Case: Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358
Outcome: discussed
The applicants drew attention to what was said to be 'the correct legal position' located within paras 52, 53 and 64 of the reasons for judgment of Mummery LJ in Dacas v Brook Street Bureau (UK) Ltd [2004] IRLR 358 (with which Sedley LJ was essentially in agreement). Brook Street was a United Kingdom Court of Appeal decision, the context whereof related to labour hire arrangements between Brook Street Bureau UK Ltd, a well known employment agency, and a local council's mental health hostel for the periodic cleaning thereof, which in the events that happened were physically undertaken at material times by the applicant Mrs Dacas. The Court of Appeal comprised Mummery and Sedley LJJ, whose reasons for decision were essentially in line, and Munby J who differed materially in what may be described as doctrinal reasoning to that of the other two members of the Court while reaching nevertheless the same ultimate decision. The difficulty to an understanding of the substrata to the appeal in its various aspects, as well as in its outcome, lies largely in relation to the procedural context to the appeal. For present purposes I will confine my consideration of the differences in principle concerning the implications of labour hire, though obiter , apparent in the reasons for decision of each of Mummery and Sedley LJJ compared to those of Munby J, and to the extent to which the statements of principle emerging from the respective reasons for judgment in Brook Street may have an operation in relation to the issues presently arising. 84 I would commence my consideration of the respective parties' approaches to the implications of Brook Street by recording that in the leading judgment, Mummery LJ observed that had the Court of Appeal been seized of all of the circumstances of the case, it may well have been open for the Court of Appeal to have found that Mrs Dacas was an employee of the local council to whom the services of Mrs Dacas had been provided by Brook Street Bureau by way of labour hire, and against which local Council their Lordships considered that her case for unfair dismissal should have been prosecuted rather than the labour hire agency Brook Street Bureau. As I foreshadowed, Sedley LJ took a similar approach in reasoning as well as in outcome to that taken by Mummery LJ. However Munby J adopted what I think may be described as the more conventional analytical approach. 85 It was in that context broadly stated that Mummery LJ made the following observations concerning the local borough Council's status as an employer or principal in relation to Mrs Dacas, which the applicants contended to be reflective of the correct approach here required to be adopted in principle: '17. The critical point is that, although the construction of the contractual documents is important, it is not necessarily determinative of the contract of service questions, as contractual documents do not always cover all the contractual territory or exhaust all the contractual possibilities. In determining the true nature of the relationship (if any) between each of the respective parties, it is necessary to consider the total situation occupied by the parties ... Although there was no express contract between the applicant and the end-user in this case, that absence does not preclude the implication of a contract between them. That depends on the evidence, which includes, but may not be confined to, the contractual documents.' ... 52. ... The formal written contracts... may not tell the whole of the story about the legal relationships affecting the work situation. They do not, as a matter of law, necessarily preclude the implication of a contract of service... There may be evidence of a pattern of regular mutual contact of a transactional character... from which a contract of service may be implied by the tribunal... . ... 53. I approach the question posed by this kind of case on the basis that the outcome, which would accord with practical reality and common sense, would be that, if it is legally and factually permissible to do so, the applicant has a contract, which is not a contract of service, with the employment agency, and that the applicant works under an implied contract, which is a contract of service, with the end-user and is therefore an employee of the end-user with a right not to be unfairly dismissed. The objective fact and degree of control over the work done by Mrs Dacas at West Drive over the years is crucial. The Council in fact exercised the relevant control over her work and over her... . The fact that the obligations were contained in express contracts made between Mrs Dacas and Brook Street and between Brook Street and the council does not prevent them from...being read across the triangular arrangements into an implied contract and taking effect as implied mutual obligations as between Mrs Dacas and the council. ... 86 CAO submitted that the foregoing analysis of Mummery LJ (and similarly that of Sedley LJ) 'falls rather short', and that '[t]he first question to be asked and answered is whether there was a contract at all between the worker and (1) the ultimate client of the labour hire agency or (2) the labour hire agency'. CAO seemingly acknowledged at the outset that in some circumstances there may be an overlap between the issue of intention to create legal relations and issues of agreement and consideration, reference being made in that regard to Carter J W and Harland D J, Contract Law of Australia (4 th ed, Butterworths 2002) p 163. In any event it was further submitted by CAO that whilst Mummery LJ did not explicitly identify what CAO described as that fundamental issue in contract law, there was conceivably 'just an echo of it' in his Lordship's reasons at [52] partly extracted above. Nevertheless, so the CAO submissions continued, his Lordship did not indicate it was necessary first to consider whether or not the relevant parties intended to enter upon legal relations. That absence of indication was said by CAO to also reside in the reasoning of Sedley LJ, where his Honour's discussion at [75] of the legal status of a worker was described by counsel for CAO as 'rather too compressed', and which reasoning had failed 'to address the fundamental questions of contractual analysis'. 87 CAO submitted further that it could not be correct, and would be contrary to Australian authority, for this Court to consider what is 'the nature of any implied contract before first answering the question did the parties intend to create legal relations', and further that '[t]he mere attendance by one party at the workplace of another does not give rise to the implication of a contract between those parties... [Sedley J's] reasoning impermissibly conflates the separate stages of contractual enquiry'. CAO further submitted, by way of contrast, that Munby J appeared to approach the case 'in a more conventional way' than was taken by Mummery and Sedley LJJ, and to have included the issue of intention 'in the mix of issues for considering what the facts actually proved including whether or not there was a contract with anyone at all'. I have explored in more comprehensive detail CAO's submissions in relation to Brook Street later in these reasons. 88 The applicants next drew attention to the decision of the United Kingdom Court of Appeal in Cable &amp; Wireless plc v Muscat [2006] IRLR 354 handed down subsequently to Brook Street , where it was found by majority that a labour hire worker was employed by the host rather than by the agency through which the host had directed that he be engaged. Whilst the applicants acknowledged the facts in Cable and Wireless were distinguishable from Brook Street , the applicants placed reliance upon the acknowledgment by the Court of Appeal in Cable &amp; Wireless upon the majority's views in Brook Street , which they submitted to be seemingly to the effect that so long as remuneration is being provided in reality by the employer, it matters not that it is not paid directly by that employer but by a third party pursuant to another arrangement made by the employer with that third party. Quoting from Cable &amp; Wireless , the applicants asserted that a person who would otherwise be the worker's employer did not cease to be his employer by arranging for the wages to be paid per medium of a third party, and further that '[t]he essentials of a contract of employment are the obligation to provide work for remuneration and the obligation to perform it, coupled with control', whether the arrangements for payment are made directly or indirectly. I will later return to a further discussion of Cable &amp; Wireless in the context of CAO's submissions. 92 It was therefore submitted by the applicants that 'the facts as to the total employment relationship demonstrate that there was an employment relationship between each of them and [CAO] from the commencement of their employment at the HVO'. Alternatively it was submitted by the applicants that 'an employment relationship came into existence before 1 July 2002', that being 'the commencement time of the claim'. Additionally, as I have foreshadowed it was submitted by the applicants that in principle, '[c]onduct which might not have manifested a mutual intention to enter into a contract had it lasted only a brief time may become unequivocal if it is maintained over a lengthy period of time', referring thereby to the reasons of Mummery LJ at [17] in Brook Street. Of course as I have already mentioned, Sedley LJ adopted a similar approach, but Munby J chose to differ. 157 I have taken the course of reviewing the United Kingdom Court of Appeal authorities of Brook Street and Cable &amp; Wireless in some detail because of the extent to which the applicants sought to place reliance upon the approach and findings apparent in the respective reasons for judgment, in the case of Brook Street referrable to the reasoning of Mummery and Selby LJJ, and in the case of Cable &amp; Wireless referrable to the approach taken generally in the joint judgment of all members of the Court of Appeal. CAO's submission was to the effect that the reasons in both decisions, other than that of Munby J in Brook Street , should not be accorded any effective, much less decisive, operation in relation at least to the relevant circumstances of the present case which CAO has outlined. I will first address CAO's submissions relating to Brook Street. 