Industrial Tribunals Northern Ireland Decisions

THE INDUSTRIAL TRIBUNALS

 

CASE REF: 1247/10

 

 

CLAIMANT: Peter Burns

 

RESPONDENTS: 1.  Lee Lavelle

2.  Paul Johnston

3.  Belfast City Sight Seeing Ltd

4.  Department for Employment and Learning

 

 

DECISION

 

(A) All of the claimant’s claims against Lee Lavelle and against Paul Johnston are
well-founded and:

 

(1) It is ordered that those two respondents shall pay to the claimant the sum of £760 in respect of unpaid wages.

 

(2) It is ordered that those two respondents shall pay to the claimant the sum of £1,368 in respect of holiday pay.

 

(3) It is ordered that those two respondents shall pay £945 to the claimant in respect of notice pay.

 

(4) It is declared the claimant is entitled to receive a redundancy payment of £1,710 from those two respondents.

 

(B) None of the claims against City Sight Seeing Ltd (“the Company”) is well-founded.  Accordingly, all of those claims are dismissed.

 

(C) As already specified above, Lee Lavelle and Paul Johnston are liable to make a redundancy payment of £1,368 to the claimant.  Accordingly, the claimant’s reference to this tribunal, pursuant to Article 205 of the Employment Rights (Northern Ireland) Order 1996 (“the Order”), is successful.

 

(D) By agreement, the claimant’s Article 233 “complaint” [appeal], against the Department’s refusal to make payments in respect of wages, holiday pay and notice pay, is dismissed.

 

 

Constitution of Tribunal:

 

Chairman  (sitting alone): Mr P Buggy

 

 

Appearances:

 

The claimant was represented by Mr N Gillam, Solicitor, of Donnelly and Kinder Solicitors.

 

1. Lee Lavelle was not entitled to participate in the proceedings (because he had not put in a response).

 

2. Paul Johnston was not represented at this hearing.

 

3. There was no appearance on behalf of the Company.

 

4. The Department was represented by Mr Peter Curran.

 

 

REASONS

 

1. Until Christmas 2009, Lee Lavelle (a respondent to these proceedings) and Paul Johnston (also a respondent to these proceedings) and Joe Lavelle (now bankrupt, and formerly a respondent to these proceedings) ran a bus tour company, in partnership together.  That business (“the Partnership”) ceased to operate at the end of 2009.

 

2. This is a lead case.  The claimant in these proceedings, alongside a number of other workers, was employed by the Partnership until Christmas 2009.  At that point, the business folded, and this claimant (along with a number of other claimants) is owed wages, holiday pay, pay in lieu of notice and redundancy pay arising from the collapse of the business.

 

3. Originally, there appeared to be a TUPE issue in this case.  (Within three months of the end of the Partnership’s business, the claimant was working for another bus company, doing much the same job as he had done for the Partnership, on much the same routes, for substantially the same circle of customers.)  However, ultimately, the Department has decided not to take any TUPE point in these proceedings (perhaps because of the implications of the European Court of Justice judgment in Oy Likenne AB  v  Liskojarvi [2001] IRLR 171).

 

4. The Company was added as a party to the proceedings because of the potential TUPE issue.  Because the Department for Employment and Learning (“the Department”) is now not pursuing any TUPE issue in this case, it is clear that the proceedings against the Company must be dismissed.

 

5. When the claimant commenced these proceedings, all of the partners in the Partnership were joined as respondents to these proceedings.  However, his proceedings against Joe Lavelle were subsequently withdrawn.  (They were withdrawn for pragmatic reasons: Joe Lavelle had become bankrupt.  Accordingly, there was a question as to whether or not these proceedings could continue at all if Joe Lavelle continued to be a respondent).

6. The present proceedings are part of a multiple (group) litigation, in which various
ex-employees of the Partnership make claims against their former employers in relation to (unpaid) wages, (unpaid) holiday pay, notice pay and redundancy pay. The claimant made applications to the Department, for claims from the national insurance fund. (Those applications were made in the context of the Department’s role as a statutory guarantor, in respect of unpaid redundancy pay and, in respect of certain other unpaid employment debts).  Those applications were unsuccessful.  Accordingly, in these proceedings, the claimant also appeals in relation to the Department’s refusal of those applications.

 

7. As Mr Gillam realistically recognised, the claimant’s appeal against the Department’s statutory decisions in relation to the claimant’s applications (to the Department) in respect of wages, holiday pay and notice pay, are legally correct; indeed, unless and until all three partners become “formally” insolvent, the Department will have no power, in its statutory guarantor role, to make any payments in respect of anything other than redundancy pay. Accordingly, in the context of the Department’s decisions, the only issue between the active parties (the claimant and the Department) was whether the Department had been right to refuse to make any National Insurance Fund payment in respect of any redundancy pay entitlement.

 

8. The main hearing of these proceedings took place over two separate days, beginning on 7 December 2010 and ending on 31 May 2011.

 

9. During the December hearing, it became clear that there was a real question as to whether or not TUPE applied in the circumstances of this case (thus, perhaps, absolving the Partnership from liability to make any redundancy payments).  It also became clear that there was a real issue as to whether or not the proper deductions have been made from the claimant’s wages in respect of income tax and, if not, whether, and to what extent, the claimant had a responsibility in respect of that shortcoming.

 

10. Accordingly, the completion of the main hearing was postponed, pending enquiries which the Department was to make, in the meantime, regarding the TUPE issue and regarding the income tax position.

 

11. It is unfortunate that there was a gap of about six months between the two days of the main hearing.  However, that delay was unavoidable because of the need to allow time for enquiries with HMRC to be completed, and because of the difficulty in arranging a resumed date of hearing which suited Mr Gillam, Mr Michael Johnston (Paul Johnston’s representative in these proceedings), the claimant, Mr Curran and myself.

 

12. Paul Johnston did not put in a response to these proceedings in a timely matter.  At the request of his brother (Michael Johnston), Paul Johnston was eventually given leave to put in a late response.  He did put in a late response.  The effect of putting in that response was to provide Michael Johnston with the ability to represent Paul Johnston in these proceedings.  However, on 31 May, Michael Johnston went off to a medical appointment (at approximately about noon) and he did not come back at any point subsequently during that day.

 

The liability issues

 

13. That left the claimant and the Department as the main active protagonists in this case.  (Lee Lavelle had never put in any response; Paul Johnston’s response does not include any assertion that any of the claims against him was not well-founded; and the Company’s defence in these proceedings mainly related to the TUPE issue, which has now disappeared, at least in the present case.)

 

14. For the Department, Mr Curran accepted the following,  in the context of the liability issues in this case: (1) the claimant had been employed for some years by the Partnership; (2) the Partnership had ceased to trade in December 2009; (3) as a result, a number of staff, including the claimant in the present proceedings, lost their jobs; and (4) as a result, had it not been for the illegality issue (see below), the claimant would have had valid  claims for wages, holiday pay, notice pay and redundancy pay against each of the partners in the Partnership.

 

15. Accordingly, the key liability issue in these proceedings, both in the context of the claims against the employers and in the context of the appeal against the Department’s redundancy pay decision, was as follows: In the factual circumstances of this case, does the doctrine of illegality preclude the claimant from making any recovery in respect of his various claims against the employers?

 

The illegality issue

 

16.           In my respectful view, the most authoritive recent statement of the legal principles which apply in this area law is that which was set out in the judgment of Elias P in Enfield Technical Services v Payne [2008] ICR 30.  In that case, the legal principles were summarised in the following manner.

 

17.           First, the doctrine of illegality is not concerned with doing justice between a claimant and a respondent.  Instead, it is a principle of public policy.  That principle is that, if the claimant’s demand is founded upon the ground of any immoral act or contract, or upon the ground of his being guilty of anything which is prohibited by law, the assistance of the legal system will be denied to him.

 

18.           Secondly, the relevant principle is a principle whose application is indiscriminate; accordingly, the application of that principle can lead to unfair consequences as between the parties in any particular litigation.  Moreover, the principle allows no room for the exercise of any discretion by the court or tribunal.

19.           Thirdly, there are three categories of case where a contract may be tainted with illegality.  The first is where the contract is entered into with the intention of committing an illegal act.  The second is where the contract is prohibited by statute.  The third is where the contract was lawful when made but has been illegally performed.  In light of the factual context of this case, it is clear that only the third of those categories is relevant in this case.  (There was nothing to stop the parties lawfully operating the Burns contract of employment.  In order to do so, all that was necessary was for the employer to make the appropriate deductions for income tax, and to pay those over to HMRC.)

 

20.           As Elias P points out, at sub-paragraph (4) of paragraph 26 of  judgment in Enfield:

 

“In order to fall within this third category, it is traditionally said that there are two requirements.  There must be knowledge of the illegal performance and participation”. …”

21. At sub-paragraph (7) of paragraph 26, he provided further guidance in relation to the concept of participation in the present context:

 

“The concept of participation requires some active participation.”

