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Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> McGurk v Canopies Ireland Limited [2010] NIIT 6105_09IT (09 June 2010)
URL: http://www.bailii.org/nie/cases/NIIT/2010/6105_09IT.html
Cite as: [2010] NIIT 6105_9IT, [2010] NIIT 6105_09IT
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THE INDUSTRIAL TRIBUNALS
CASE REFS: 6105/09
6106/09
CLAIMANTS: Bernadette Mary Anne McGurk
John Frederick McGurk
RESPONDENTS: 1. Canopies Ireland Limited
2. Department for Employment and Learning
DECISION
The unanimous decision of the tribunal is that neither claimant was an employee within the meaning of Article 3 of the Employment Rights (Northern Ireland) Order 1996 and it dismisses the claimants’ claims against both named respondents.
Constitution of Tribunal:
Chairman: Ms M Bell
Members: Mr M Grant
Mrs E Kennedy
Appearances:
The claimants were represented by Mr Moore of PM Associates.
The second-named respondent was represented by Ms P Baird of the Redundancy Payments Service, Department for Employment and Learning.
1. By claim forms presented to the Industrial Tribunal on 30 June 2009, the claimants Mr and Mrs McGurk, husband and wife, both made claims for redundancy payments, unpaid wages, holiday pay and notice pay. Responses were entered on behalf of the first-named respondent to both claims, completed by Mr McGurk and Mrs McGurk, on behalf of the first-named respondent respectively, stating that they were dismissed because the Company could no longer afford to trade and indicating no intention to resist the claims. Responses were entered in both claims by the second-named respondent resisting the complaints in respect of holiday pay, arrears of pay and notice pay, there being no evidence that the first-named respondent is insolvent within the meaning of Article 228 of the Employment Rights (Northern Ireland) Order 1996, and raising doubts over the claimants’ “employee status” with regard to the redundancy payments sought.
2. As the claims arose out of similar factual situations and concern the same point of law, the tribunal has consolidated them.
Issues
3.
The agreed issue for the tribunal
was whether the claimants were employees of the first-named respondent as defined
in Article 3 of the 1996 Order?
Evidence
4. The tribunal considered the claim forms, the responses, an agreed bundle of documentation from the claimants, documentation from the second-named respondent and heard oral evidence from both claimants.
Findings of Fact
5.
Canopies Ireland Limited, the
first-named respondent, was a business which manufactured and sold glass fibre
canopies to the building and construction industry, started up by Mr McGurk in
January 2000. It ceased trading in February 2009. On commencement of trading
Mr and Mrs McGurk each held fifty percent of the shares in the first-named
respondent company.
6. After start-up Mr McGurk gave evidence that on the advice of his Accountants so as to give himself a role as an employee “as well as the owner of the business” as the company was just a ‘vehicle’, he instructed one of the first-named respondent’s employees, Mr Kelly, to obtain standard contracts of employment for Mr McGurk, Mrs McGurk, Mr Kelly and one other employee. Mr Kelly downloaded contracts from an employment website.
7. Up until 2006 no more than 12½% of the shares in the first-named respondent company were held for any period of time by shareholders other than Mr and Mrs McGurk. From 2006 onward the shareholding reverted to 50% being held by each Mr and Mrs McGurk.
8. Two contracts of employment were produced for Mrs McGurk, the first signed and dated 24 July 2000. The second-named respondent produced national insurance contributions records which showed Mrs McGurk as actually having commenced her employment with the first-named respondent in July 2001 upon which Mrs McGurk stated that her correct start state was July 2001 and not 3 July 2000 as set out in the initial contract of employment produced. The first contract for Mrs McGurk specified her job title as Office Clerk, her hours of work as 0900 hours to 1730 hours Monday-Friday, it provided no entitlement to payment for additional hours worked, however stated that “time off in lieu may be granted at the discretion of the line manager”. At clause 14 provision was made for a performance review to be carried out in relation to Mrs McGurk at least once in each year. At clause 15, 24 days holiday were provided and at clause 16 the holiday year was to run as per the calendar year and provided for all holiday dates to be approved in advance with her line manager.
9. Two contracts of employment were produced for Mr McGurk, the first was signed and dated 24 July 2000, indicating his date of commencement of employment with the first-named respondent as 3 January 2000, this was supported by national insurance contributions records obtained by the second-named respondent. Mr McGurk’s job title was stated to be Managing Director. Provisions for hours of work, overtime, time off in lieu, reviews of performance and holiday were the same as those set out in Mrs McGurk’s first contract of employment. The second contracts of employment produced for each claimant were entitled “statement of main terms of employment” Mrs McGurk’s was signed and dated 7 April 2008 and Mr McGurk’s was signed and dated 11 April 2008. Both documents were prepared when a company was employed to come in and look over the first-named respondents HR practices and employment contracts. Each of the second contracts bore the same commencement date as provided in the respective claimants’ first contracts, hours of work remained the same, holiday provision was increased, the provision in respect of the performance review was no longer included, and amounts of pay were set out, previously reference having just been made to pay being the amount as specified on payslips. Mr McGurk’s second contract provided for him to receive pay of £15.50 per hour for a forty hour week being £620.00 gross per week and £32,240.00 gross per annum. Mr McGurk gave evidence that he received £36,000.00 per annum. Mrs McGurk’s second contract provided for her to receive £16.00 per hour for a forty hour week being £640.00 gross per week.
10.
Both Mr and Mrs McGurk each gave
individual personal guarantees to the Bank of Ireland for £120,000.00 on behalf
of the first-named respondent company.
11. The claimants each received only one dividend payment from the first named respondent company in December 2007 of £10,000.00 each. Both claimants reinvested the £10,000.00 they had each received, in the first-named respondent company in December 2008 in an endeavour to keep the company going.
12. Mrs McGurk put £30,000.00 into the first-named respondent company in 2002 and was repaid in full in 2006.
13.
Mr McGurk gave evidence that he,
in the course of the first-named respondent company‘s trading, paid some bills
from his own personal account for the company including a cheque which cleared
in January 2009 to a sub-contractor Mr Quinn for £2,500.00.
14. Mr McGurk frequently worked well in excess of the hours provided for in his contract of employment, being 0900 hours to 1730 hrs Monday-Friday, he gave evidence that he worked 8.00am-5.30pm, Monday-Thursday and 8.00am-2.00pm on a Friday but said he may have started before that and that he finished long after 5.30pm, sometimes not being home until after 9.00pm if there was a delivery, Mr McGurk gave evidence that he was a working man and stated that “hours don’t count being a success was”. Other employees did not observe the same hours. Mr McGurk did not receive any overtime payment and did not keep any record of the hours he worked nor did he take time off in lieu.
15. Mrs McGurk occasionally worked in excess of the hours provided for her in her contract of employment but did not keep any record of these, she did not receive any overtime payment, did not officially take time off in lieu thereof and on her own evidence did not even take her full holiday entitlement. Although Mrs McGurk instructed an employee to input a record of all employees holidays in the first-named respondent’s Sage payroll system, after it was introduced, she was unable to confirm whether a record of her and Mr McGurk’s holidays had also been kept. Neither Mrs McGurk nor Mr McGurk kept any personal record of holidays taken by them. The first-named respondent’s other employees would not normally have worked any overtime save occasionally at the year end for which they would have received time off in lieu.
16. No performance reviews were carried out in relation to the claimants, however, on Mr McGurk’s own evidence they were informally carried out by him in respect of the company’s other employees at least once a year.
17. Neither claimant was supervised nor answerable to anyone else in the first-named respondent company.
18. In September 2008 Mr and Mrs McGurk chose to take a significant pay cut, both reducing their weekly pay to £200.30 net per week each, in the hope of getting over a “rough patch” that the first-named respondent company was having and to improve cash flow until money came in and business improved.
19. The claimants held Director’s meetings at least once a year to approve the first-named respondents end-of-year accounts.
20. No evidence was put before the tribunal to support the claimants’ claims in respect of holiday pay and arrears of pay.
21.
The respondent company at the
time of hearing is not insolvent within the meaning of Article 228 of the
Employment Rights (Northern Ireland) Order 1996.
The Law
22.
Article 3 of the Employment
Rights (Northern Ireland) Order 1996 defines an “employee” as an individual who
has entered into, or works under, or, where the employment has ceased, worked
under a contract of employment.
23.
Under Article 170 of the 1996
Order an employer shall pay a redundancy payment to any employee of his if the
employee is dismissed by the employer by reason of redundancy.
