instance hearing that the valeters were ignorant of their right to engage substitutes and that none had ever done so.

The valeters sought a declaration that, notwithstanding the terms of their contract, they were in fact employees of Autoclenz and were consequently entitled to various employment rights.  In the alternative, it was argued that they were at the very least “workers”, who were entitled to claim for unpaid wages, holiday pay, or failure to be paid the national minimum wage.   A worker is, broadly speaking, someone who undertakes personally to do or perform work or services, but is not a client or customer.

Autoclenz’s position was that the valeters were merely self-employed contractors and were not therefore entitled to the statutory rights of an employee or worker.

The employment tribunal held at first instance that the valeters were both employees and workers, based on the significant degree of control exercised by Autoclenz over the valeters and the fact that they were fully integrated into the business.

The Employment Appeal Tribunal partly reversed the employment tribunal’s finding.  It held that the valeters were not employees but workers, on the basis that the contractual provisions were genuine and were intended to reflect the relationship between the parties.

The Court of Appeal, however, reinstated the first instance decision that the valeters were both employees and workers and the decision was once again appealed.

Issues

The key issue for the Supreme Court to determine was, where there is dispute over whether a written employment contract reflects the true nature of the relationship between the parties, the extent to which the written terms may be disregarded in favour of what was actually agreed between the parties when assessing the nature of the relationship between them.

Judgment

The Supreme Court (Lord Hope, Lord Walker, Lord Collins, Lord Clarke and Lord Wilson) unanimously concluded that the employment tribunal was entitled to decide that the documents did not reflect the true agreement between the parties.  The Court of Appeal was correct to hold that the employment tribunal could disregard the terms of the written documents insofar as they were inconsistent with what was actually agreed between the parties.  The Judgment cited the finding of Aikens LJ that,

“In cases . . . where one party alleges that the written contract terms do not accurately reflect the true agreement of the parties . . . the question the court has to answer is: what contractual terms did the parties actually agree?”

The opinion of Sedley LJ that “the elaborate protestations in the contractual documents that the men were self-employed, when examined, bore no practical relation to the reality of the relationship” was also endorsed.

A distinction is made in the judgment between what the parties each privately intended and expected and what was actually agreed between them, either as evidenced by the written terms of the contract or, if these are alleged to be inaccurate, by what is proved to be their actual agreement.

The decision follows the path trodden by the EAT in Consistent Group Ltd v Kalwak [2007] IRLR 560 in which it was held that the reality of the situation, rather than any express contractual provisions, should prevail if the latter contain unrealistic demands that do not reflect or are wholly inconsistent with the actual nature of a relationship.  Particular reference is made by Lord Clarke in the Autoclenz Judgment to the opinion of Elias J in Kalwark that, where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations.  This should be effected by examining all of the relevant evidence, including the written terms, evidence of how the parties conducted themselves in practice and what their expectations of one another were.

The case of Firthglow Ltd (t/a) Protectacoat) v Szilagyi [2009] EWCA Civ 98 is also relied upon by Lord Clarke- in particular the finding of Smith LJ that,

“The court has to consider whether or not the words of the written contract represent the true intentions or expectations of the parties.”

Therefore the Supreme Court’s purposive ruling in Autoclenz confirms and clarifies the premise developed in a sequence of cases that precede it.