In that context, he drew attention to the decision of the Court of Appeal in Hall v Woolston Leisure Ltd [2000] IRLR 578.

 

22.           Mrs Hall had asked to receive her pay gross, and it had come to her attention that her employers were deceiving the Revenue and were not paying the appropriate tax.  The Court of Appeal in Hall held that the employment tribunal was wrong to find that this was sufficient to render the contract an illegal one.  The Court concluded that there had been no illegality on the part of Mrs Hall.  Peter Gibson LJ  added the following,  at paragraph 47 of  his  judgment in Hall:

 

“Her acquiescence in the employer’s conduct, which is the highest her involvement in the illegality can be put, no doubt reflects the reality that she could not compel her employer to change its conduct”.

 

23. An earlier judgment of the EAT, Newland v Simmons and Willer (Hairdressers) Ltd [1981]  IRLR 359, appeared to provide support for the proposition that an employee would be debarred, because of  illegality, from enforcing employment rights, merely because he had actually known that proper income tax and National Insurance deductions were not being made from his pay.  However, to the extent there are differences between the analysis of the law which is contained in Newland and the analysis which is set out by the EAT in Payne, I prefer the Payne analysis.  (Indeed, I note that that analysis at EAT level in Payne was in effect endorsed by the Court of Appeal when Payne ended up there: see paragraph 25 of Pill LJ’s judgment in Payne [2008] IRLR 500, at 503.

 

24. In any event, Newland is clear authority for the proposition that mere “constructive” knowledge will not suffice to make the claimant a “participant” for the purposes of the doctrine of illegality.  .  According to the majority of the EAT in Newland : (1) the test is whether, looked at subjectively, the employee actually knew of the illegality; not whether he should have known; and (2) the essential question is “Has the employee knowingly been a party to a deception on the Revenue?  [My emphasis]”.

 

25.           At paragraph 43 of the Payne judgment, Elias P commented as follows:

 

“43.  In our judgment the essential feature of all the cases where there has found to be illegality [in the performance of a contract of employment] is that the parties have knowingly entered into arrangements which have to their knowledge represented the facts of the employment relationship to be other than they really were”.

 

26. The significance of the EAT judgment in Payne only became apparent to me after the conclusion of the main hearing of this case.  Therefore, I invited the claimant and the Department to make written submissions (“Submissions”) in relation to the implications (if any) of Payne for the present case.  Both of those parties did make Submissions.  At a Case Management Discussion, which was held on 23 June 2011, Mr Gillam (as representative of the claimant) and Mr Curran (as representative of the Department) had the opportunity to provide oral comments in respect of the Submissions.  The main points to emerge from the Submissions, and from those oral comments, are as follows:

 

(1) The Department makes the point that the factual context of Payne itself related only to an unfair dismissal.  However, in my view, the principles set out in Payne apply whenever an employee is seeking to rely upon a contract of employment for the purpose of vindicating any of his employment rights.

 

(2) I do not consider that the lack of a written contract of employment in this case is a point of distinction which precludes the Payne principles from applying to this case.

 

(3) As Mr Curran points out (in the Department’s Submission), at the hearing in May, it was conceded on behalf of the claimant that the operation of the contract of employment was illegal from the outset, in that no tax and/or National Insurance contributions were paid for the majority of the period during which Mr Burns was employed.  At the Case Management Discussion which was held on 23 June, it became clear that the relevant concession related only to the primary facts.  In other words, Mr Gillam was intending to concede only that, as a matter of fact, and as a result of wrongdoing, HMRC was paid no tax and no National Insurance Contributions, in respect of this claimant, in respect of the majority of the period during which this claimant had been employed.

 

(4) According to the Department’s Submission, it is irrelevant whether a party to a contract of employment appreciates that what he is doing is illegal, because ignorance of the law is no excuse.  In my view, that is a correct statement of the legal position.

 

(5) As is pointed out in the Department’s Submission, sub-paragraph (8) of paragraph 26 of Elias P’s judgment in Payne makes the following points:-

 

“In the context of unfair dismissal claims, it is now settled law that if the underlying contract of employment is illegal then it is against public policy to allow the claim to be pursued.  ... Moreover, the employee cannot count any period during which he was employed under an illegal contract as part of his period of continuous employment for the purpose of obtaining the requisite continuity to pursue a claim ...”