24. Under the Industrial Tribunals Extension of Jurisdiction Order (Northern Ireland) 1994 an employee may bring a claim for damages for breach of his contract of employment or for a sum due under that contract or any other contract connected with employment before an Industrial Tribunal if the claim arises or is outstanding on termination of his employment.
25. In certain situations the Department for Employment and Learning for Northern Ireland has a role as Statutory Guarantor in making payments to employees in respect of unpaid debts owed to them in their capacity as an employee, if the employer cannot or will not pay these debts. In respect of a redundancy payment, Articles 202(2) and 201(1) of the 1996 Order provide the Department in response to an application from an employee must pay to that employee a sum in respect of an unpaid redundancy payment entitlement subject to the conditions that the employer is insolvent and otherwise that the employee has taken “all reasonable steps” to recover the payment from the employer and the employer has either refused or failed to pay it, or has paid part of it and refused or failed to pay the balance. “All reasonable steps” includes the commencement or continuation of Employment Tribunal Proceedings.
26.
The Department also has a role as
Statutory Guarantor in respect of other employment related debts, subject to
certain pre-conditions, including that the employer has become “insolvent”
within the meaning of Article 228 of the 1996 Order.
27.
Harvey on Industrial Relations and Employment Law/Division
A Contracts of Employment/1A CATEGORIES OF WORKERS/H. OFFICE HOLDERS/(3) deals
with company directors and majority shareholders. In summary, company directors
are by virtue of their appointment office holders, they are not as such
employees of the company but may become its employee by entering a service agreement.
Early cases are referred to where company directors were held not however, to
be employees of the company at least for redundancy purposes, where the director
had a controlling interest in company shares on the basis that control is the
cardinal feature of the contract of employment. Earlier cases are referred to
which suggest that the real issue is whether the alleged contract of employment
is a bona-fide arrangement between the company and the director and the fact
that the director is also the controlling shareholder is but one factor to take
into account when determining that issue.
28.
Harvey summarises at paragraph
198 the approach of the Court of Appeal in England and Wales, in Secretary
of State for Trade and Industry v Bottrall [1999] IRLR326 such that:
whether or not an employment relationship existed was to be decided by having
regard to all the relevant facts. Where the person concerned has a controlling
shareholding it was likely to be significant in all situations, and in some
cases would prove to be decisive, but it was only one of the factors which were
relevant and not determinative. Factors which the tribunal would be likely to
consider included whether or not there was a genuine contract between the Company
and the shareholder, the circumstances in which the contract came into
existence (eg, was it made at the time when insolvency was a possibility) and
what the parties actually did in accordance with the contract”. In Secretary
of State for Business, Enterprise and Regulatory Reform-v-Neufeld and Another
[2009] IRLR475, the Court of Appeal in England and Wales gave guidance on determining whether a controlling shareholder and director of a company
was also an employee of the company. In Ashby-v-Monterry Designs Limited [UKEAT/0226/08/CEA,
18 December 2009] this guidance was reiterated. Rimer LJ stated “[T]here is
no reason in principle why someone who is a shareholder and director of a company
cannot also be an employee of the company under a contract of employment.
There is no reason in principle why someone whose shareholding in the company
gives him control of it – even total control – cannot be an employee. In
short, a person whose economic interest in the company and its business means
that he is in practice properly to be regarded as their “owner” can also be an
employee of the company”.
29. Elias J at Paragraph 98 of his judgement in the Clark-v-Clarke Construction Initiatives Limited [2008] IRLR364 gave guidance to tribunals when deciding whether the contract of employment of a majority shareholder should be given effect, such that :
(1) The onus is on the party denying a contract; where an individual has paid an employee’s tax and NI, prima facie he is entitled to an employee’s rights.
(2) The mere fact of majority shareholding (or de facto control) does not in itself prevent a contract arising.
(3) Similarly, entrepreneur status does not in itself prevent a contract arising.
(4) If the parties conduct themselves according to the contract (eg as to hours and holidays), that is a strong pointer towards employment.
(5) Conversely, if their conduct is inconsistent with (or not governed by) the contract, that is a strong pointer against employment.
(6) The assertion that there is a genuine contract will be undermined if there is nothing in writing.
