British and Irish Legal Information Institute

Freely Available British and Irish Public Legal Information

[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

Industrial Tribunals Northern Ireland Decisions

You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Cassidy v Colm Joseph McGurk and Patrick... Omega Mechanical Services Limi... Colm Joseph McGurk and Patrick... Omega Mechanical Services Limi... [2012] NIIT 00183_11IT (28 February 2012)
URL: http://www.bailii.org/nie/cases/NIIT/2012/00183_11IT.html
Cite as: [2012] NIIT 183_11IT, [2012] NIIT 00183_11IT

[New search] [Printable RTF version] [Help]

THE INDUSTRIAL TRIBUNALS

CASE REFS: 183/11

790/11

CLAIMANT: Aaron Sean Martin Cassidy

RESPONDENTS: 1. Colm Joseph McGurk and Patrick Pearse Moore t/a McGurk and Moore

2. Omega Mechanical Services Limited

DECISION

The unanimous decision of the tribunal is, that on the balance of probabilities, the claimant’s contract was tainted by illegality up to and including 1 October 2010, and his claims are therefore dismissed.

Constitution of Tribunal:

Chairman: Mr S A Crothers

Members: Mr A Ebrahim

Mrs D Adams

Appearances:

The claimant was represented by Mr B McKee, Barrister-at-Law, instructed by Donnelly and Kinder Solicitors.

The first named respondent was represented by its Facilities Manager, Kevin Barrett.

The second named respondent was represented by Mr S Ritchie, Barrister-at-Law, instructed by Babington and Croasdaile Solicitors.

The Claim

1. The claimant claimed that there was a transfer of an undertaking between the first named respondent (“M&M”), and the second named respondent (“Omega”) by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the TUPE Regulations”), that he had been unfairly dismissed by Omega and that he was also entitled to an amount for outstanding holiday pay and notice pay in respect of M&M’s failure to comply with their obligations to inform and consult with the elected representative of the claimants under the Regulations. The claimant was one of 11 claimants who had their claims heard together before the tribunal.

The Issues

2. The legal representatives substantially amended the legal issues agreed at a previous case management discussion and presented the issues incorporating a number of agreed factual issues, in their final form, as follows:-

AGREED REVISED ISSUES

1. Is the claimant’s contract of employment tainted by illegality?

If no, then proceed to issue 3.

2. If yes, for what period?

If the tribunal holds that the contract was illegal up to 16 July 2010, then the parties agree that:-

(a) The claimant would not have the required qualifying service for unfair dismissal, and the claim for unfair dismissal should therefore be dismissed on this ground.

(b) M&M gave no notice of dismissal and the claimant is entitled to 1 week notice payment.

(c) The obligation to inform and consult does not depend on a qualifying period of service and therefore the tribunal must move on to consider whether there has been a service provision change (issue 3 below), and whether there was compliance with the obligation to inform and consult (issue 4 below).

(d) The entitlement to holiday pay will depend on the duration of the employment (see issue 7 below).

If the tribunal holds that the contract was illegal throughout, then the parties agree that the claim should be dismissed.

3. Were the claimants transferred to Omega by operation of the SPC Regulations?

· It is agreed that the activities carried out by Omega after 1 October 2010 under the contract were the same as the activities carried out by M&M prior to 1 October 2010 under the previous contract.

The next issue is therefore, was the claimant part of an organised grouping of employees assigned to carry out the activities under the North & West contract?

If the tribunal holds that the SPC regulations applied to a particular claimant, then the parties agree that:-

· That claimant’s effective date of termination is 4 October 2010.

· Omega failed to give any notice of dismissal and the claimant is entitled to his/her statutory minimum notice payment in accordance with service.

· Omega unfairly dismissed the claimant (the tribunal must consider basic and compensatory award under issue 6).

· Omega failed to comply with the statutory dismissal procedure and the tribunal must consider what uplift, if any, to apply to the compensatory award.

