Factual and Procedural Background
The Plaintiff worked intermittently over approximately 18 months as a lap dancer (contractually described as a table-side dancer) at two clubs operated by the Defendant in The City. On 9 December 2008, the Plaintiff was informed that she would no longer be permitted to work at the Defendant's clubs due to suspicions of drug involvement on the premises. The Plaintiff brought a claim for unfair dismissal.
A preliminary issue arose as to whether the Plaintiff was an employee within the meaning of section 230 of the Employment Rights Act 1996 and, if so, whether she had completed the qualifying period of one year's continuous employment necessary to bring an unfair dismissal claim.
The Employment Tribunal found that the Plaintiff was not an employee and lacked the requisite continuous employment period. The Employment Appeal Tribunal (EAT), with HH Judge McMullen QC sitting alone, allowed the Plaintiff's appeal, concluding that the Plaintiff was an employee and had the necessary continuity of employment, and remitted the matter to the Employment Tribunal. The Defendant now appeals against those findings, seeking to restore the original Employment Tribunal decision. The appeal hinges primarily on the employment status issue, as continuity depends on employee status.
Legal Issues Presented
- Whether the Plaintiff was an employee under section 230 of the Employment Rights Act 1996.
- If so, whether the Plaintiff had the necessary qualifying period of continuous employment to bring an unfair dismissal claim.
- The proper application of tests for employment status, including the role of mutuality of obligation and control.
- The extent to which an appellate court may interfere with factual findings of the Employment Tribunal on employment status.
Arguments of the Parties
Appellant's Arguments
- The Employment Tribunal correctly found that there was no contract of employment due to the absence of mutuality of obligation.
- The Tribunal was right to conclude that the Defendant had no obligation to provide work to the Plaintiff.
- The Tribunal correctly found that the Defendant was not obliged to pay wages to the Plaintiff, as she was paid directly by clients.
- The Tribunal properly analysed the relationship between engagements and found no umbrella contract or continuing obligations to establish continuity.
- The Employment Appeal Tribunal erred by misreading the Tribunal’s decision and improperly substituting its own analysis for factual findings.
Respondent's Arguments
- The Employment Tribunal erred in concluding there was no contract of employment, particularly due to an erroneous finding on mutuality of obligation.
- The Defendant was under an obligation to provide work opportunities to the Plaintiff.
- The Defendant was obliged to pay wages, despite the funds coming indirectly from clients via a voucher system.
- The relationship included an umbrella contract with continuing obligations between engagements, supported by the Plaintiff’s obligation to attend weekly meetings.
- The Plaintiff was integrated into the business, subject to control, and thus an employee during working periods.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Yewens v Noakes (1880) 6 QBD 530 |
Control test for employment status |
Referenced as one of several tests to determine contract of employment. |
| Stevenson, Jordan and Harrison v MacDonald and Evans [1952] 1 TLR 101 |
Business integration test |
Used to assess whether work is integral to the business. |
| US v Silk 331 US 704 (1946) |
Economic reality test |
Considered whether worker is in business on own account. |
| Ready Mixed Concrete (South East Limited) v Minister of Pensions and National Insurance [1968] 1 QB 497 |
Multi-factorial test defining contract of employment |
Primary test applied by the Employment Tribunal and discussed extensively. |
| Clark v Oxfordshire Health Authority [1998] IRLR 125 |
Principles governing appellate interference with tribunal findings |
Outlined the limited scope for appellate courts to overturn factual findings. |
| Meechan v Secretary of State for Employment [1997] IRLR 353 |
Mutuality of obligation in intermittent work |
Confirmed possibility of contracts of employment for separate short engagements. |
| Cornwall County Council v Prater [2006] IRLR 362 |
Mutuality and umbrella contracts |
Supported the concept of umbrella contracts for intermittent workers. |
| Nethermere (St Neots) v Gardiner [1984] ICR 612 |
Irreducible minimum of mutual obligation |
Established necessity of minimum mutual obligations during breaks between engagements. |
| Carmichael v National Power plc [1999] ICR 1226 |
Approval of minimum mutual obligation principle |
Confirmed the principle of mutuality during breaks in work. |
| O'Kelly v Trusthouse Forte plc [1983] ICR 728 |
Employment status of casual workers |
Used as a comparison regarding casual intermittent workers and mutuality. |
| Stephenson v Delphi Diesel Systems [2003] ICR 471 |
Relationship between mutuality of obligation and control |
Clarified that mutuality determines contract existence; control determines contract type. |
| Penn v Spiers and Pond Ltd [1908] 1 KB 766 |
Remuneration derived from third parties |
Noted that employees may be paid largely from strangers (e.g., tips). |
| Spearmint Rhino Ventures (UK) Limited v Revenue and Customs Commissioners [2007] STC 1252 |
Tax treatment of dancers |
Held dancers supplied services directly to clients, not as agents of the club. |
| Cheng Yuen v Royal Hong Kong Golf Club [1998] ICR 131 |
Employment status of licensees on premises |
Held caddie was not an employee but licensed to provide services on club premises. |
| Cormie v Robert Rodger (UKEATS/0036/11) |
Employer obligation to pay wages despite payment route |
Discussed employer's wage obligation notwithstanding payment via third parties. |
| Massey v Crown Life Insurance [1978] 2 All ER 576 |
Parties' intention as relevant but not conclusive for employment status |
Used to support that parties’ categorisation is a relevant factor in status determination. |
| Calder v H Kitson Vickers Ltd [1988] ICR 232 |
Parties’ honest intention and employment status |
Confirmed intention is relevant evidence but not determinative. |
Court's Reasoning and Analysis
The court began by outlining the statutory definition of "employee" under section 230 of the Employment Rights Act 1996 and summarising the principal tests applied by courts to distinguish contracts of employment from other working arrangements. It acknowledged the multi-factorial test from Ready Mixed Concrete as the most frequently applied approach, requiring consideration of mutuality of obligation, control, and consistency of contract terms.
The court emphasised the limited scope of appellate interference with factual findings of the Employment Tribunal, noting that such interference is justified only if no reasonable tribunal could have reached the same conclusion.
The Employment Tribunal had found that although the Plaintiff was subject to some control and personally performed work, there was no mutuality of obligation, particularly because the Defendant was found not to be obliged to pay the Plaintiff. The Plaintiff bore economic risk, paid fees to the Defendant, and was paid directly by customers through a voucher system. The Tribunal concluded the Plaintiff was self-employed, not an employee.
The Employment Appeal Tribunal disagreed, holding that the Defendant was under an obligation to pay the Plaintiff, regardless of the indirect payment mechanism, and that there was an umbrella contract with continuing obligations, including attendance at meetings. It found the Plaintiff to be an employee during working periods.
On appeal, the court carefully reviewed both tribunals’ reasoning. It found that the Employment Tribunal’s inference of no mutuality of obligation and no obligation to pay was a reasonable and sustainable finding based on the evidence, including the contractual terms and the economic reality of the arrangement. The court held that the Employment Appeal Tribunal had erred by substituting its own view for that of the Employment Tribunal on factual matters.
The court accepted that while some mutual obligations existed during working periods, the overall contractual relationship was consistent with self-employment, reinforced by the Plaintiff’s acceptance of self-employed status and the absence of benefits such as sick or holiday pay.
The court rejected the argument that the Defendant’s provision of the opportunity to earn money amounted to an employment contract, drawing analogy to a licensee arrangement as in Cheng Yuen v Royal Hong Kong Golf Club. The economic risk borne by the Plaintiff and the contractual terms were key factors supporting this conclusion.
Accordingly, the court concluded that the Employment Tribunal’s decision that the Plaintiff was not an employee was not perverse or unreasonable and should be restored.
Holding and Implications
The appeal is allowed. The Employment Tribunal’s finding that the Plaintiff was not employed under a contract of employment is restored.
As a direct consequence, the Employment Tribunal lacks jurisdiction to hear the Plaintiff’s unfair dismissal claim. The court did not set any new precedent but reaffirmed the principle that the existence of mutuality of obligation and an obligation to pay wages are fundamental to establishing an employment contract. The case underscores the importance of the factual matrix and contractual terms in determining employment status, particularly in atypical working arrangements involving intermittent work and payments via third parties.