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Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Warwick v Hygiene Plus Ltd ... [2011] NIIT 01197_11IT (02 December 2011)
URL: http://www.bailii.org/nie/cases/NIIT/2011/01197_11IT.html
Cite as: [2011] NIIT 1197_11IT, [2011] NIIT 01197_11IT
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THE INDUSTRIAL TRIBUNALS
CASE REFS: 2796/10
1197/11
CLAIMANT: Christopher Warwick
RESPONDENTS: 1. Hygiene Plus Ltd (in liquidation)
2. Department for Employment and Learning
DECISION
A. The tribunal declares that the claimant was not an employee of the first respondent and consequently the respondent Department (“the Department”) is not liable to make a payment to the claimant in respect of his claim for a redundancy payment pursuant to Article 201 of the Employment Rights (Northern Ireland) Order 1996 (“the Order”).
B. The Department does not have a liability to make a payment to the claimant under Article 227 of the Order in respect of the claimant’s claim for holiday pay.
Constitution of Tribunal:
Chairman (sitting alone): Ms W A Crooke
Appearances:
The claimant appeared in person and represented himself.
The first respondent did not appear and did not instruct any representation.
The second respondent was represented by Mr P McAteer, Barrister-at-Law, instructed by the Departmental Solicitor’s Office.
The liquidator of the first respondent, Messrs McKeague Morgan, of 27 College Gardens, Belfast, BT9 6BZ, did not appear and did not instruct any representation.
SOURCES OF EVIDENCE
1. The claimant gave evidence on his own behalf. Additionally, there were various documents before the tribunal, the contents of which were not disputed by the claimant.
THE CLAIM AND THE DEFENCE
2. The claimant claimed that he was entitled to a redundancy payment and a payment in respect of holiday pay on the grounds that he was an employee of the first respondent. The second respondent contended that the claimant was a director and shareholder of the first respondent but not an employee.
THE RELEVANT LAW
3. The relevant law in respect of claims to the Department in its role as statutory guarantor is found in Article 201, Article 205 and Article 227 of the Employment Rights (Northern Ireland) Order 1996.
Article 3 of the Order provides, that for the purposes of the Order, an “employee” is an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.
Article 3 goes on to define the term “contract of employment” as including a contract of service, which may be expressed or implied, and which (if it is expressed) may be oral or in writing.
The definition of the term “employee” is contained in Article 3 of the Employment Rights (Northern Ireland) Order 1996.
4. In reaching its decision the tribunal also considered the case of Neufeld and Another v Secretary of State for Business Enterprise and Regulatory Reform [2009] EWCA CIV 280 [2009] ALL ER 40.
THE LEGAL ISSUE
5. The legal issue to be decided by the tribunal in this case was whether or not the claimant was an employee of the first respondent and thus entitled to a claim to a redundancy payment and a payment in respect of holiday pay in lieu of holidays accrued but not taken at termination of employment.
ARTICLE 201 AND ARTICLE 227
6. If an employee is entitled to a redundancy payment from his employer, but the employer cannot or will not pay, and the employee has made reasonable efforts to seek to recover the payment from the employer, then the Department, in its role as statutory guarantor, must make a payment to the employee in respect of that redundancy payment. If the Department declines to make a payment pursuant to the Article 201 application, the employee has a right of appeal to an Industrial Tribunal under Article 205 of the Order.
7. The Department is also the
statutory guarantor in respect of the payment of certain other employment debts
including holiday pay (for the purposes of this case) under Article 227 of
the Order if the employer has been (as here) the subject of a
winding-up order. If the Department declines to pay pursuant to the
Article 227 application, there is a right of appeal to an Industrial
Tribunal.
8. This decision is given in respect of both appeals.
THE FACTS
9. Hygiene Plus Ltd commenced trading in 1990. At that time, there were two other directors, Mr Burns and Mr James Cairns.
10. In 2002, Mr Burns committed suicide leaving the claimant and Mr James Cairns as directors of the company.
11. Over the next 12 to 18 months with the assistance of the company’s accountant, Mr Michael Hunter, the business was reshaped.
12. In 2004, Mr James Cairns resigned as a director leaving the claimant as sole Director of the company.
13. In 2007, some other shareholders were introduced to the company. The claimant retained a 50% shareholding and the three new shareholders held the other 50% of capital. At that stage, it was hoped that the company could diversify into the field of agricultural chemicals as one of the new shareholders also operated in that field.
14. In September 2009 the distribution side of the company was sold leaving the manufacturing division of the company with one of the shareholders proposing to acquire the manufacturing part of the company’s business and to move it to Ballycastle.
15. At this time, the First Trust Bank, who had previously operated an invoice discounting facility for the company, withdrew this facility which had a major impact on the viability of the company. By January 2010, the offer to acquire the manufacturing division of the company was withdrawn and the company was put into Creditors’ Voluntary Liquidation on 16 February 2010.
16. There were two forms of written contract of employment before the tribunal, but the tribunal noted with some concern that the second contract was only produced during the hearing of this matter after repeated requests by Mr McAteer to the claimant. The first contract was very brief and dated 10 December 1990. It was signed on behalf of the employer by a “Mr Norman Burns”. The second contract was headed “Statement of main terms of employment” and signed on behalf of the company by Ms P Hill in or around 7 September 2003. The claimant alleged that Peninsula Business Services rewrote the company contracts for all employees including himself in 2003. The claimant’s contention was that as a director and a 50% shareholder in the company, he was not barred from being treated as an employee of the company.
17. At paragraph 78 of the case of Neufeld and Another v Secretary of State for Business Enterprise and Regulatory Reform Mr Justice Elias stated as follows:-
“98. How should a tribunal approach the task of determining whether the contract of employment should be given effect or not to question we would suggest that consideration of the following factors, whilst not exhaustive, may be of assistance:-
(1) Where there is a contract ostensibly in place, the onus is on the party seeking to deny its effect to satisfy the Court that it is not what it appears to be. This is particularly so where the individual has paid tax and national insurance as an employee; he has on the face of it earned the right to take advantage of the benefits which employees may derive from such payments.
(2) The mere fact that the individual has a controlling shareholding does not of itself prevent a contract of employment arising, nor does the fact that he is in practice able to exercise real or sole control over what the company does (Lee).
(3) Similarly, the fact that he is an entrepreneur, or has built the company up, or will profit from its success, will not be factors militating against a finding that there is a contract in place. Indeed, any controlling shareholder will inevitably benefit from the company’s success, as will many employees with share option schemes (Connolly).
(4) If the conduct of the parties is in accordance with the contract that will be a strong pointer towards the contract being valid and binding. For example, this will be so if the individual works the hours stipulated or does not take more than the stipulated holidays.
(5) Conversely, if the conduct of the parties is either inconsistent with the contract (in the sense described in paragraph 96) or in certain key areas where one might expect it to be governed by the contract is in fact not so governed, that will be a factor, and potentially a very important one, militating against a finding that the controlling shareholder is in reality an employee.
(6) In that context, the assertion that there was a genuine contract will be undermined if the terms have not been identified or reduced into writing (Fleming). This will be powerful evidence that the contract was not really intended to regulate the relationship in any way.
(7) The fact that the individual take loans from the company or guarantees its debts could exceptionally have some relevance in analysing the true nature of relationship, but in most cases such factors are unlikely to carry any weight. There is nothing intrinsically inconsistent in a person who is an employee doing these things. Indeed, in many small companies it will be necessary for the controlling shareholder personally to give bank guarantees precisely because the company assets are small and no funding would be forthcoming without them. It would wholly undermine the Lee approach if this were to be sufficient to deny the controlling shareholder the right to enter into a contract of employment.
(8) Although the Courts have said that the fact of there being a controlling shareholding is always relevant and may be decisive, that does not mean that that fact alone will ever justify a tribunal in finding that there was no contract in place. That would be to apply the Buchan test which has been decisively rejected. The fact that there is a controlling shareholding is what may raise doubts as to whether that individual is truly an employee, but of itself that fact alone does not resolve these doubts one way or another.”
18. At paragraph 81 Elias J also stated “whether or not such a shareholder/director is an employee of the company is a question of fact for the court or tribunal before which such issue arises. In any such case, there may be in theory two such issues, although in practice the evidence relevant to their resolution will be likely to overlap. The first, and logically preliminary one, will be whether the putative contract is a genuine contract or a sham. The second will be whether assuming it is a genuine contract, it amounts to a contract of employment (it might, for example, instead amount to a contract for services)...”
19. At paragraph 82 he went on to say “in cases involving an alleged sham, there will, as we have said, almost invariably be what purports to be a formal written employment contract, or at least a board minute or a memorandum purporting to be evidence of the creation of such a contract. The task of the court or tribunal will be to decide whether such document amounts to a sham in the sense of the Snook guidance... Any such enquiry will usually require not just an investigation into the circumstances of the creation of the document but also the parties’ purported conduct under it, which will be likely to shed light on the genuineness or otherwise of the claimed contract. The fact that the putative employee has control over the company and the board, and so was instrumental in the creation of the very contract that he is asserting, will obviously be a relevant matter in the Court’s consideration of whether the contract is or is not a sham. It will usually be the feature that prompted the enquiry in the first place.”
20. At paragraph 83, “An enquiry into what the parties have done under the purported contract may show a variety of things:-
(i) that they did not act in accordance with the purported contract at all, which would support the conclusion that it was a sham;
(ii) that they did act in accordance with it, which will support the opposite conclusion;
(iii) although they acted in a way consistent with a genuine service contract arrangement, what they have done suggests the making of a variation of the terms of the original purported contract; or
(iv) that there came a point when the parties ceased to conduct themselves in a way consistent with the purported contract or any variation of it, which may invite the conclusion that, although the contract was originally a genuine one, it has been impliedly discharged...”