 

(6) However, the situation in this case is not one in which the claimant has been employed under a contract which was intrinsically illegal.  Instead, the contract was performed illegally.  And when a contract is performed illegally, a claimant will not thereby be deprived of his ability to sue on foot of that contract unless he has “knowingly participated” in the illegal performance.

 

 

27. I must now apply those principles to the facts of the present case.

 

28.           I have concluded that this claimant was an unreliable witness.  He told me that he never had any reason to suspect that taxes had not been deducted from his wages.  However, the reality, as Mr Gillam realistically recognises, is that for most of the period of years during which this claimant was employed by the Partnership, no or very little tax was being handed over to HRMC in relation to the claimant’s employment. Except for one year of his employment, he was always paid in cash.  He was paid hundreds of pounds in cash every week in respect of his wages. He never got a P60 in all his time in the employment of the Partnership.  Yet, according to his sworn testimony, he never doubted that HRMC was receiving all of the money to which they were entitled in respect of his income tax. That was unbelievable testimony, and I did not believe it.

 

29.           I am satisfied that, over a period of several years, during his period of employment by the Partnership, the claimant must have had strong suspicions that no tax, or not enough tax, was being accounted for to the Revenue in respect of his salary.  In arriving at the latter conclusion, I have taken account of the following matters.  First, the claimant is an intelligent man.  Secondly, he has lengthy and varied experience of the world of employment.  Thirdly, he was a former district official of the ATGWU.

30.           However, on balance, I am not satisfied that the claimant actually knew that tax or National Insurance Contributions were not being paid over.

 

31.           The claimant told me that, when he began employment with the Partnership, he was told by Michael Johnston (who at that time was one of the three partners in the Partnership) that the Partnership would accept responsibility for any income tax or National Insurance which needed to be paid in respect of his salary.  The implication of that evidence is that the arrangements in respect of payment of tax were arrangements were entered into at the behest of the employer, and not at the request of this employee.  I have received no evidence which indicates that those arrangements were made partly or wholly at the behest of the claimant.

32.           Furthermore, there is no hint, in all of the evidence which I received, that the claimant was an active participant in the illegal performance of his contract of employment, or that he entered into any arrangement which represented the facts of the employment relationship to be other than they really were.

33.           Accordingly, on the basis of the facts found by me, I have concluded that the doctrine of illegality does not bar this claimant from pursuing his claim in these proceedings.  In particular, I have no adequate evidence that the claimant was an active participant in the illegal performance of the contract.

 

Conclusions on the liability issues

 

34.           Against that background, and for those reasons, I have decided that all of the claimant’s claims against the Partnership are well-founded.  The implication of the latter conclusion is that the claimant is in principle entitled to succeed in his statutory application to the Department in relation to the unpaid redundancy payment.

 

The amount of compensation

 

35.           I considered the claimant to be an unreliable witness in relation to some important matters of evidence: see above.  That factor has to be borne in mind, particularly in deciding the remaining matters, relating to the amount of compensation, in respect of which there is disagreement between the claimant and the Department.

36.           The remaining issues relate to (1) the amount of any compensation which is due from Lee Lavelle and Paul Johnston and (2) the amount of the payment which should be made by the Department in respect of redundancy.

37.           What was the date of commencement of the claimant’s contract of employment? According to the claimant, it began in March 2004, whereas the Department takes the view that he probably was not an employee of the Partnership until 13 October 2006.

38.           It seems to be clear that the claimant was not claiming any benefits at any time during the period beginning on the date the claimant claims to have started employment with the Partnership and ending on 13 October 2006.  However, the HMRC P14  form in respect of the claimant, which is based on information which was submitted on 3 September 2007, clearly records that he started his employment with the Partnership on 13 October 2006. Furthermore, the claimant has not produced any documentary evidence whatsoever which would support his contention that he was employed by the partnership prior to 13 October 2006. I have carefully noted the testimony of Mr Karl Robinson, who worked for the Partnership alongside the claimant; according to that testimony, Mr Robinson’s recollection is that the claimant was working in the business from 2004 onwards.  But, was he working there as an employee or as a self-employed person? Mr Robinson cannot possibly know the answer to that question. The claimant does know, but I regard the claimant as an unreliable witness.

 

39.           On balance, I am not satisfied that the claimant was working for the Partnership as an employee at any time prior to 13 October 2006.  I am satisfied that the claimant was employed by the Partnership from 13 October 2006 until 30 December 2009.