· The tribunal must proceed to consider whether M&M complied with its obligations to inform and consult (issue 4 below).

If the tribunal holds that the SPC regulations did not apply to a particular claimant, then the parties agree that:-

· That claimant’s effective date of termination is 1 October 2010.

· M&M failed to give any notice of dismissal and the claimant is entitled to their statutory minimum notice payment in accordance with their service.

· M&M unfairly dismissed the claimant (and the tribunal must consider the basic and compensatory awards under issue 6).

· M&M failed to comply with the statutory dismissal procedures and the tribunal must determine what uplift if any to apply to the compensatory award.

· The tribunal has no further finding to make in respect of this claimant.

4. Did the respondents comply with their obligations to inform and consult with the elected representative of the claimant?

· It is agreed that there was no election of a representative under regulation 14.

· It is agreed that Omega never informed M&M that it accepted that it had any obligations to the claimant after 1 October 2010.

· It is agreed that the claimant was given incorrect information by M&M that his/her contract of employment would be protected in the transfer.

If the tribunal finds that M&M complied with its obligations to inform and consult affected employees under the SPC regulations then there is no further finding required.

If the tribunal finds that M&M failed to comply with their obligations then move to issue 5

5. What compensation should the claimant receive for failure to comply with SPC information and consultation obligations?

6. What compensation should be awarded for unfair dismissal?

a. What was the claimant’s net salary at the date of dismissal?

b. What was the claimant’s gross salary at the date of dismissal?

c. What was the claimant’s start date?

· It is agreed that the claimant mitigated his/her loss.

d. For what period should the claimant be awarded future loss?

7. What annual leave is due to the claimant at the date of dismissal?

· The amount of holidays taken and the dates upon which they were taken are agreed.

· If the start date is 16 July 2010 then the entitlement is 4 days (28*55/365).

· If the start date is before 1 January 2010 then the entitlement is 21 days less days taken since 1 January 2010.

The tribunal was also assisted by an agreed chronology which is appended to this decision.

Sources of Evidence

3. The tribunal heard evidence from Kevin Barrett on behalf of M&M and John McMonagle, Managing Director, of Omega. It also heard expert evidence from Mr Noel Lavery, Chartered Accountant, Licensed Insolvency Practitioner and Forensic Accountant of Harbinson Mulholland Accountants and considered the report prepared by him. The claimant also gave evidence. The tribunal was assisted by an agreed bundle of documentation together with additional documentation furnished to it in the course of the hearing.

Findings of Fact

4. Having considered the evidence insofar as same related to the issues before it, the tribunal made the following findings of fact (in addition to the agreed facts at paragraph 2 above), on the balance of probabilities:-

(i) M&M entered into a response maintenance contract with North and West Housing Limited (“North and West Housing”) for a five year period commencing in June 2002. This contract was extended for a further five year period in June 2007. In 2009 North and West Housing re-tendered the contract. Omega responded to the invitation to tender for the provision of a comprehensive response maintenance service in Northern Ireland and County Donegal. The services were provided over a wide geographical area.

(ii) In correspondence from North and West Housing to Omega dated 14 May 2010 it is made clear that:-

“… North and West Housing Limited (“the Authority”) has made the provisional decision to select your company to provide a comprehensive maintenance service to the Authority and Dungannon and District Housing Association for a period of four years with the option to extend for a further 12 months”.

This correspondence also points out that North and West Housing were writing to the other bidders explaining their decision and, that after a standstill period expiring at midnight on 28 May 2010, it intended to issue a letter of acceptance on or after 1 June 2010 unless there was some court action taken in the meantime. Importantly, the correspondence also states that North and West Housing was also required to provide the existing contractor (M&M) with a three month notice period under the current contract. The correspondence further states that North and West Housing would be happy to facilitate a meeting between Omega and M&M in order to address any TUPE issues, as necessary.

(iii) In further correspondence from North and West Housing, received by Omega on 14 June 2010, confirmation is given that Omega is the successful tenderer. The correspondence then states as follows:-

“However, as you are aware, the Authority is required to provide the existing contractor with a three-month notice period under the existing contract and as such, we will not be able to enter into a formal contract with you until the expiry of this three-month period. On that basis, no legally binding contractual commitment will arise until both parties have signed the contract (anticipated to be 1 October 2010) and therefore this letter does not constitute formal acceptance of your tender offer.

In the meantime, I should be happy to provide contract details for the existing contractor, McGurk and Moore, in order that you may address any TUPE issues, as necessary”.

(iv) The tribunal accepts that the majority of work performed by M&M was in relation to the North and West Housing contract and that it had still 2 years to run. In the period preceding 1 October 2010, it appears that, apart from North and West housing work, M&M carried out some work for Derry City Council and on a private basis. Approximately ¹/₃ of M&M’s workforce was retained after 1 October 2010. The situation is reflected by the fact that of 46 employees working for M&M, 29 to 31 were predominately working on the North and West contract.

(v) The tribunal was also shown a copy of a High Court Order dated 24 June 2011 annulling a Bankruptcy Order made against M&M. This was accompanied by a Registry of Deeds Vacate document which referred to a bankruptcy petition having been presented on 25 November 2010. The tribunal obtained the assistance of the representatives together with Kevin Barrett, to ensure that no Court Order was in existence which would affect the jurisdiction of the tribunal to hear the claimant’s claim against M&M. Kevin Barrett also referred in his evidence to an individual voluntary arrangement and a partnership voluntary arrangement in relation to M&M and to the participation of an insolvency practitioner in the company’s affairs. Kevin Barrett was responsible for the continued running of the business as at the date of hearing.

(vi) The claimant did not have any form of written contract with M&M. On 1 June 2010 members of M&M’s staff were informed by Kevin Barrett that new written terms and conditions of employment, drafted by him, would be implemented.

(vii) On 5 June 2010 a letter was circulated in M&M’s yard before work commenced and was signed by five of the claimants before the tribunal, namely Gavin McGlinchey, Martin William Moore, Barry Conaghan, Aaron Cassidy and Joseph Canning. The letter reads follows:-

“Mr K Barret

McGurk & Moore

Springtown Ind Estate

Derry

5^th June 2010

Re change in terms and conditions with regard to callout and overtime.

Dear Sir

We have recently been told that our terms and conditions with regard to callout payments and overtime are to change.

Below are our current terms which have been custom and practice for at least 8 years:

Overtime:

Overtime is paid at time and half over 40 hours and double time on Sunday.

Callout:

When on callout there is standard weekly allowance of £35/week.

In addition if called out, hours worked are paid at time and half and double time after midnight and Sundays.

On June 1^st we were told without consultation that both of the above are to change.

This is not acceptable as you are not legally entitled to change our terms without written notice and agreement with ourselves. This has been confirmed to us by the Citizens Advice Bureau.

Yours

Barry Conaghan

Gregory Moore

Joe Canning

Martin Moore

Gavin McGlinchey

Derek Doran

Michael Coyle

Aaron Cassidy

Patrick McCormack

PS

We have never received payslips or P60’s since joining the company. This is a basic employee entitlement and we would like to receive weekly payslips starting next week and our P60’s for at least the tax year ended April 2009.

CC: Colm McGurk, Pearse Moore”

(viii) Set against the background of the correspondence of 5 June 2010 was the draft statement of main terms and conditions of employment prepared by Kevin Barrett for employees to sign. Paragraphs 10, 11 and 13 of the document state as follows:-

“(10) Pay Arrangements

You are paid on the basis of a week of 5 days Monday to Friday, payment for individual days are pro rata for any part thereof. This also applies to any days agreed as holidays. You will be paid monthly/weekly by cash/cheque/BACS transfer on the last day of month/week. If you have any specific queries about your pay these should be raised with your manager.

(11) Hours of Work

Your employment is of full time nature any 5 days Monday to Friday and you are contracted to work for 40 hours per week. Due to the nature of the job it is not possible to specify your exact hours of work. These and your entitlement to breaks will, subject to any statutory requirements, be determined by the day-to-day needs of the business. You will be required to work a minimum of 8 hours per day.

Due to the nature of the business the employer reserves the right to vary your hours if considered necessary to do so. Such variation will not require you to work in excess of an average of 48 hours per week.

(13) Additional Hours

The need to work additional hours, to cover sickness absent etc. may arise from time to time and, subject to any statutory requirements, it is a condition of employment that you will be required to work a reasonable amount of such additional hours when called upon to do so”.

The paragraph, reproduced in italics, then states:-

“Payment for additional hours worked shall be at the rate of single time, or taken as equivalent time off in lieu, at a mutually acceptable time.”

This is the wording which the signatories to the letter of 5 June 2010 most objected to.

(ix) The first respondent insisted that Liam Moore performed the vast majority of overtime work. The tribunal does not accept this evidence, if only because of the geographical spread of the work, and views this as an attempt to protect and minimise the involvement of other individuals who worked overtime for M&M.

(x) The tribunal found Mr Lavery to be a helpful and insightful witness. His terms of reference as recorded in his report presented to the tribunal were to:-

“a. Review the documentation provided by McGurk and Moore and the applicants in relation to payroll matters and the payment of the applicants.

b. Comment on those documents and in particular:

(i) give my opinion of the rationale for the change in wage rates shown on the payroll in July 2010 and

(ii) comment on the letter dated 5 June 2010 addressed to the first respondent and signed by certain employees

(iii) attend the premises of McGurk and Moore with you (Mr McCarter, solicitor, of Babington and Croasdaile Solicitors) for the purpose of inspection of the payroll and related records”.

(xi) Except for two matters, the claimant accepted the facts and conclusions contained in Mr Lavery’s report. Mr Lavery had been supplied with copies of various documents forwarded by M&M, to Babington and Croasdaile Solicitors by letter of 17 September 2010, together with further documentation supplied under cover of correspondence dated 28 September 2010. Mr Lavery was also supplied with copies of documents in response to requests made to M&M including the copy of the correspondence on 5 June 2010 which was received as part of discovery from M&M as late as 14 November 2011. Mr Lavery was supplied with further documentation as recorded in his report.

(xii) Upon arriving at M&M’s premises on 15 November 2011 Mr Lavery met with Kevin Barrett. Kevin Barrett had no direct involvement with the payroll or with the payment of staff. The tribunal accepts that this was the responsibility of Mr McGurk’s daughters, and particularly Paula McGurk, and that the claimant did not have access to any computers upstairs containing information about payments to employees or relating to documentation for national insurance or tax purposes. However Mr Lavery was not assisted by the fact that the payroll had been prepared using a computerised system called “thesaurus” and by being advised that this computer had crashed and that information held in it was inaccessible. Furthermore no member of the payroll staff or former payroll staff was made available to assist him, and neither of the partners in the business was available to provide assistance. He was also advised that, with the exception of certain payslips, no other relevant payroll documentation or information requested was available for inspection. In addition no tax codes were made available. Kevin Barrett also informed Mr Lavery that no overtime records had been retained.

(xiii) The tribunal finds it appropriate and necessary to set out Mr Lavery’s conclusion in his report in full as follows:-

“CONCLUSION

68. I have reviewed the various documents supplied by the first Respondent and the responses from the applicants to the Notice for Further and Better Particulars. It is clear to me that if the applicants have correctly stated the net wage they received each week then the first Respondent’s payroll records did not consistently record the payments which were being made in cash on a regular weekly basis to the applicants.

69. With a few exceptions the payroll records consistently understated the weekly net pay to which each of the applicants was entitled. That understatement in the payroll records was caused by understating each individual’s gross weekly pay rate and thereby understating the first Respondent’s liability to the Inland Revenue for PAYE and National Insurance.