(7) The taking of loans from the company (or them guaranteeing of its debts) are not intrinsically inconsistent with employment.
(8) Although majority shareholding and/or control will always be relevant and may be decisive, that fact alone should not justify a finding of no employment.
In Secretary of State for Business Enterprise and Regulatory Reform v Neufeld [2009] IRLR 475, CA Rimer LJ approved Elias P’s guidance in Clark subject to two qualifications to which it must now be read:
(1) guideline (1) should not be read as constituting a formal reversal of the burden of proof on to the party denying employment status; it may still be necessary for the putative employee to do more than produce documentation to satisfy the tribunal;
(2) guideline (6) may be expressed too negatively – lack of writing may be an important consideration but if the parties’ conduct tends to show a true contract of employment ‘we would not wish tribunals to seize too readily on the absence of a written agreement to justify a rejection of the claim’.
Applying the Law to the Facts Found
30. Mr Moore referred the tribunal to three recent decisions in the cases of Agahi-v-Department for Employment and Learning Redundancy Payment Service [Case Ref 323/09 and 5789/09], Thomas James Lewis-v-Department for Employment and Learning [Case Ref 6657/09] and Thomas Rea-v-(1) Boucher Electrical Limited (In Liquidation) and (2) Department for Employment and Learning Redundancy Payments Branch (Case Ref 4643/09) and sought to distinguish the claimants’ case from that of Agahi and Lewis and to rely on their circumstances being similar to that in Lewis. The Department however questioned whether the claimants were in fact employees based on whether the contracts of employment were genuine, as monies had been invested in the company, dividends received, personal guarantees provided, the claimants had not been supervised or guided and that they had taken a reduced salary.
31. It is clearly a question of fact in each case whether a director/shareholder of the company was an employee of the company. The tribunal must be satisfied that the director/shareholder’s employment contract with the company was a genuine contract of employment as opposed to a contract for services. The tribunal note that the existence of a contract of employment, payment of employee tax and national insurance contributions supports there being a genuine contract of employment and the fact of majority shareholding and control over the company, entrepreneur status and the guaranteeing of company debts do not mean that a shareholder/director cannot be an employee. How parties conduct themselves, whether they conduct themselves in accordance with the contract or in a way inconsistent with it, for example in relation to holidays and hours, may support their employment, or, point against it. The tribunal acknowledges that where dealing with a small company that its internal affairs may be conducted with some degree of informality.
32.
In reaching a decision the
tribunal has attached little weight to the claimants’ share capital in the company,
the claimants having given guarantees in respect of the company’s loans, the claimants
reinvestment of £10,000.00 each into the company, presumably by way of loan to
it, the fact that the claimants were not supervised by anyone else and to
inconsistencies regarding the dates given for
Mrs McGurk’s date of commencement on both contracts of employment produced
and the date upon which the first contract was purportedly signed, being prior
to the date Mrs McGurk subsequently acknowledged in evidence as being well
before her actual correct date of commencement.
33. The tribunal consider that the claimants’ contracts of employment did not reflect the reality of the employment relationship between the claimants and the respondent company and that the claimants did not conduct themselves in a manner consistent with these documents. The claimants did not observe contractual working hours, they did not take time off in lieu of overtime worked, other employees did not normally work overtime and if they did, time off in lieu was taken. The claimants did not appear to observe contractual holiday provisions, and on Mrs McGurk’s evidence she did not take her full entitlement. In particular, however, Mr McGurk when the company was clearly facing financial difficulties paid the respondent company’s bills from his own personal monies and of most particular significance both the claimants in September 2008 chose to take a substantial cut in pay, by approximately half, to try to improve the respondent company’s cash flow to get it over a “rough patch” which were steps which the tribunal find most difficult to reconcile with a genuine employee being prepared to accept. As stated in the Rea Case, this is a difficult and complex area of law and the tribunal have not found it an easy matter to decide upon, however, having considered all the evidence before it and facts found it is the unanimous decision of the tribunal that on the balance of probabilities the claimants are not employees as defined in Article 3 of the 1996 Order and the tribunal dismisses the claimants’ claims for a redundancy payment, holiday pay, arrears of pay and notice pay.
Chairman:
Date and place of hearing: 26 February 2010, Belfast
Date decision recorded in register and issued to parties: