Ready Mixed Concrete (South East) Ltd v Minister of Pensions and NI
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and NI [1968] 2 W.L.R. 775
Employee Status
In a pivotal 1960s legal battle, a High Court decision reshaped the understanding of employment status, determining whether an individual was a "self-employed" contractor or a hidden "employee". This is the story of Thomas Henry Latimer, an owner-driver for Ready Mixed Concrete (South East) Ltd., and the Minister of Pensions and National Insurance's attempt to classify him as an "employed person".
Facts
The case concerned Thomas Henry Latimer (L.), who worked for Ready Mixed Concrete (South East) Ltd. (the company) as an owner-driver. The central question was whether L. was an "employed person" under a contract of service for the purposes of the National Insurance Act, 1965, specifically sections 1(2)(a) and 3(b). This determination would establish whether the company was liable to pay weekly national insurance contributions for him.
The company's business involved making and selling concrete. Since 1959, the Ready Mixed Group (of which the company was a part) had a policy of separating the concrete-making and business of sale from its delivery. To this end, they introduced an owner-driver scheme after being dissatisfied with independent haulage contractors. This scheme was intended to stimulate efficient cartage, good truck maintenance, and careful driving by giving owner-drivers an incentive for higher returns without abusing vehicles. It was consistently the intention of both the company and the owner-drivers, including L., that they be treated as independent contractors. Owner-drivers paid Income Tax under Schedule D and National Insurance contributions as self-employed persons until March 1965. Earlier, in 1962, the Ministry of Pensions and National Insurance had expressed the opinion that similar owner-driver agreements did not constitute contracts of service.
L. had initially been employed by the Ready Mixed Group as a yardman batcher from 1958 to 1963. In 1963, he became an owner-driver, entering into a two-year contract and purchasing a Leyland lorry. On May 15, 1965, he entered into a new five-year written contract with the company. A month later, he secured a hire-purchase agreement for a new Leyland vehicle from a finance company associated with the Ready Mixed Group.
The contract between L. and the company explicitly declared L. to be an independent contractor. Key provisions of the agreement included:
L. was to make his vehicle available exclusively to the company for deliveries.
He was required to buy his own vehicle (though through a company-associated finance organisation) and maintain, repair, and insure it and the company's mixing unit at his own expense.
He was generally to drive the vehicle himself, but could, with the company's consent, hire a competent driver if unavailable. If he did so, he had to pay that driver at National Joint Council rates or better.
L. was obliged to wear the company's uniform and comply with company rules and reasonable orders from competent company servants "as if he were an employee".
He was paid on a mileage basis for the quantity delivered.
The company had certain controls: it could require specific colours for the vehicle, control major repairs (costing over £50 or taking more than a day), and require his accounts to be prepared by an approved accountant in an approved form.
L.'s gross earnings under the contract were substantial (e.g., £4,512 in 1965), but his net remuneration after expenses was significantly lower (e.g., £2,004 in 1965). In contrast, the company also employed three or four drivers under contracts of service during busy periods, who worked fixed hours, were paid hourly, had controlled holidays, did not bear truck maintenance costs, and were instructed on routes.
The Minister of Pensions and National Insurance determined that L. was an "employed person" under a contract of service. The company and L. appealed this decision, arguing that he was an independent contractor and that the Minister had wrongly disregarded relevant evidence, such as the parties' intention to be treated as independent contractors. The Minister had disregarded proof relating to the Ministry's previous informal opinions, the parties' intentions, and L.'s own views on receiving instructions.
Held
The appeal was allowed with costs against the Minister. The court held that the contract between Latimer and the company was not a contract of service, and Latimer was an independent contractor. MacKenna J. established a three-condition test for a contract of service:
The servant agrees, for a wage or other remuneration, to provide his own work and skill in performing a service for the master. This implies an obligation to provide one's own work and skill, making freedom to delegate generally inconsistent with a contract of service, though limited delegation may be acceptable.
The servant agrees, expressly or impliedly, that in performing the service, he will be subject to the control of the other party sufficiently to make that other the master. Control encompasses deciding "the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done". The right of control need not be unrestricted, focusing on "lawful authority to command so far as there is scope for it".
The other provisions of the contract are consistent with its being a contract of service. An obligation to work subject to control is a necessary, but not always sufficient, condition. If the contract's provisions, when viewed as a whole, are inconsistent with a contract of service, then it is some other type of contract, and the person doing the work is not a servant.
The court clarified that a declaration by the parties that the relationship is something other than master and servant is irrelevant if the contractual rights and duties clearly establish a master and servant relationship. However, such a declaration might help resolve doubt if the rights and responsibilities are ambiguous. Furthermore, the standard law test of control is broad enough to include considerations of investment and financial risk, not just the manner of performing service. It is relevant to consider who owns the assets or bears the economic risk when determining if a business is carried on for oneself or for another, as a person who owns the assets and bears the risk is unlikely to be acting as a servant.
Applying this test to L.'s contract, the court found that:
L. was paid by results (a rate per mile) and was responsible for providing and maintaining his own vehicle at his own expense, meaning he owned the assets and bore the financial risk in the business of carriage. This was fundamentally different from the company's direct employees.
He had sufficient freedom in performing his obligations, such as deciding how to maintain his vehicle, choosing his fuel supplier, and appointing his own servant (the relief driver) when unable to drive himself.
The company's control over major repairs, accounting, and insurance (for which L. paid) was seen as ensuring the efficient running of L.'s own business, rather than indicating a master-servant relationship.
His comparative net profits confirmed his status as a "small businessman" rather than a servant.
Therefore, the court concluded that the contract was a contract of carriage, not a contract of service. This decision also applied to the similar cases of King and Bezer, whose contracts were likewise deemed not to be contracts of service.
Comment
This case, Ready Mixed Concrete (South East) Ltd. v. Minister of Pensions and National Insurance, is a seminal authority in English labour law for distinguishing between a "contract of service" (employment) and a "contract for services" (independent contractor status). This distinction is vital for determining rights and obligations under various statutory regimes, including National Insurance and tax.
The three-condition test formulated by MacKenna J. became a cornerstone for courts attempting to classify employment relationships, particularly in an evolving economic landscape where the traditional "control test" alone was increasingly inadequate. The judgment significantly broadened the scope of inquiry beyond merely the master's right to control the manner of work, acknowledging that modern industrial conditions required a more complex analysis.
Crucially, the case introduced and integrated factors of economic reality, such as ownership of assets and bearing the financial risk (chance of profit/risk of loss), directly into the common law test for employment status. MacKenna J. explicitly stated that the common law test was "wide enough to take account of investment and risk", aligning English law with more holistic approaches seen in other common law jurisdictions like Australia and the United States. The distinction between a party providing "simple tools" or incidental transport versus providing "plant and equipment on a large scale" where the hiring of the plant is the "real object of the contract" is key to understanding when these economic factors become determinative.
The case also clarifies the limited role of party intention and contractual declarations. While a statement declaring someone an "independent contractor" is not conclusive, it can inform interpretation if other contractual terms are ambiguous. However, if the rights and duties spelt out in the contract clearly point to a specific relationship, a contrary declaration will be disregarded. The detailed comparison with the company's directly employed drivers further underscored the practical implications of L.'s financial independence and responsibilities.
In essence, Ready Mixed Concrete shifted the focus from a purely hierarchical control model to a more nuanced assessment that considers the entire economic substance of the relationship, including who benefits from profits, bears losses, and provides the essential means of production. This holistic approach ensures that individuals cannot be arbitrarily labelled as independent contractors to circumvent statutory obligations if the true nature of their engagement is one of service.
