Unfair dismissal – Claimant working as a lap dancer for defendant – Whether EAT erring

Quashie v Stringfellows Restaurants Ltd: Court of Appeal, Civil Division (Lord Justices Ward, Elias and Pitchford): 21 December 2012

The claimant worked intermittently for the defendant as a lap dancer at the defendant's clubs. She worked according to a rota and was subject to the defendant's rules. The claimant was paid by way of cash or vouchers from customers attending the club, and was paid for each dance. The defendant took a commission from the earnings that the claimant received. The claimant was also obliged to pay a daily fee to the club as well as fees for other services provided by the defendant, including an individual who took care of the wellbeing of the dancers.

The defendant imposed fines if the claimant was late for her shift, late for meetings and other instances. There was a club agreement which contained the rights and obligations for both parties. The agreement stated, inter alia, that the claimant was an independent contractor and the defendant provided a forum at which the claimant was able to perform for customers in return for payment by them to her. The agreement emphasised that the defendant guaranteed no particular level of remuneration. In 2008, the defendant informed the claimant that she would no longer be permitted to work for the defendant.

The claimant issued proceedings alleging unfair dismissal, and a preliminary issue arose as to whether she was an employee under section 230 of the Employment Rights Act 1996. The employment tribunal (the tribunal) found that there was no relevant mutuality of obligation to give rise to a contract of employment because, inter alia, the defendant had not been obliged to pay the claimant anything and her earnings came from the defendant's customers. The claimant appealed to the Employment Appeal Tribunal (the EAT). The EAT found that the tribunal had erred in finding that no contract existed between the parties, and had also erred in concluding that there was no 'wage-work bargain'. The EAT found that the defendant had been under an obligation to pay the claimant and the source of the pay had been irrelevant. Accordingly, the EAT concluded that the claimant was an employee. The defendant appealed.

The defendant submitted that the EAT had been wrong to conclude that the tribunal had found that there was no contract. Further, the defendant had not been obliged to pay any remuneration to the claimant for the work that she did, which had been consistent with the evidence before the tribunal and the lack of any such obligation had been inconsistent with the notion of the wage-work bargain which lay at the heart of a contract of employment. The appeal would be allowed.

Various tests for identifying when a contract of employment existed, including the control test, the business integration test, the business of economic reality test, and the multiple or multi-factorial test. However, the test most frequently adopted was that a contract of service existed if three conditions were fulfilled, namely: (i) the servant agreed that, in consideration of a wage or other remuneration, he would provide his own work and skill in the performance of some service for his master; (ii) he agreed expressly or impliedly, that in the performance of that service he would be subject to the other's control in a sufficient degree to make the other master; and (iii) the other provisions of the contract were consistent with its being a contract of service. The issue was not simply one of control, and the nature of the contractual provisions might be inconsistent with the contract being a contract of service.

When applying that test, the court or tribunal was required to examine and assess all the relevant factors which made up the employment relationship in order to determine the nature of the contract. In circumstances where a worker worked intermittently for the employer, there was no reason why the worker should not be employed under a contract of employment for each separate engagement, even if of short duration. Where the employee working on discrete separate engagement needed to establish a particular period of continuous employment in order to be entitled to certain rights, it would usually be necessary to show that the contract of employment continued between engagements.

In order for the contract to remain in force, it was necessary to show that there was at least 'an irreducible minimum of obligation' either express or implied, which continued during the breaks in work engagements. Even where the work-wage relationship was established and there was substantial control, there might be other factors of the relationship which would entitle a tribunal to conclude that there was no contract of employment in place even during an individual engagement (see [6]-[14] of the judgment).

In the instant case, on a fair reading of the tribunal's decision, it had not been saying that there had never been any contract in place between the claimant and defendant. There plainly had been mutual obligations of some kind in place when the claimant was actually working, and the tribunal's decision had referred expressly to the existence of a contract. The important finding had been the tribunal's inference from the evidence that the defendant had been under no obligation to pay the claimant anything at all.

The principal evidence for that was that she negotiated her own fees with the customers, took the risk that on any particular night she would be out of pocket and received back from the defendant only monies received from customers after deductions. There was nothing inherently implausible in the finding of the tribunal that the defendant was obliged to pay nothing. Indeed, the claimant herself understood the arrangement in that way at least when first engaged. The defendant did not employ the dancers to dance; rather the claimant paid the defendant to be provided with an opportunity to earn money by dancing for the customers.

The fact that the claimant took the economic risk had also been a very powerful pointer against the contract being a contract of employment. It would be an unusual case where a contract of service was found to exist when the worker took the economic risk and was paid exclusively by third parties. On any view, the tribunal had been entitled to find that the lack of any obligation to pay had precluded the establishment of such a contract. The tribunal's conclusion had been strongly reinforced by the fact that the terms of the contract involved the claimant accepting that she was self employed, and she had conducted her affairs on that basis. It had followed that the fact that the parties intended that the claimant should have had self-employed status reinforced the conclusion of the tribunal.

Accordingly, the tribunal had been fully entitled to conclude that there had been no relationship of employer and employee (see [42]-[55] of the judgment). Yewens v Noakes (1880) 6 QBD 530 applied; Stevenson (or Stephenson) Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101 applied; United States of America v Silk (1966) US 704 applied; Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 1 All ER 433 applied. Decision of Employment Appeal Tribunal [2012] All ER (D) 174 (Apr) reversed.

John Hendy QC and Catherine Rayner (instructed by Bindmans LLP) for the claimant; Thomas Linden QC (instructed by Davenport Lyons) for the defendant.