40.           According to the claimant, his agreed salary, when he began employment with the Partnership, as promised to him by Mr Michael Johnston at that time, was as follows.  He was to be paid £70 net for every weekday that he worked (he worked four weekdays) and he was to be paid £100 net for the one weekend shift that he worked, making a total of £380 net per week.

 

41.           According to the claimant, at the same time, Mr Johnston promised him that the employer would accept responsibility for any income tax or National Insurance which might be payable.  According to the claimant, that promise had the effect of increasing his salary to a deemed approximately £500 per week.

 

42.           During the tax year 2007/2008 (which was the one tax year when there was a full accounting to the taxman in respect of the claimant’s earnings), the claimant’s gross earnings were recorded as being £23,520 per year, which is broadly consistent with the claimant’s assertion that his gross weekly earnings were well in excess of £380.

43.           Accordingly, I am prepared to accept that, throughout his period of employment by the Partnership, the claimant’s net weekly salary was £380.  In arriving at the latter conclusion, I had had regard to the following.  First, I note that the question of whether £380 was net weekly pay or gross weekly pay is a question which is irrelevant in the context of the only matter in respect of which the Department currently has an interest, namely the redundancy payment reference. Secondly, I note that none of the employer respondents has argued that the claimant’s claims are inflated claims.

 

44.           The claimant says, and I accept, that he is due two weeks net pay, in respect of unpaid wages.  That amounts to £760.  Therefore, I make an award of £760 in respect of unpaid wages.

 

45.           The claimant says, and I accept, that he is due 18 days in respect of accrued holiday pay entitlement.  Net weekly pay of £380 implies net daily pay of £76.  The latter figure multiplied by 18 amounts to £1,368.  Accordingly, I make an award of £1,368 in respect of holiday pay.

 

46.           The claimant had completed three full years in the service of the Partnership when his employment was terminated.  Therefore, he was entitled to three weeks’ net pay in lieu of notice, less any salary obtained by him from new (post-dismissal) employment and also less any benefits which the claimant claimed, or could have claimed, in respect of the notice period.

 

47.           The claimant’s net weekly pay during the notice period was £380.  However, £65 must be deducted from that amount, in respect of the Job Seeker’s Allowance which he could have claimed (or perhaps in respect of the ESA, which, in the claim form, he says he did claim during the notice period). The claimant told me that he was not in any post-dismissal employment during the notice period.

48.           Accordingly, in respect of notice, the claimant is entitled to a weekly figure of £380 minus £65, which leaves a net weekly figure of £315. Three weeks at £315 per week amounts to £945.  Accordingly, the claimant is entitled to £945 in respect of notice pay.

 

49.           The claimant was aged 49 when his employment came to an end; and at that time he had accrued three full years of service.  Accordingly, his redundancy pay has to be calculated on the basis of a multiplier of 4.5.  £380 is the weekly maximum which can be awarded by way of redundancy pay in respect of his December 2009 dismissal.  Accordingly, the claimant is entitled to £1,710 in respect of redundancy pay.

General comments

 

50. Over a period of years, the claimant had good reason to be highly suspicious that no tax or National Insurance Contributions, or not enough tax or insurance, was being handed over to HMRC in respect of his employment.  Nevertheless, as a result of my determinations on liability in this case, the claimant is entitled to rely upon the relevant contract of employment.  At first sight, that seems to be a rather surprising outcome.  However, the following matters must be borne in mind.  First, the concept of the illegality is of ancient vintage; it was a feature of our legal system long before the PAYE system was ever devised.  Accordingly, it would be wrong to see the concept of illegality as a kind of secondary enforcement mechanism in relation to the responsibilities which income tax law imposes upon income taxpayers.  Secondly, just because the claimant’s employment rights are not defeated by reason of his constructive knowledge of the underpayments, it does not follow that he thereby escapes all liabilities under income tax law.  Thirdly, there is no explicit legislative provision, anywhere within employment legislation which explicitly provides that wages, holiday pay, notice pay or redundancy pay cannot be recovered if the relevant employee knew, or ought to have known, that his income tax, or his National Insurance Contributions, were not being paid over to the appropriate authorities.

 

Interest

51. This is a relevant decision for the purposes of the Industrial Tribunals (Interest) Order (Northern Ireland) 1990.

 

 

 

Chairman:

 

 

Date and place of hearing: 6 December 2010 and 31 May 2011, Belfast.

 

 

Date decision recorded in register and issued to parties: