Background
Ready Mixed Concrete is a High Court judgement from December 1967, delivered by MacKenna J. The issue at hand was whether or not Mr Latimer was an employee of Ready Mixed Concrete Limited (‘RMC’) for the purposes of National Insurance contributions.
This judgment was handed down over 30 years before IR35 legislation was introduced and it is still one of the most important pieces of case law when defending IR35 disputes. So what exactly did the courts say that is so instrumental to a piece of legislation that arrived three decades later?
RMC was a company that produced and transported ready mixed concrete to sites around the UK. The company decided it would be more beneficial to the maintenance of their mixing trucks if the delivery drivers were to operate as self-employed contractors with full ownership of the vehicles. A scheme was introduced whereby the drivers would become ‘owner drivers’ entering into hire purchase agreements with Readymix Finance Limited.
This case reached the High Court after RMC applied to the Minister of Pensions and National Insurance for a decision as to whether the company should be paying National Insurance contributions in respect of Mr Latimer as an employed person. The minister decided that based on the facts presented, Mr Latimer was within the class of employed persons and National Insurance contributions were due. RMC appealed the decision.
The judgement
Having considered previous approaches and finding them largely unhelpful, MacKenna J introduced the ‘irreducible minimum’ - the absolute bare bones of what is needed for a contract of employment to exist. By applying this method to the evidence, the courts were satisfied that the contract was one of carriage and not of service. The irreducible minimum can be split into personal service, degree of control and ‘other provisions’ within the contract.
Personal service
Mr Latimer’s contract allowed him to send a replacement driver if he was unable to drive himself, provided they were ‘competent’. The replacement would become Latimer’s ‘servant’. In fact, a group of RMC owner drivers employed a ‘relief truck driver’ who was utilised during holidays or periods of sickness. Everyone in the group contributed to the relief driver’s wages.
To paraphrase MacKenna J: the freedom to do a job through another’s hands is inconsistent with a contract of service, but an occasional power of delegation may not be. Here, Mr Latimer was under no obligation to drive the truck himself. When engaging a relief driver, he was not delegating part of his obligations, but was sending in someone else to do the job whilst still receiving remuneration for it. He was responsible for paying the substitute and could make a profit by paying the replacement a lower rate than he was receiving from RMC. It’s hard to imagine a contract of employment where this would be possible.
Control
The second provision of the irreducible minimum the judge looked at was the right to control. As we know, control can be broken down into who controls the ‘what’, ‘when’, ‘where’ and ‘how’. According to this judgement, the ‘how’ is the crucial part as it’s the only element the contractor could control entirely; everything else may well be dictated by the client and the nature of the job. You can tell a bricklayer where to build a wall and when it needs to be done by, but it’s very unlikely you would instruct them how to do it.
RMC could not tell Mr Latimer how he should drive his truck or which route to take. In fact, when asked what would happen if an employee of RMC sought to instruct him, Mr Latimer responded that he would “‘tell that person to mind his own business”. The courts found that the degree of control Mr Latimer was subject to was insufficient to render him an employee.
Consistent with a contract of employment?
The third provision of the irreducible minimum states that everything else in the contract must be consistent with a contract of employment.
The agreement required Mr Latimer to wear the company’s uniform and the truck was to be painted in RMC colours. Mr Latimer was not allowed to use the truck to drive for another company and he was expected to be available to RMC at all times, day and night.
Normally, when reviewing contracts, if we see a provision where there is exclusivity and a requirement for the contractor to be available to the client at all times, alarm bells ring. This is an unusual provision to find in a genuine business agreement as it creates dependency between the parties and restricts the contractor’s ability to pursue other commercial ventures. In this case it could also be argued that the company uniform and painted truck added weight to employment - I doubt an outsider would have been able to distinguish Mr Latimer from an employee of RMC.
Regardless, the two key elements of employment were missing from the engagement which proved fatal to the minister’s argument that employment existed. The typical badges we might associate with employment do not outweigh the first two provisions of the irreducible minimum not being present.
Forward to the present
Whilst IR35 legislation hinges on the existence of a hypothetical contract between contractor and end client, it does not explain how to establish whether a contract is one of employment or not. The three keys tests we use today (personal service, control and mutuality of obligation) have been shaped by years of case law, with Ready Mixed Concrete setting the foundations. The principles which emerged from this judgement are still an incredibly valuable tool we use as a starting point for every enquiry and contract review we undertake.
If you would like to discuss this article in more detail, please contact Nikola Nowak by email or call us on 0333 920 5708.