*Mark Shulman, Consultant Solicitor at Keystone Law*

EMPLOYMENT STATUS
A nightclub lap-dancer was told she could no longer work at 2 London nightclubs following allegations of drug taking and supplying drugs. Was she an employee and so able to pursue a claim of unfair dismissal? No said the Court of Appeal in [Stringfellows Restaurants Ltd v Quashie]() [2012] EWCA Civ 1735, a case which provides a fascinating insight into the world of lap-dancers.

The Law
Under section 230(1) of the Employment Rights Act, "Employee" means an individual who has entered into or works under (or where the employment has ceased, worked under) a contract of employment. A "contract of employment" is then defined, section 230(2) as "a contract of service or apprenticeship whether express or implied and (if it is express) whether oral or in writing."

In Quashie, Elias LJ made the point that "All employees are workers but not all workers are employees." He went on to observe that the multiple or multi-factorial test of employment status, reflected in Ready Mixed Concrete (South East Limited) v Minister of Pensions and National Insurance [1968] 1 QB 497 was the test most frequently adopted.

Under that test, a contract of service exists if the person concerned:-

(i) in consideration of a wage or other remuneration, provides their own work and skill in the performance of some service;

(ii) agrees, expressly or impliedly, that in the performance of that service they will be subject to another's control in a sufficient degree; and

(iii) the other provisions of the contract are consistent with its being a contract of service.

As the Court pointed out, the issue is not simply one of control. The nature of the contractual provisions between the parties may be inconsistent with the contract being a contract of service. A court or tribunal is required to examine and assess all the relevant factors which make up the employment relationship in order to determine the nature of the contract. Even where there is substantial control, there may be other features of the relationship which will entitle a tribunal to conclude that there is no contract of employment in place.

Key facts
In Quashie it is important to note that the dancers were directly responsible for the payment of a "House Mother" at the Clubs and for the DJ, hairdresser and other facilities. Dancers paid upfront each night a "tip out" fee of £15 to the House Mother before commencing their shift. At the end of a shift, the Club made certain deductions from monies received by the dancers, including a commission fee, a house fee and any relevant fines e.g. for being late for a shift or for being late for a stage dance/song. As a result of these arrangements, the Claimant could sometimes be out of pocket after a night's work.

There was a written agreement between the Club and each dancer which included terms that:-

* the dancer was an independent contractor paid by the clients; * the agreement was not for a fixed period but applied in respect of each session for which the dancer was booked; * the Club provided the forum at which the dancer was able to perform for the benefit of members of the public present in return for payment by them to her; * the dancer's right to attend at the Club to provide services to members of the public was determinable by the company in the event of any breach by the dancer of their obligations under the agreement.

Was there an employment contract?
The critical question was as to the nature of those contractual obligations. Were they such as to render them a contract of employment? In the view of Elias LJ, the most important finding was the evidence that the Clubs were under no obligation to pay the dancer anything at all. The dancers negotiated their own fees with the clients, took the risk that on any particular night they would be out of pocket and received back from the Club only monies received from clients after deductions.

There was nothing inherently implausible in the finding of the Tribunal that the Clubs were obliged to pay nothing. It was not suggested that the agreement was a sham. Indeed, the ET's analysis entirely accorded with the decision of the High Court in Spearmint Rhino Ventures (UK) Limited v Revenue and Customs Commissioners [2007] STC 1252. In that case Mann J held that a club operating in a very similar way to the present case was not liable to VAT. The Revenue contended that the club was providing the services of dancers to clients but the judge disagreed. He held that dancers were supplying their own services to the clients who paid them directly. The payments were made to the dancers in their own right and not as agents of the club.

The ET had seen an analogy with the position of the golf caddie in Cheng Yuen v Royal Hong Kong Golf Club [1998] ICR 131. In that case the club allowed the caddie to come onto the premises provided he complied with certain rules relating to such matters as dress and behaviour. The caddie would offer to act for an individual golfer who was ultimately responsible for the payment of his caddying fees, although the arrangement was that the club would make the payment and recoup it from the golfer. The Privy Council regarded the club as an agent collecting fees for the caddie who was therefore not an employee of the club.

Elias LJ agreed that this essentially reflected the position in Quashie. Accordingly, the Club did not employ the dancers to dance; rather she paid them to be provided with an opportunity to earn money by dancing for the clients. Further, the ET's conclusion was strongly reinforced by the fact that the terms of the contract involved the dancer accepting that she was self-employed and she conducted her affairs on that basis, paying her own tax. She did not receive sick pay or holiday pay. Whilst it was trite law that the parties cannot by agreement fix the status of their relationship, it is legitimate for a court to have regard to the way in which the parties have chosen to categorise the relationship.

In the circumstances, the Tribunal's conclusion that there was no contract of employment in place was restored.

Comment
In appropriate cases there is still scope for structuring a working relationship so that it does not constitute employment. Crucial factors in the court's decision were that the dancers could end up with nothing despite undertaking a night's work and the terms of their specific contractual arrangements.

However, there is still a need for caution because Tribunals will be alive to sham arrangements (although there was no suggestion of a sham in Quashie). It is important to note that to amount to a sham, contractual arrangements do not need to be entered with a common intention on the part of the parties to mislead third parties. It would be sufficient if the arrangements as recorded and as evidenced by the parties' conduct, did not reflect the true intentions or expectations of the parties, both at the point of inception of the contract and also in the course of time.

BAND OF REASONABLE RESPONSES: INVESTIGATION
Does the band of reasonable responses test apply to an investigation into alleged misconduct? Yes, the EAT confirmed in [Stuart v London City Airport]() UKEAT/0273/12/BA.

The Claimant, who worked at an airport, went to buy some goods from one of the airport shops. He held the goods in his hands instead of using a basket. The first till he queued at was shut and he was directed to another till. He then stopped to talk to a colleague who was standing just outside the shop boundary. He was accused of trying to conceal the goods under his jacket with the intention of not paying for them, and, after an investigation, he was dismissed for dishonesty and breach of trust. The ET found that the dismissal was fair because the employer's decision was based on reasonable grounds after a reasonable investigation. The Claimant appealed.

The ET considered that it was necessary to decide whether, throughout the entire disciplinary process, the procedure adopted by the employer and the decision to dismiss were reasonable and were within the band of reasonable responses of a reasonable employer.

In Sainsburys Supermarket Ltd v Hitt [2003] IRLR 23, Mummery LJ said:

"... The range of reasonable responses test (or, to put it another way, the need to apply the objective standards of the reasonable employer) applies as much to the question whether the investigation into the suspected misconduct was reasonable in all the circumstances as it does to the reasonableness of the decision to dismiss for the conduct reason."

For an employee employed in a position of trust, an allegation of dishonestly taking goods from the premises where he worked without paying for them was always serious and would therefore require careful investigation. As had been made clear in the case of A v B [2003] IRLR 405, that investigation should include evidence which might potentially be viewed as exculpatory.

In these circumstances the Employment Tribunal's findings were unsustainable. Further inquiry as to potentially exculpatory evidence being referred to by the Claimant, including CCTV evidence, was required. Such CCTV footage of the Claimant's movements inside the store was likely to be of considerable assistance in relation to the allegations against him. It was potentially exculpatory evidence which could have supported this Claimant's account of events.

On the facts found, the ET's conclusion that the employer had formed a reasonable belief as to the Claimant's dishonesty and breach of trust was unsustainable. The appeal was allowed and the case was remitted to a fresh Tribunal for re-hearing.

Comment
Even if the dismissal was ultimately found to have been unfair, the EAT noted that one of the matters to be considered at that re-hearing was whether and to what extent, the Claimant could be said to have contributed to his dismissal – a line that should always be explored in this type of misconduct case.

One further practical point is that whilst in the present case the misconduct alleged was denied, the Chughtai case below re-affirms that where misconduct is admitted, the need for a far-reaching enquiry diminishes (RSPB v Croucher [1984] IRLR 525).

BAND OF REASONABLE RESPONSES: DISPARITY OF TREATMENT
It is well known that section 98 of the Employment Rights Act 1996 requires Tribunals to consider the fairness of a dismissal "in accordance with equity and the substantial merits of the case". Therefore employers need to consider the level of sanction that has been imposed on other employees in the workplace in similar circumstances and act consistently with previous decisions, unless there are material differences in the circumstances or the offence.

[SPS Technologies Ltd v Chughtai]() UKEAT/0204/12/SM provides a useful reminder of the "equity" test in unfair dismissal cases.

The Claimant worked as a laboratory controller and his principal task was to ensure that the results of various tests conducted on a variety of aircraft parts had been manufactured to the appropriate standard. A whistleblower reported that the Claimant had falsified records because having received information that a product had failed the relevant test, he then entered a pass on the system. The whistleblower also said that he suspected the Claimant's manager was aware of the falsification.

The Claimant admitted his misconduct, but said that his practice was commonplace. He was suspended and subsequently dismissed. His manager was not suspended, but was investigated. However, the employer could not find any corroborative evidence that the manager authorised the falsification of test data.

The ET found, by a majority that the Claimant had been unfairly dismissed. The majority lay members of the ET made a finding that the Claimant had acted with his manager's knowledge and approval. The Employment Judge formed the contrary view, but reminded himself that the ET's role was to assess the reasonableness of the employer's actions.  Despite a far-reaching and highly technical investigation, the company's investigators were unable to find any corroborative evidence which suggested that the manager was engaged in or authorised the falsification of test data.

Role of the ET
The EAT pointed out that the first question was whether the majority had substituted their assessment of the Claimant's credibility for that of the employer. The EAT had no doubt that they had done so. The majority were clearly stating that having heard the Claimant, they believed his account and so too should the employer. That was a wrong approach in law.
However, the ET's error went much further. They formed the view that the employer ought to have concluded that the falsification of records admitted by the Claimant was a common practice endorsed the Claimant's manager. However, that was not the ET's task. They had to decide whether there was disparity of treatment between Claimant and his manager, such that the failure to suspend and/or discipline the manager rendered the Claimant's dismissal unfair.

The ET had failed to ask themselves the proper question, which was whether the employer acted outside the range of reasonable responses in the comparative treatment of the Claimant and his manager. The distinction drawn between the Claimant's case and that of his manager was not irrational as the cases were not truly comparable.

This was not a case where two people were disciplined arising from the same incident and ultimately one is dismissed and the other not, based on a rational distinction between their respective levels of culpability. Here, either both were to be dismissed if guilty of misconduct, or, as was the case, one was guilty on his own admission whereas, on the evidence, nothing was proven to the company's satisfaction against the manager.

Therefore, the majority finding of unfair dismissal could not stand and the employer's appeal was allowed.

BAND OF REASONABLE RESPONSES: DISCIPLINARY SANCTION
In [Bryant v Sage Care Homes Ltd]() UKEAT/0453/11/LA the EAT confirmed that the band of reasonable responses test applies equally to the level of disciplinary sanction.

The Claimant was a nurse who delegated the responsibility of administering a drug to a patient to a colleague. The colleague mistakenly gave the drug to the wrong patient, although this proved to be harmless. The Claimant did not record or report the incident which was in breach of the Nursing and Midwifery Council's (NMC) regulations and she was summarily dismissed.

The ET found that the dismissal for admitted breaches of the NMC guidelines and the Claimant's failure to appreciate the seriousness of what had occurred, fell within the band of reasonable responses. The Claimant appealed.

The EAT referred to the Court of Appeal's decision in [Fuller v London Borough of Brent]() [2011] IRLR 414, when Mummery LJ had said:

"The appellate body, whether the EAT or this court, must be on its guard against making the very same legal error as the ET stands accused of making. An error will occur if the appellate body substitutes its own subjective response to the employee's conduct."

Was dismissal a reasonable response?
The ET's task, on the issue of the reasonableness of the dismissal, was to decide whether the dismissal of the Claimant fell within the band or range of reasonable responses and not whether in their view it was fair. There are many misconduct cases in which members of the Tribunal would not, if it had been left to them, have regarded it as fair to dismiss, but they conclude that the dismissal fell within the range of reasonable responses.

Had it been the evidence that the employer knew that the internal policies had not been promulgated and that they were the only rules as to drug administration which governed the Claimant's conduct, then the Tribunal might well have come to a different conclusion on this issue; but that was not the position. There was no doubt that the NMC standards did apply to the Claimant and that, although the internal policies could not be relied upon, the employer was entitled to regard the Claimant as having been in breach of the NMC principles.

It was not in dispute that no harm was likely to have come to the unintended recipient of the sedative as a result of the drug error. Dismissal was not based on any such harm but on the breaches of the NMC principles which the Claimant admitted.

The EAT observed that his was undoubtedly a sad case; any reader of the ET's judgment might well think that this was a "hard" case and that the Claimant had been "harshly" treated but the ET's function was not to consider whether or not those adjectives were appropriate, but to apply the test laid down by law. The ET had applied the correct test and it had not been demonstrated that the ET had reached a decision which no reasonable Tribunal could have reached, or that the Tribunal had fallen in to error in concluding that the dismissal of the Claimant fell within the range of reasonable responses.

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator.