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Smith v Carillion JM Limited: employment contracts still safe in their common law harbour

Jeremy Lewis

Are employment contracts subject to
different rules to other contracts? As Baroness
Hale put it in Geys v Société Générale, London Branch [2013]
1 AC 523 (at para 97)

we should keep
the contract of employment firmly within the harbour which the common law has
solidly constructed for the entire fleet of contracts …

But there is another school of thought
that emphasises the differing considerations pertaining to employment
contracts. Notably, in Autoclenz v Belcher [2011] ICR
1157 the Supreme Court supported a “purposive approach” to the interpretation
of employment contracts, and emphasised the need to take into account the
potential disparity in relative bargaining power of the parties when
investigating whether the written contract represents what was in fact agreed. 

In Smith
v Carillion JM Limited
an attempt was made, unsuccessfully, to
extrapolate more widely from that line of reasoning so as to modify the usual
contractual test for implying a contract in the employment context, at least
for tripartite relationships. 

Mr Smith was an agency worker. His services were supplied to John Mowlem
& Co Plc (as the Respondent was then known) by an agency (Chanton). He admitted that he had a contract with the
agency, though not a written contract, for the supply of his services to the
agency. There was no express contract
between Mr Smith and Mowlem, but he argued that there was an implied contract.
Whilst it was admitted that this was not a contract of employment, it was
alleged to be a “worker’s contract”. He
contended that he had suffered detriment on the grounds of union activities and
health and safety activities by virtue of Mowlem supplying information about
him to an organisation which maintained a blacklist. At the time the information was supplied,
s.146 TULRCA 1992, which sets out the right not to be subjected to a detriment
on grounds of union activities, only applied to employees. It was extended, non-retrospectively, to
workers in 2004. The provisions
concerning detriment on grounds of health and safety activities (s.44 ERA)
still only apply to employees. But he
claimed that these provisions should be construed as extending to workers by
virtue of the HRA, on the grounds that there would otherwise be non-complaint
with Articles 8 and 11 of the European Convention of Human Rights. However, even to establish a worker
relationship, the first step under the definition in the legislation was to
establish a contract with Mowlem. 

In James
v Greenwich LBC
[2008] ICR 545 the Court of Appeal determined that
ordinary contractual principles applied to whether a contract could be
implied. As such the contract could only
be implied where necessary. It would not be necessary where the relationship,
and principally the provision of services and payment for those services, could
be explained without the need to imply a contract. The difficulty facing a putative worker in a
tripartite relationship is that the rights and obligations can typically be
explained by virtue of the worker’s agreement with the agency to supply service
to the end user, and by the end user’s agreement with the agency for the those
services to be provided. 

On behalf of Mr Smith it was contended
that the reasoning in James could not stand in the light of the emphasis in Autoclenz on the differing approach to employment contracts, and
that the necessity test required modification.
Further it was said that James should not in any event apply where there were no express written contracts
between Mowlem and the agency or between the agency and Mr Smith and/or because
there was no express exclusion of a direct contractual relationship or on the
basis that a lower threshold applied to establish a “worker’s contract” than a
service contract. 

Those arguments failed. The necessity test applied and the ET was
entitled to conclude that find that it was not satisfied. That was not altered by the fact that the
appointments may have been intended to be long term or that Mr Smith was fully
integrated into the managerial set up and appeared to the outside world to be
an employee and was interviewed for the role. There was no necessary
requirement for an express exclusion of a direct contractual relationship; it
was sufficient that the rights and obligations were capable of being explained
without a direct contract between Mr Smith and Mowlem. 

In the circumstances the Court concluded
that it was not necessary to address the arguments as to whether by virtue of
the Human Rights Act the legislation could be construed as extending to
workers, save to note that the Act did not apply retrospectively to alleged
wrongdoing prior to the Act coming into force.
Here there had been only once instance of information alleged to have
been supplied after that date, and it had not been established that this had
indeed been the case. 

The decision therefore provides fresh
confirmation that, notwithstanding the approach in Autoclenz, ordinarily usual contractual principles are
applied to employment contracts. That
serves the interests of certainty. To the extent that Autoclenz indicated a willingness to treat employment contracts
differently this has in any event been far from one way traffic. It has long been well-established that in
order to establish constructive unfair dismissal a repudiatory breach of
contract must be established on ordinary contractual principles. In Bournemouth
University v Buckland
[2011] QB 323 (CA), in rejecting a contention
that an employer’s repudiatory breach of contract could be unilaterally cured
(in the contract of an unfair dismissal claim based on constructive dismissal),
Sedley LJ emphasised (at para 44) that if that was the case it would have to be
applicable to contracts generally. There
was no sufficient reason to treat employment contracts differently even taking
into account their “inherently personal” nature (per Sedley LJ at para
42). Again, in Geys, albeit acting in part on policy considerations as to
the need for protection of the wronged party, the Supreme Court rejected the
argument that an employer’s repudiatory breach could terminate a contract of
employment without the need for acceptance of the breach. Indeed far from extending the differences
from ordinary contracts, there are signs of a move towards greater
alignment. To that end in Sunrise Brokers LLP v Rodgers [2015] ICR 272 (CA), Longmore LJ questioned whether it was still good law that
where an employer purports to dismiss, but this is not accepted, the employee’s
damages are limited to the period of the notice period. 

Meanwhile in October 2014 the Government
announced a broader review of worker status [1]. It is notable that the amendment to s.146
TULRCA so as to extend protection to workers was made whilst a previous review
as to worker status was ongoing, following a consultation document issued in
July 2002 [2]. The amendment was made without awaiting the
outcome of that review in the light of the decision of the CJEU in Wilson and Palmer v United Kingdom [2002]
IRLR 568. Ultimately the conclusion of
the review (in a Government Policy Paper of March 2006) was not to recommend
further changes in the scope of protection for workers [3]. As a result s.44 ERA was not amended, with
the result that the scope of protection for detriment on grounds of health and
safety (when it does not also entail trade union activities) is limited to
employees. Indeed most of the
protections against detriment (which are mostly contained in Part V of the ERA)
are confined to employees, with notable exceptions in relation to
whistleblowing, working time and blacklisting regulations [4]. The myriad of differing protections against
detriment for different classes of worker is set to be expanded further with
draft regulations published this month for those on a zero hours or low hours
contract to be protected against detriment for having taken on other work [5]. 

There are other notable anomalies in the
scheme of protection against detriment where it does extent to workers. One instance arising from the provision in
relation to whistleblowing that where the detriment consists of dismissal, the
claim can only be brought by way of unfair dismissal. As a consequence the employee can only
succeed in showing automatically unfair dismissal if the protected act (in that
case whistleblowing) is the principal reason for the dismissal, whereas for the
non-employee worker whose contract is terminated it is sufficient if the
protected act was a significant influence (Fecitt
v NHS Manchester
[2012] ICR 372 (CA)).
An employee may therefore fail in circumstances where a worker would
succeed on the same facts. The employee
would then have no other protection in relation to the dismissal if lacking
years qualifying service. 

It remains to be seen whether this time
round the employment status review will result in any significant extension to
the scope of protection against detriment afforded to workers. Last time, there was a lapse of almost four
years between the launch of the consultation and the decision. By that standard, even aside from an
intervening election, we may have to wait quite some time for an answer.

and John Bowers QC were counsel for the Respondent in
Smith v Carillion JM Limited, instructed
by ClarksLegal.


[2] Government consultation document:
“Employment status in relation to statutory employment rights.” (July 2002).

[3] See Government Policy Paper:
“Success at Work” (March 2006), containing the response to the Employment
Status Review consultation at pages 15-19

[4] The Employment Regulations Act
1999 (Blacklisting) Regulations 2010 (SI 2010/493).

[5] See Government Response to the
“Banning Exclusivity Clauses: Tackling Avoidance” Consultation (March 2015).

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