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Ready Mixed Concrete

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IR35 Case Studies

 

Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968

The case of Ready Mixed Concrete (RMC) is one of the most important pieces of case law and is still used to defend the majority of employment status and IR35 cases to this day.

RMC became of the utmost importance because it set out specific criteria, including the three key IR35 tests (Right of Substitution, Control, and Mutuality of Obligations), which must exist for a contract to be one of employment and became a seminal authority on employment status. 

 For more on IR35 case studies, click here.

Background

 

This was not an IR35 case - IR35 legislation was not introduced until 2000. In this case, the Minister of Pensions and National Insurance had determined that Mr Latimer was an ‘employed person’ of Ready Mixed Concrete under the National Insurance Act 1965. The decision of which was subsequently appealed by RMC, who the Minister had determined should have been paying weekly National Insurance Contributions in respect of Mr Latimer along with his counterparts undertaking similar work.

Mr Latimer started working for Ready Mixed Concrete in 1958 as a yardman batcher and subsequently a batcher at a different site in 1960. In 1963 Mr Latimer entered into a contract with RMC to collect, carry and deliver concrete for a period of two years. Mr Latimer was to be an ‘owner driver’ and entered into a hire-purchase agreement for a truck with which to use specifically to undertake its contractual obligations.

RMC had previously outsourced the delivery of concrete using an independent firm of haulage contractors but were not satisfied with the operation of the independent company and therefore decided to set up its own fleet of what was referred to as ‘owner drivers’ who were to operate as independent contractors.

Contractual Terms

 

The contract was “inconsistent with the master/service relationship…” but did suggest that RMC were able to exercise control over Mr Latimer, for example obligations to carry out orders.  However, on this point it was felt that the only rules and regulations which had to be obeyed by Mr Latimer were relating to health and safety, and that the issue of control was “merely one factor among many to be considered.”

The contract did give Mr Latimer a right to ‘employ’ a driver with RMC’s ‘consent’, indicating that he did have a right of substitution, albeit somewhat fettered by having to gain ‘consent.’ 

The terms indicated an exclusive arrangement between Mr Latimer and RMC, in that Mr Latimer was not able to provide his services as a haulier to any other customers. Additionally, the contract stated that Mr Latimer had to wear a uniform and he could not alter the truck (of which he owned) without the permission of RMC:

“He must keep it freshly painted in the colours and with the signs directed by the company. He must keep it washed, cleansed, oiled, greased, maintained and in good and substantial repair…All of these things are to be done at his expense.”

Although it certainly appears that RMC did seek to control aspects of Mr Latimer’s services, but the latter part of the clause indicates that Mr Latimer was exposed to a financial risk, and faced many costs which would simply not apply to an employee, such as bearing all of the running costs of the truck, engaging an accountant to prepare his accounts and paying for insurance with regard to the truck.

​Right of Substitution

 

As indicated above, a right of substitution clause was evident in the contract between Mr Latimer and RMC, which was to an extent exercised, but this was utilised by the group of owner-drivers, who jointly paid for a relief driver to cover periods of absence:

“Under clause 10 he may, with the company’s consent and subject to clause 12,appoint a competent driver to operate the truck in his place.”

​Control

 

A plant manager would determine the times of delivering concrete, but the system of loading the trucks was determined by the owner-drivers. There were no set hours of working and although owner-drivers did follow certain instructions concerning health and safety, there was no direction provided concerning method of driving and routes the owner drivers should take.

The ownerdrivers did not seek permission from RMC to take time off but simply arranged holiday between the group of owner-drivers, so that they could provide cover for each other. A relief driver was also employed by the ownerdriver and was paid a fixed amount per week regardless of whether the relief driver would be required to work, with payment for the relief driver split between the group of owner-drivers.

Although RMC decided to take on some drivers as employees in contrast to the owner-drivers, the terms of employment varied, whereby:

  • the employed drivers had fixed hours
  • holidays had to be approved by RMC
  • they were not responsible for the maintenance or running costs of the lorry
  • they were instructed regarding the routes to take to deliver the concrete.

