In the case of Redrow v Homes Yorkshire (Ltd) v Buckborough & Anor [2008] UKEAT 0582/07 the EAT has held that a contractual term may be considered a sham where the term does not actually reflect the parties’ intentions as to how the contract will be performed.

Facts

The Claimants, who were engaged as contractors by Redrow to work as bricklayers, made a claim for holiday pay. For their claim to succeed, the Claimants had to show that they were “workers”.

For holiday pay purposes, a “worker” includes (a) employees; and (b) anyone under an obligation to provide work or services personally. Under the Claimants’ contract, the Claimants agreed to provide “such labour as was necessary to maintain the required rate of progress”. The contract specifically stated that they were not obliged to perform the labour themselves.

The Claimants argued that, despite the contract containing a clause which allowed them to provide a substitute, the parties had intended that they would perform the work personally.

Decision and Principles

The Employment Appeal Tribunal (“EAT”) upheld the Employment Tribunal’s decision and found that the Claimants were “workers” for the purposes of the holiday pay legislation.

Although there was no intention by either party to deceive a third party or the court, the EAT concluded that the substitution clause in the contract was a sham.

This is because the reality of the situation and the intention of both parties at the time when the contract was entered into was that the Claimants would carry out the work personally. At the time the contract was signed, it was not expected by either party that the Claimants would seek to provide a substitute or refuse the work offered and, in reality, the substitution clause was never used.

In addition, even if it had not found the substitution clause to be a sham, the EAT held that the clause still imposed a duty on the Claimants to either (a) provide the required labour themselves; or (b) personally find someone else to do so. Therefore, the Claimants would still have been under an obligation to execute work or perform services personally and, therefore, the Claimants still fell within the definition of “worker”.

What this means in practice

This case serves as a reminder that any clauses in a contract which do not reflect the intentions of the parties as to how the contract will operate in practice are likely to be considered a sham (whether or not there is any joint intention to deceive third parties (such as the Revenue) or the court).

It is therefore extremely important for companies to ensure that contractual documentation accurately records what the parties intend to happen in practice.

This case also establishes that where there is an obligation on an individual to perform work or services personally (even where that obligation may only be to provide a substitute and ensure that the substitute performs the work to the required standard), that individual will be a “worker” for holiday pay and other working time purposes.