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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.
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.
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.
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.”
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 owner-drivers 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 owner-driver 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:
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."
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.
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;
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:
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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