70. In my opinion after the North and West Housing Association contract was lost an attempt was made in July 2010 to ‘regularise’ the payroll records. The regularisation took the form of increasing the gross weekly pay for each individual by whatever it took to bring the net pay after tax and national insurance deductions into line with what was actually being paid to each of the applicants.

71. That this was done in July 2010 after knowledge that the contract was lost suggests that the regularisation was prompted by that knowledge.

72. I have no evidence to allow me to conclude whether or not any or all of the applicants had knowledge that the first Respondent’s payroll records did not reflect their payment arrangements and that they as employees had in effect been receiving ‘tax-free’ payments as part of their weekly cash wage.

73. The first Respondent had a duty to give each employee a payslip each week with their wage. The payslip shows the calculation of the weekly wage. The applicants each state that they did not receive payslips. It is unusual in the current working environment to find a workforce which in its entirety is content to receive wages every week and never insist that they receive the payslip to which they are entitled. Two of the applicants had worked for the first respondent for more than 25 years and several other(s) had service between 10 and 20 years.

74. The first Respondent also has a duty to supply each employee with a P60 form at the end of each tax year. That P60 form is a necessary document for employees as it provides evidence of their gross pay and the tax and national insurance contributions which have been deducted from their wages in any given tax year. The P60 is a form which may be required as evidence for a mortgage application or applications for various forms of state assistance such as tax credit applications.

75. I have been provided with copies of P60 forms produced by the first Respondent for 2009/10 and 2010/11. Had the applicants compared the information disclosed on those forms to the amount of cash wages they received every week the discrepancy between the two should have been apparent to them.

76. When I attended the first Respondent’s premises to inspect records it turned out that the only relevant records available for inspection were copy payslips. Scrutiny of the copy payslips showed some minor but unusual discrepancies and one material discrepancy with regard to Mr Patrick Robinson. As previously stated, in my experience, it is unusual to find discrepancies of any kind between P11 records and Payslips both of which are generated by the same computerised payroll system. The first Respondent did not make anyone available with any direct knowledge of the payroll system to assist at the inspection. My conclusion from the inspection visit is that the first Respondent has a chronic shortage of the documentation it should have and which most businesses accumulate and retain in regard to their employees.”

(xiv) In answering a question in cross-examination by Kevin Barrett as to whether the change in the payroll system from 16 July 2010 onwards was deliberate or incompetent on M&Ms behalf, Mr Lavery’s initial reaction was that he was not sure. However he qualified his answer by stating that it looked deliberate to him and under further cross-examination by the claimant’s counsel he confirmed his opinion that the change in the payroll system was deliberate.

(xv) The tribunal carefully considered the evidence of the claimant in the context of the evidence provided by Kevin Barrett together with the documentation furnished to the tribunal in the period leading up to 1 October 2010, including documentation furnished for the purposes of the TUPE Regulations, and Mr Lavery’s expert evidence. As recorded in paragraph 56 of Mr Lavery’s report:-

“It is unusual in the current working environment to find a situation where an employer fails to provide payslips and P60 details to employees over a protracted period of time. It is also unusual to find a workforce which is content to receive wages every week yet never receive the payslip to which they are entitled nor an annual P60 form”.

The tribunal is also satisfied that the claimant was aware of the proposed contract being introduced by Kevin Barrett and that he met with Kevin Barrett together with other potentially affected employees in the period leading up to 1 October 2010.

(xvi) The tribunal is satisfied that Mr McMonagle was well aware of the potential for a transfer of an undertaking under the TUPE Regulations as this was specifically highlighted in the correspondence previously referred to from North and West Housing. He was however justifiably concerned by the conflicting and, in many respects, unreliable information forwarded to his solicitors on 17 and 24 September 2010 leading him to believe that matters were not in order and that what had been sent to him was not correct information.

(xvii) The tribunal is further satisfied that Mr Barrett knew for a period of, at least three months prior to 1 October 2010 that M&M would almost certainly lose the contract to Omega and that this explained his efforts to have employees sign a written contract as a first stage in an effort not just to retain the contract with North and West Housing, but to prepare M&M and potentially affected employees for a transfer under the TUPE Regulations. The tribunal is further satisfied, on a natural reading of the correspondence of 5 June 2010, (and against the background of Pearse Moore’s brother, Gregory Moore, having been responsible for the letters and having obtained advice from the Citizens Advice Bureau), that the arrangements specified therein for paid overtime had indeed operated for the previous 8 years, both before and after Kevin Barrett’s introduction to M&M. The absence of any reference to time off in lieu of paid overtime is significant and points to the fact that overtime was being paid for in cash. Should any doubt remain on this issue, it is, in the tribunal’s view, resolved by the term in the draft contract prepared by Kevin Barrett (referred to previously) which states that:-

“Payment for additional hours work shall be at the rate of single time, or taken as equivalent time off in lieu, at a mutually acceptable time”.

(xviii) The use of the word ‘or’ in this paragraph, taken in the overall context of the evidence, provided space for M&M to continue payments for overtime in cash and, at the same time argue, together with the claimant, that the then current arrangement was “time off in lieu”.

(xix) Kevin Barrett took advice and was clearly of the view that the TUPE Regulations applied to the situation. He was also seeking to preserve the status quo for the potentially affected employees. This also explains why a special effort was made to regularise the tax and national insurance position from 16 July 2010 onwards. The tribunal however does accept that employee records were prepared by Kevin Barrett together with percentages relating to work done by individuals for North and West Housing without those employees having physically seen the documentation in advance. However the tribunal does not accept that any potentially affected employee, including the claimant, would be unaware of the fact that records relating to him would be prepared for the purposes of discharging the potential transferor’s obligations under the TUPE Regulations. Kevin Barrett insisted, and the tribunal accepts, that he had met with potentially affected employees on several occasions prior to 1 October 2010. However there was no election of representatives under the TUPE Regulations.

(xx) The claimant whose date of birth is 20 April 1989 commenced employment with M&M in September 2006. He was employed as a plumber by M&M after completing his first year in job skills. He was paid £160 per week in cash and was interviewed by Pearse Moore, one of the partners in M&M. He worked 40 hours per week and claimed that he received £160 net per week until June 2010 when he requested a pay rise from Kevin Barrett. Consequently his pay allegedly increased to £204 net per week. During cross examination the claimant’s evidence was that his weekly net payment in cash had increased from £160 per week to £204 per week in May 2010.

(xxi) Commenting on the claimant’s alleged pay rise Mr Lavery, at paragraph 43 of his report states as follows:-

“Aaron Cassidy states that until June 2010 he received £160 per week net and after June he received £104 per week net. Strangely his P11 record shows no change in his gross rate of pay at any time in the year 2010/11. The weekly gross pay as shown on his P11 record was £242 per wk for weeks 1-26 inclusive of the tax year 2010/11. That means that throughout 2010/11 he should have been receiving circa £202/week/net, not £160”.

(xxii) The claimant, who worked in excess of 90% of his time in connection with the North and West Housing contract in the three months prior to 1 October 2010, had signed the letter dated 5 June 2010. He recalled how the background to the preparation and signature of this letter related to Kevin Barrett’s proposal to implement new terms and conditions, including conditions relating to overtime. The claimant maintained that he was only ever paid for overtime by way of time off in lieu but was paid £35 call out allowance. He claimed that he had had a quick read of the letter of 5 June 2010 which he thought reflected concerns about M&M removing the £35 call out allowance and reducing the overtime rate from time and a half to single time. The claimant denied ever having been paid in cash for overtime. In the event of having to work on Sunday, he claimed that he was compensated at double rate again by being given time off in lieu. The claimant acknowledged that the letter of 5 June 2010 did not refer to time off in lieu. He claimed that he wanted to be paid in cash for overtime but that the new terms and conditions drafted by Kevin Barrett where reducing this to single time. He nevertheless contended that the letter of 5 June 2010 was concerned with time off in lieu, despite not referring to it.

(xxiii) The record sheet prepared by Kevin Barrett in relation to the claimant shows overtime worked by him from week ending 4 July 2010 until week ending 12 September 2010 (although the entry after week ending 12 September 2010 refers to 19 August 2010). The tribunal accepts that the claimant did work considerable overtime during this period. The tribunal also considered the record prepared by Kevin Barrett in relation to the claimant for weeks ending 26 September 2010 and 3 October 2010 each of which referred to 40 hours per week. The claimant claimed that his hours increased from 35 hours to 40 per week in the period leading up to 1 October 2010. The claimant denied having heard of the minimum wage notwithstanding his evidence that he was being paid at a rate of £4 per hour up to May/June of 2010 and £4.50 net thereafter.

(xxiv)The tribunal is satisfied that the claimant is not a credible witness, and that he did not receive a pay increase as claimed. It is satisfied that he knew of the facts which would render the performance of his contract illegal. This, combined with his overtime work involving payments in cash shows some active participation on his part in the illegal performance of his contract up to and including 1 October 2010.

(xxv) The contract between M&M and North West Housing terminated on 1 October 2010 and the new contract with Omega commenced. The claimant was told that his employment with M&M was ending on 1 October and that he should attend for work at Omega’s premises on Monday 4 October 2010. When the claimant did so he was turned away.

(xxvi)The tribunal also carefully examined the evidence in relation to the claimant’s alleged loss.

(xxvii)The tribunal considered correspondence between the Employment Law Advisory Services Limited, retained by M&M, and Omega’s solicitors dated 5 October 2010. It also considered correspondence from Claremount, Chartered Accountants dated 7 October 2010 which stated that:-

“In accordance with the information provided to us by our client we can confirm that North and West Housing have contributed approximately 80% of their turnover for the year ended 31 March 2010”.

The Law

5. (1) Regulation 2(1) of the TUPE Regulations defines “contract of employment” as “any agreement between an employee and his employer determining the terms and conditions of his employment”. It also defines employee as “any individual who works for another person whether under a contract of service or apprenticeship or otherwise but does not include anyone who provides services under a contract for services and reference to a person’s employer shall be construed accordingly”.

(2) Regulation 3 of the TUPE Regulations states as follows:-

“A relevant transfer

3. (1) These Regulations apply to –

(a) a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity;

(b) a service provision change, that is a situation in which –

(i) activities cease to be carried out by a person (“a client”) on his own behalf and are carried out instead by another person on the client’s behalf (“a contractor”);

(ii) activities cease to be carried out by a contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf; or

(iii) activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf (whether or not those activities had previously been carried out by the client on his own behalf) and are carried out instead by the client on his own behalf,

And in which the conditions set out in paragraph (3) are satisfied

(2) In this regulation “economic entity” means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary.

(3) The conditions referred to in paragraph (1)(b) are that –

(a) immediately before the service provision change -

(i) there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client;

(ii) the client intends that the activities will, following the service provision change, be carried out by the transferee other than in connection with a single specific event or task of short-term duration; and

(b) the activities concerned do not consist wholly or mainly of the supply of goods for the client’s use.”

(4) Regulation 4 of the Regulation states as follows:-

“Effect of relevant transfer on contracts of employment

Regulation 4

(1) Except where objection is made under paragraph (7), a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.

(2) Without prejudice to paragraph (1), but subject to paragraph (6), and regulations 8 and 15(9), on the completion of a relevant transfer –

(a) all the transferor’s rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this regulation to the transferee and

(b) an act or omission before the transfer is completed, of or in relation to the transferor in respect of that contract or a person assigned to that organised grouping of resources or employees, shall be deemed to have been an act or omission of or in relation to the transferee.