With regard to control exercised over Mr Latimer, the Tribunal notes state that “If any person acting on behalf of the company had sought to instruct Mr Latimer how to deliver concrete or how to drive his truck, Mr Latimer would have told that person to mind his own business. No such person so instructed Mr Latimer."

​Mutuality of Obligations (MOO)

 

The agreement did not appear to be for a specific period, nor did there seem to be a specific end date, but the contract could be terminated by either party by providing 28 days’ notice, and 7 days’ notice if the truck was going to be unavailable. Immediate notice could be provided by RMC if Mr Latimer was found to be in breach of contract.

​Case Law

 

In reaching his decision, Mackenna J utilised a number of previous status cases such as Queensland Stations Proprietary Ltd v Federal Commissioner of Taxation; in this case an individual was employed as a drover to drove 317 cattle to a particular location. The drover had to provide all of the required resources and was paid per head for each of the cattle successfully delivered to the required location. The drover was found to be an independent contractor because he engaged his own resources to deliver the work including staff, horses and equipment, and would only be paid per head of each cattle delivered.

In the American case of U.S. v Silk (also cited during the hearing), the point at question was whether men working for Silk who sold coal, were employees under the Social Security Act 1935. Unloaders and truck drivers were employed to undertake the work. The unloaders provided their own tools and were paid for each ton of coal. The unloaders were not held out as independent contractors because “They had no opportunity to gain or lose except from the work of their hands and these simple tools.”

The drivers on the other hand owned the trucks and paid for all of the running costs, and if required, employed extra staff. They could also work for other customers. The drivers were found to be independent contractors because “where the arrangements leave the driver-owners so much responsibility for investment and management as here, they must be held to be independent contractors.”

​Conclusion

 

MacKenna J, the Judge presiding over the case concluded that Mr Latimer was engaged under a contract for services and was therefore not an employee, contrary to the Minister’s preliminary determinations.

In considering what is meant by a contract of service, and to explain the reasoning behind the decision, MacKenna J famously stated that;

“A contract of service exists if these three conditions are filled;

  1. The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of his service for his master
  2. He agrees, expressly or impliedly that in the performance of the services he will be subject to the other’s control in a sufficient degree to make that other master
  3. The other provisions of the contract are inconsistent with its being a contract of service.”

Mackenna J went on to say of the three conditions that;

“As to (i) there must be a wage or other remuneration. Otherwise there will be no consideration and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job either by one’s own hands or another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be.”

As to (ii) Control includes the power of deciding the thing to be done, the way it shall be done, the means to be employed in doing it, the time when and the place where it shall be done. All these aspects of control must be considered in deciding whether the right exists to a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted.”

In conclusion, MacKenna J stated regarding the third point:

  1. “The other provisions of the contract are inconsistent with its being a contract of service."

That the contract was not one of service to “serve another for a wage” but that it is a contract to produce something and therefore “it is a contract of carriage.” In explaining what he meant, Mackenna J provided the following as an example;

“If the provisions of the contract as a whole are inconsistent with its being a contract of service, it will be some other kind of contract, and the person doing the work will not be a servant. The Judge’s task is to classify the contract (a task like that of distinguishing a contract of sale from one of work and labour).”

Not only was the case important for setting out the three conditions which must exist for there to be a contract of employment, it also made clear distinctions between those operating a genuine business and those who were not.

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Why Qdos?

 

Qdos Contractor are a leading authority on the IR35 legislation, having handled well over 1,500 IR35 enquiries on behalf of UK contractors since its introduction in 2000. Qdos have been at the forefront of the public sector changes, developing a compliance management process which has enabled over 30 agencies/end clients to minimise disruption, and thousands of contractors to receive an independent and fair assessment of their status. In addition, Qdos are one of the leading providers of specialist contractor services in the UK.

 

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Qdos began in 1988 as a tax consultancy business and has grown significantly over the past two decades, providing expert business services, products and advice. Over the years, Qdos has grown in both size and reputation as a trusted contractor insurance broker as well as an expert tax advisor. Our aim is to provide UK contractors with the assistance and service with IR35 issues they need as well as sustaining excellent quality and competitive premiums in the contractor insurance market.

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