158 CAO emphasised at the outset the obiter nature of what it sought to isolate as significant aspects of the reasoning of Mummery and Sedley LJJ in Brook Street to the effect that should the tripartite arrangements the subject of consideration in those proceedings appear in the future differently structured, it may be open to an employment tribunal to find that a respondent such as Mrs Dacas was an employee of the Brook Street labour hire agency pursuant to an implied contract of service (see [68] appearing within the reasons of the leading judgment of Mummery LJ). CAO contended that obiter observations to any such effect should not be adopted by an Australian superior court. Moreover CAO drew attention to what was said to have been acknowledged by Mummery LJ at [49]-[50] to the effect that the notion of a contract of service requires the existence of at least minimum obligations as to the provision of work, and conversely of obligations to perform that work in the context of control by the provider of the work. CAO further emphasised in any event what was said by his Lordship at [49] concerning the need to eschew notions to the effect that 'an individual is an employee simply because he is not a self employed person' , but contended that '[i]f there was no interposed employment agency there would be no doubt that, even in the absence of an express contract, Mrs Dacas worked under a contract of service with the council: it was managing and controlling work done by her in the mutual expectation that she would be paid for what she was told to do and had in fact done', being a contention not at least directly relevant. 159 CAO drew attention to the purported characterisation of the so-called triangular arrangement appearing at [52]-[53] of the reasons of Mummery LJ. I have already extracted earlier (at [85] in these reasons) much of what appears in [53]; in [51] his Lordship referred to the legitimacy of having regard to ' the fact, if it be the case, that a series or a number of transactions are intended to operate in combination with one another or are ingredients of a wider transaction intended as a whole'. That approach does not sit readily with the approach taken in the Australian authorities in relation to circumstances involving labour hire operators (such as in Forstaff). CAO's contentions were in summary to the effect that the analysis of Mummery LJ (and implicitly therefore also of Sedley LJ) fell 'rather short', in that the first issue normally required to be resolved in labour hire cases, such as Brook Street , is simply whether there existed a contract at all between the worker and the client of the labour hire agency, or else between the worker and the labour hire agency. I was referred to Ermogenous and Teen Ranch , both of which involved an issue as to whether the parties mutually intended to enter into a contractual relationship, the element of intention in that regard being paramount. The respective factual circumstances in those United Kingdom and Australian cases were some distance removed from the industrial context of the relationships involved in the present proceedings. 160 CAO contended further in relation to Brook Street that neither Mummery LJ nor Sedley LJ 'clearly and crisply asked and answered' what CAO would contend to have been the critical issue, namely 'did the Council and Mrs Dacas intend to enter upon legal relations', before proceeding to consider the nature of any implied contract. CAO contended that it could not be correct, and would be contrary to Australian authority, for a court to enter upon a consideration of the nature of an implied contract before first resolving the issue as to whether or not the parties in dispute intended to create or enter upon a legal relationship in the first place. It was emphasised by CAO in that regard that merely the regular attendance by a person at the workplace of another person does not give rise to the implications of a contract between those persons, and moreover that his Lordship's reasoning geared to the doctrine of implied contracts 'impermissibly conflates the separate stages of contractual enquiry'. There is in my opinion force in principle inherent in those CAO submissions as to shortfalls in any assistance to be derived from the leading judgments in Brook Street . 161 The differing approach of Munby J, as the third member of the Court of Appeal in Brook Street , adopted at [83] what CAO described as a more conventional position in terms of authority. His Lordship's starting point was that 'the mere fact that there is a contract between the worker and the agency, and another contract between the agency and the end-user, plainly does not prevent there also being a contract between the worker and the end-user. Nor, of itself, does it prevent any contract between the worker and the end-user being a contract of service'. That approach is more in line with Australian authority and also with the United Kingdom approach taken subsequently in Viasystems in relation to what was described in the concluding sentence of [80] by Rix LJ . Where Munby J's reasoning departed at least implicitly from the approach of the other members of the Court of Appeal was in his isolation at [83] of two critical elements of an employment relationship, namely 'the obligation to remunerate and the right to control' . Munby J cited authority stating that the 'mutuality of obligation and the requirement of control on the part of the potential employer [are the] irreducible minimum for the existence of a contract of employment '. His Lordship further cited authority to the effect that ' [t] he significance of mutuality [is] that it determines whether there is a contract in existence at all' , and that ' [t] he significance of control [is] that it determines whether, if there is a contract in place, it can properly be classified as a contract of service, rather than some other kind of contract' . Moreover Munby J considered at [87] that ' [t] he requirement that there be mutuality of obligation necessarily focuses attention on the obligations (if any) undertaken by the end-user ', which his Lordship described as not inclusive of any obligation 'to provide the servant with work in addition to wages' , any such latter obligation being 'not very often to be found expressed in written contracts of employment' . 164 It was accordingly submitted by CAO that the reasoning of Munby J in Brook Street constituted 'a compelling demolition of the rather confusing approach by the majority [United Kingdom Court of Appeal] in that case', and a 'powerful cause for this Court not following that approach'. After concluding his analysis of authority, Munby J drew together at [101]-[103] (which I have reproduced below) his reasons for disagreement with the majority in Brook Street which I have foreshadowed, and in so doing, formulated an approach which CAO asserted to be here applicable to the determination of the present proceedings: '[101] Where, with all respect, I part company with my Lords is in relation to three matters. The first is the suggestion that the objective fact and degree of control over the work done by Mrs Dacas over the years is crucial. That, as it seems to me, somewhat overstates the position. And in any event it does not seem to me, with all respect, to meet the point made by Elias J in the Stephenson case. [102] The second is the suggestion that there is mutuality of obligation because the council was under an obligation to pay for the work that Mrs Dacas did for it and she received payment in respect of such work from Brook Street. In this connection [Mummery LJ] asks rhetorically, What was the council paying for, if not the work done by Mrs Dacas under its direction and for its benefit? The difficulty with this approach ... is that the council had no obligation to pay Mrs Dacas, that Brook Street's obligation to pay her arose independently of whether or not Brook Street was paid by the council, and that the Council did not set the rate of her pay. It needs also to be borne in mind that the sum contractually payable by the council to Brook Street was not simply the aggregate of the sums payable by Brook Street to Mrs Dacas and her fellow workers. It will also have included, in addition to Brook Street's profit, an element reflecting the cost to Brook Street of meeting its various obligations to the council. [103] The contract between Brook Street and the council was for the provision of services in accordance with a detailed specification and various other contractual documents ... The answer to my Lord's rhetorical question ... is that what the council was paying for was not the work done by Mrs Dacas and her fellow workers but the services supplied to it by Brook Street in accordance with the specification and the other contractual documents. The monies paid by the council to Brook Street were not payments of wages, nor were they calculated by reference to the wages payable by Brook Street to Mrs Dacas and her fellow workers. There was no mutuality.' The rhetorical question above '... what was the council paying for...' merits emphasis in particular in the light of what seems to me to be the prevailing authority at least in Australia to which I have referred, and would seek to follow. 165 Hence CAO submitted that it may 'clearly be seen', by reference to the evidence placed before this Court, that the critical elements identified by Munby J as fundamental to his Lordship's reasons for disagreement with the approach of the majority in Brook Street , and which were said by CAO to be fundamental to the resolution of the present issue arising according to the general law of Australia, require that this Court should find that there was no contract of employment made between CAO and each of the applicants. CAO identified that evidence to be in summary to the following effect: (i) there was no mutuality of obligation, CAO being under no obligation to make payment to either of Messrs Wilton or Cumberland for the work they respectively undertook at the HVO; (ii) instead the only obligation as to the payment of remuneration or other benefits to either of the applicants was an obligation which rested with MES and not CAO; (iii) moreover the obligation of MES to pay each of the applicants arose independently of whether or not MES had been or was to be paid by CAO for its supply of the applicants' services; (iv) the rates of pay which applied to each of the applicants were not set by CAO but by an industrial instrument to which MES was a party and to which CAO was not; (v) the charges levied by MES upon CAO pursuant to their discrete contractual arrangements did not simply represent the aggregate of the sums payable by MES to each of the applicants (and for that matter to any other MES supplied workers for the time being), but included a profit element for the benefit of MES and the costs otherwise incurred by MES in meeting its obligations to CAO, in relation to which Mr Touzell testified in his affidavit of 6 June 2006, being for instance costs of 'inducting' those employees at the HVO, personal protective equipment, administration costs such as processing the pay for the employees to be supplied (including of course Messrs Wilton and Cumberland), and other associated and incidental employment costs such as payroll tax and workers compensation insurance in respect of those employees so supplied; (vi) the Supply Agreement entered into between CAO and MES for the provision of services by MES to CAO accorded with a detailed specification; and (vii) what CAO was paying, purportedly in relation to the supply of services to it by MES, was not just for the work done by each of the applicants per se , but for the services supplied by MES, in accordance with the relevant specification and other contractual documents. In summary, so the CAO submission concluded, there was no mutuality of obligation between CAO and either of the applicants, and moreover there was no intention to create legal relationships between the CAO and either of the applicants; accordingly there was no contract at all between CAO and either of the applicants. 166 CAO further argued for completeness that 'the possible position left open in Brook Street' , being that the worker (Mrs Dacas) was an employee of the ultimate client of the labour hire agency, was distinguishable from the circumstances the subject of the present proceedings, because unlike the position described in the reasons for judgment of Mummery LJ in Brook Street at [64]: (i) the applicants and MES were undeniably in an employment relationship inter se ; consistently with that, MES paid to the applicants their respective wages; (ii) the role of MES was not merely that of an agency finding suitable work assignments for each of the applicants; (iii) MES provided certain clothing and personal protective equipment for use by the applicants in their working assignments in the HVO; (iv) CAO did not view MES as performing the task merely of 'staff supplier' or 'administrator of staff services'; and (v) CAO had its own individual instrument applicable to and governing its employment conditions, and what it was otherwise obliged to observe and undertake in relation to its own employees discretely from those of MES. 167 It was pointed out moreover by CAO that the United Kingdom Court of Appeal recognised in Brook Street in any event the force of the submission that control exercised by the end user in Brook Street was the product of the contractual arrangements between the labour hire agency and that end user. In that regard I was referred to [67] of the reasons for judgment of Mummery LJ, subsequent to which his Lordship acknowledged, at [68], at least the force of the arguments of Brook Street's counsel in attempted denial of the existence of any contract of service between that employment agency and Mrs Dacas. Incidentally in [67], his Lordship observed also that '[i] f the case raised policy issues as to the working conditions of people in the position of Mrs Dacas , that was a matter for legislation by Parliament and not for the courts' . 168 CAO drew further attention once more to the significance of the circumstance, that there was no contractual obligation imposed upon CAO to provide either of the applicants with work, and in that regard I was referred to Brook Street at [64]. CAO exemplified that circumstance by reference to the unavailability of work to the applicants, and hence of any requirement for them to report for work at the HVO, in the event of inclement weather or machinery breakdown, and further that it was open to CAO conversely to inform MES that it did not want a particular MES employee to work again at the mine for whatever reason (if any). 169 I would next move to a consideration of the detailed attention afforded by the parties to Cable &amp; Wireless , which I have earlier foreshadowed that I would do more extensively in the context of my recitation of CAO's submissions than did the applicants, CAO having given perhaps more extensive attention to Cable &amp; Wireless . That case was decided by the United Kingdom Court of Appeal subsequently of course to Brook Street by a different bench being Sir Anthony Clarke MR and Smith and Kay LJJ. The joint judgment of their Lordships at [35] expressed the opinion that '... the view of the majority in Dacas was correct'. It was submitted by CAO nevertheless that the decision in Cable &amp; Wireless was 'not compelling', in that the United Kingdom Court of Appeal once more did not address 'the fundamental problem of intention to create legal relations as a threshold question', or more precisely, to create a contractual relationship. In that latter regard, it was submitted by CAO that the Court of Appeal's reasoning in Cable &amp; Wireless was 'out of step with the law in Australia', exemplifying in that regard Ermogenous and Teen Ranch , and in any event, that the decision in Cable &amp; Wireless was of little relevance to the present case because of what was described as its vastly different factual circumstances. 