CONCLUSIONS
21. The tribunal had concerns about the validity of Mr Warwick’s alleged employment contract and his credibility generally. In reaching its decision, the tribunal has taken account of the fact that while this company went into liquidation in or around February 2010, the alleged current contract of employment of the claimant was only produced to the tribunal and to the respondent Department on 23 September 2011. The tribunal was not persuaded by the claimant’s arguments about why he had failed to produce it. The claimant rigorously pursued a claim for redundancy payment and holiday pay and did not accept that the fact that these proceedings were “pending” was a reason for withholding the contract until the day of hearing when it had (on the claimant’s evidence) been located approximately two months prior to the hearing. The tribunal simply did not understand the claimant’s argument that the 2003 contract should not be treated as a sham simply because of the prior existence of the 1990 contract. That is a conclusion that by itself simply did not carry any weight with the tribunal. It would have seemed more likely than not to the tribunal on the balance of probabilities that it would have been in the claimant’s own interests to produce the 2003 contract on the grounds that it provided a higher salary for him (and one closer to his stated finishing salary of £36,000.00 per annum) than the 1990 contract.
22. The tribunal has noted that both contracts were accepted on behalf of the company by persons who had no ability to bind the company. As the 2003 contract was entered into at a time when Mr James Cairns was still a director of the company, it would have been emphatically feasible for a properly constituted company director to sign the contract on behalf of the company. Indeed, it was only after some searching cross-examination that the claimant finally accepted that the persons who signed both contracts on behalf of the company were not (in the case of Ms Hill) the company secretary (in the sense intended by company law) and (in the case of Mr Burns) a company director.
23. The tribunal also noted that the claimant’s evidence changed in respect of his wife’s role in the company when the inconsistencies that led to her withdrawing her claim were pointed out to him. Essentially, he said that his wife was working at home and paid through petty cash. Given that his wife had a job in Marks & Spencers and was allegedly receiving £5,000.00 per annum from the company for 20 hours work from 9.00 am to 1.00 pm every day, if this really was the case then this was a further point on which the tribunal did not believe the claimant’s evidence. The tribunal is supported in reaching this conclusion by the letter of the liquidator to Mrs Warwick dated 5 November 2010 which informed her that he had no documentary evidence to support her claim. The tribunal does not accept that this claim was made wholly without the knowledge of the claimant as the claimant alleged. The claimant did sign on behalf of the company the contract of employment of Mrs Warwick dated 1 June 2004, and whatever the difficulties alleged by the claimant Mr and Mrs Warwick continued to reside in the same house. As the claimant’s position on Mrs Warwick was that she largely worked at home, the tribunal considers on the balance of probabilities that it is more likely than not that the claimant was aware of her claim.
24. It is an inescapable reality that the claimant did not act in accordance with the employment contract. His remuneration had changed and had gone up to £36,000.00 at the time of termination of the business. Whilst this is not declaratory of there being a relationship that was not governed by a contract of employment, an examination of the claimant’s PAYE records showed that there was much conflicting information about his salary. For approximately 2 years he did not receive any salary from the company at all. At paragraph 10 of his RP3 form he stated that he had been on a reduced salary of £12,500.00 from 1 April 2009 to 31 January 2010. Yet an examination of his P11 deduction card showed that for the last three months of the company’s existence he had been paid at a rate of £3,000.00 per month which was at the level of £36,000.00 per annum and not £12,500.00 as set out in his RP3. These wide variations in salary are not indicative of the position of an employee working under a contract of employment.
25. Whilst the tribunal noted that the claimant as a company director had been paid through the Pay As You Earn system, the tribunal does not regard this as having any evidential bearing on the legal issue it has to determine.
26. There were inconsistencies and irregularities between the documentary evidence put forward and the claimant’s oral evidence which gave the tribunal cause to be concerned that the contract of employment of 2003 was a sham document. Even if this were not so, the tribunal does consider that at the very least this was very much a case where the 2003 document had been discharged and the claimant no longer acted in accordance with it. A failure to be paid for two years is not a mark of an employment relationship.
27. The tribunal is supported in reaching this conclusion by the claimant’s own evidence that he was undoubtedly the controlling shareholder and also had control over the creation of the contract he asserted to the tribunal. This is in accordance with the claimant’s failure to be paid for two years which is inconsistent with employment status. When we add these points to the tribunal’s concerns over the validity of the claimant’s alleged contract of employment, and his failure to entirely behave in accordance with its most fundamental term for a period of two years the tribunal consider it is more likely than not on the balance of probabilities that Mr Warwick was not an employee of the first respondent and consequently the respondent Department does not have any liability to pay the claimant a redundancy payment or his claim for holiday pay.
Chairman:
Date and place of hearing: 23 September 2011, Belfast.
Date decision recorded in register and issued to parties: