Hudson Contract Services Ltd v The Construction Industry Training Board

Factual and Procedural Background

This is a second appeal by Company A against an assessment to levy by the Industry Training Board ("the Board") dated 7 March 2017, in the sum of £7,964,584 relating to Company A's head office at The City. Company A appeals the judgment of Judge Lambert dated 18 January 2019, which dismissed its appeal under s.12(4) of the Industrial Training Act 1982 from the Employment Tribunal's judgment dated 18 May 2018 upholding the levy.

The levy liability arises under the Industrial Training Act 1982, which imposes levy on an "employer in the construction industry" assessed in relation to each "construction establishment" engaged wholly or mainly in the construction industry during the relevant period.

Company A contended that it is not an employer in the construction industry because:

• Neither it nor its direct employees carry out any of the "principal construction industry activities" listed in the relevant statutory Scope Order;
• It does not take any construction risk;
• Its head office does not direct, control, or supervise construction activities but only performs payroll and related services for self-employed operatives who perform construction activities, so the head office is not a construction establishment.

These arguments were rejected by both the Employment Tribunal and Judge Lambert, who held that Company A "employs" over 20,000 self-employed operatives, the majority of whom perform principal construction activities, and therefore Company A is an employer in the construction industry. Furthermore, the head office was held to be a construction establishment because the operatives are contracted and paid from there.

The two central issues on appeal were:

• Whether Company A is an "employer in the construction industry" for the purposes of the Industrial Training Act 1982 and the 2015 Levy Order;
• Whether Company A operates "a construction establishment" engaged wholly or mainly in the construction industry for levy purposes.

Permission to appeal was granted on points of statutory interpretation not previously considered at this level.

The facts were undisputed and included that Company A operates from a single head office in The City, paying approximately 27,000 operatives weekly, who are engaged under self-employed contracts to provide construction services to clients. Company A's directly employed staff are few, office-based, and do not perform construction activities or supervise operatives. Company A provides payroll and compliance services and contracts with operatives on terms that the operatives are self-employed and have no contractual relationship with the clients.

The levy calculation method changed under the 2015 Order, removing a previous labour-only offset and imposing levy on net payments made under the Construction Industry Scheme (CIS). Company A had not been previously assessed to levy until the relevant period in 2017, when it submitted a nil return but was assessed by the Board.

Legal Issues Presented

1. Is Company A an "employer in the construction industry" for the purposes of the Industrial Training Act 1982 and the 2015 Levy Order, considering the extended definition of employee to include self-employed operatives?
2. Does Company A have a "construction establishment" engaged wholly or mainly in the construction industry, specifically, is its head office a construction establishment from which construction activities take place?
3. What is the proper meaning and application of article 5(4) of the 2015 Levy Order concerning responsibility for construction establishments and levy liability?

Arguments of the Parties

Appellant's Arguments

• Company A is not an employer in the construction industry because it does not itself perform any principal construction activities; its activities are limited to office-based payroll and administrative functions.
• The activities of the self-employed operatives should not be attributed to Company A for levy purposes, as Company A does not contract to deliver construction outputs nor take construction risks.
• The head office is not a construction establishment because no construction activities take place there, nor does Company A direct, control, or supervise operatives from that location.
• Article 5(4) of the 2015 Order means that the clients, who own or are responsible for construction establishments, are the employers liable for levy, not Company A.
• The analogy of a cleaning agency cited by the Tribunal is inapposite because a cleaning agency directs and controls its employees from its office, unlike Company A.
• Allowing Company A's head office to be a construction establishment would render the concept of establishment meaningless and undermine the legislative intent.

Respondent's Arguments

• The statutory definitions extend "employee" to include self-employed operatives, so Company A is an employer in the construction industry by virtue of the activities performed by its operatives.
• Levy liability focuses on the activities performed by the employer's employees (including self-employed operatives), not on the employer's own direct activities or risk profile.
• The head office is a construction establishment because contracts are made and payments processed there, and it is the legal base from which operatives are employed.
• Article 5(4) is concerned with identifying which employer is liable for levy when ownership or responsibility for a construction establishment changes, not with determining who is the employer of an operative.
• Excluding Company A from levy liability would create an irrational gap in the levy scheme, undermining its purpose to fund training for all workers in the construction industry.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming that the levy is imposed on "employers in the construction industry" under the Industrial Training Act 1982 and the 2015 Levy Order, with "employer" and "employee" defined broadly to include self-employed workers. The court rejected the appellant's argument that only the employer's own direct activities or risk-taking are relevant, holding instead that the activities performed by the employer's statutory employees (including self-employed operatives) are determinative.

The court emphasized that employers act through their employees, and therefore the activities of self-employed operatives contracted by Company A must be attributed to it. The absence of any statutory language supporting a focus on risk or output was noted. The court rejected the appellant's submission that Company A's activities were solely "related activities" and not principal construction activities, holding that engaging operatives performing principal construction activities brings Company A within the construction industry.

Regarding the existence of a construction establishment, the court held that the statutory concept includes establishments from which construction activities are carried out "at or from." The court accepted the Employment Tribunal's and Judge Lambert's factual findings that Company A's head office, despite not being a construction site, is the base from which operatives are employed and paid, and contracts are made. The fact that Company A does not supervise or control operatives from the head office was held irrelevant under the extended definition of employment for levy purposes.

The court rejected the appellant's argument that article 5(4) of the 2015 Order meant that clients, as owners or responsible parties for construction establishments, are the employers liable for levy. Instead, article 5(4) was interpreted as a provision to address changes in ownership or responsibility for construction establishments during a levy period, not as defining the employer of operatives for levy liability.

The court acknowledged that the concept of a construction establishment mitigates levy risk by limiting assessment to establishments engaged wholly or mainly in construction activities for a sufficient period, but this does not affect the imposition of liability on the employer. The court further noted that concerns about tax avoidance or the breadth of the concept of establishment are matters for the triennial consultation process and not for judicial reinterpretation.

Holding and Implications

The appeal is dismissed.

The court upheld the assessment to levy against Company A for the third levy period, confirming that Company A is an employer in the construction industry and that its head office constitutes a construction establishment from which construction activities are carried out for levy purposes. Permission to appeal to the Supreme Court was refused.

The decision maintains the application of the extended definition of employment under the Industrial Training Act 1982 and the 2015 Levy Order, confirming that entities supplying self-employed operatives engaged in construction activities are liable for levy. No new precedent beyond the statutory interpretation in this case was established, but the ruling clarifies the approach to levy liability and construction establishments in the context of labour-only subcontracting arrangements.