170 The factual context to Cable &amp; Wireless was different and more complex than in Brook Street , and needs to be explained in some detail in order to provide an adequate understanding of the nature and extent of the issue which there arose for resolution, and any conceivably comparable context to that involved in the present case. The respondent Mr Muscat had been engaged as an employee of a telecommunications specialist with a company called Exodus Internet Ltd ('EIL'), when the company decided to reduce the number of its employees in order to facilitate a potential buy-out, but which nevertheless wanted to retain that worker's services. EIL informed Mr Muscat that he would have to become a so-called contractor, and to provide his services through a limited company. His employment was thereupon terminated and a company named E-Nuff Comms Ltd ('E-Nuff') was set up to receive his pay and car allowance. About three months later, EIL was effectively taken over corporately by Cable &amp; Wireless. Mr Muscat was described by Cable &amp; Wireless within the context of its organisational structure nevertheless as an employee, and he was given accordingly an employee number. The cost of all of the equipment upon or with which he worked was paid by Cable &amp; Wireless. Mr Muscat continued to submit invoices for his services provided in the name of E-Nuff. Since however Cable &amp; Wireless considered Mr Muscat to have remained associated with it, though by then as a contractor, Cable &amp; Wireless informed him that it would not deal with him directly, but that as in the case of all other contractors seeking to make arrangements for the provision of their services to Cable &amp; Wireless, he would have to engage with Cable &amp; Wireless through an agency entity called Abraxas plc, which had been retained to supply contracted personnel to Cable &amp; Wireless. On 13 August 2002, E-Nuff (at least implicitly at Mr Muscat's direction) entered into a contract for services in favour of Abraxas, which included as a retrospective element the period of time up to when Mr Muscat became aware of the requirement for him to deal with Cable &amp; Wireless per medium of Abraxas. It was that contract for services which was described as crucial to the resolution of the Cable &amp; Wireless proceedings, in that it was the case of Cable &amp; Wireless that such contract for services changed the status of Mr Muscat from that of its employee. Subsequently in late November 2002 Cable &amp; Wireless informed Mr Muscat that it would no longer require his services and on 31 December 2002 he ceased work directly or indirectly (that is, purportedly per medium of E-Nuff and no longer by himself directly) for Cable &amp; Wireless. In March 2003 Mr Muscat made a claim for compensation upon Cable &amp; Wireless for unfair dismissal. Cable &amp; Wireless contended in response that Mr Muscat was not its employee, but that contention was rejected, it being found that Mr Muscat held an implied contract of employment with Cable &amp; Wireless. The notion of implied contract of employment had been postulated by Mummery and Sedley LJJ in Brook Street . 182 As to the controversial notion of implied relationships of employment and the significance thereof adopted by the two substantially concurring members of the United Kingdom Court of Appeal in the labour hire context of Brook Street , I would conclude, as I have foreshadowed earlier in these reasons, that there is no good reason for any imputation to the present circumstances of any such notion, assuming that notion to be rightly cognisable in the general law of Australia, to the extent and for the purpose indicated in the Brook Street context of labour hire arrangements, being an association which I think to be at best doubtful. 183 It follows therefore, from what I have thus far concluded in relation to the applicants' submissions, that there are doctrinal obstacles of significant judicial precedent cognisable by the general law of Australia which stand in the way of recognition of any entitlement to the grant of the relief sought in the present proceedings. That is not to say of course that a contract of employment, whether oral or in writing, may not contain implied terms, and indeed such would I imagine normally or often be the case. Where the difficulty largely lies, as exposed by the traditional approach taken by the third judgment in Brook Street , is in imputing any implied contract of employment in circumstances of labour hire, that being a transaction which inherently constitutes dual contractual arrangements, one being between the provider of the hired worker and the hired worker, and the other being between that provider of the hired worker and a third person who hires the second-mentioned person from the labour hire provider in order to obtain the performance of work from such hired person. The implications relevantly of labour hire postulated in the reasons for judgment of Merkel J in Damevski at [174], as outlined in what is extracted in [34] above, are in my opinion apposite to the present context.