(3) Any reference in paragraph (1) to a person employed by the transferor and assigned to the organised grouping or resources or employees that is subject to a relevant transfer, is a reference to a person so employed immediately before the transfer, or who would have been so employed if he had not been dismissed in the circumstances described in regulation 7(1), including, where the transfer is effected by a series of two or more transactions, a person so employed and assigned or who would have been so employed and assigned immediately before any of those transactions.

(4) Subject to regulation 9, in respect of a contract of employment that is, or will be, transferred by paragraph (1), any purported variation of the contract shall be void if the sole or principal reason for the variation is -

(a) a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce; or

(b) a reason unconnected with the transfer.

(5) Paragraph (4) shall not prevent the employer and his employee, whose contract of employment is, or will be, transferred by paragraph (1), from agreeing a variation of that contract if the sole or principal reason for the variation is -

(a) a reason connected with the transfer that is an economic, technical or organisational reason entailing changes in the workforce; or

(b) a reason unconnected with the transfer.”

(3) Regulation 7 of the TUPE Regulations governs the dismissal of an employee because of a relevant transfer and Regulations 11-16 relate to notification of employee liability information, the remedy for failure to notify employee liability, the duty to inform or consult representatives,

the election of employee representatives, and the failure to inform or consult respectively.

(4) In relation to illegal contracts the tribunal obtained valuable assistance from the Employment Appeal Tribunal decision in the case of Enfield Technical Services Limited v Payne (2007) IRLR 840. Mr Justice Elias states in paragraph 26 of his judgement as follows:

“(3) There are three categories of case where a contract may be tainted with illegality. These were identified by Lord Justice Peter Gibson in his seminal judgment in Hall v Woolston Leisure Services Ltd [2000] IRLR 587 (paras 30-31). The first is where the contract is entered into with the intention of committing an illegal act. The second is where the contract is expressly or impliedly prohibited by statute. The third – and the category relevant to these two appeals – is where the contract was lawful when made but has been illegally performed, and the party seeking the assistance of the court knowingly participated in the illegal performance.

(4) 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: see the observations of Gibson LJ in the Hall case, para 31, referring to passages from the judgments of Lord Denning MR and Scarman LJ, as he then was, in Ashmore Benson Ltd v Dawson Ltd [1973] 1 WLR 828.

(5) Implicit in the analysis of Gibson LJ is of course a third requirement, namely that the performance must be illegal. It must be a form of illegality which properly attracts the operation of the doctrine.

(6) The concept of knowledge requires that the employee must have knowledge of the facts which renders the performance illegal: Gibson LJ in Hall para 38. However, it is irrelevant whether the party appreciates that what he is doing is illegal. Ignorance of the law is no excuse, this has been reiterated on many occasions: see eg Miller v Karlinski (1945) 62 TLR 85(CA); Salvesen v Simons [1994] IRLR 52.

(7) The concept of participation … requires some active participation …

(8) 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: Tomlinson v Dick Evans U Drive Ltd. [1978] IRLR 77 (EAT) applied in Davidson v Pillay [1979] IRLR 275, both of which were cited with approval by Gibson LJ in the Hall case. 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: see Hyland v J. H. Barker (North West) Ltd [1985] ICR 861 where continuity was broken by a four week period during which the employee received a tax free benefit which both parties knew to be illegal.

(9) Whether there is knowledge or participation is a matter of fact for the Tribunal”.

The current case relates to the third category of illegality in the performance of the contract.

(5) The tribunal considered the relevant provisions of the Employment Rights (Northern Ireland) Order 1996 (“the 1996 Order”) relating to unfair dismissal and redundancy and the relevant notice period. The tribunal also considered, insofar as relevant, the relevant provisions relating to unlawful deductions from wages in the 1996 Order and the relevant provisions relating to breach of contract as is contained in the Industrial Tribunals Extension of Jurisdiction Order (Northern Ireland) 1994. Moreover the tribunal also considered the Working Time Regulations 1998 (as amended), insofar as relevant and the section in Harvey on Industrial Relations and Employment Law Volume 2 Division F relating to Transfer of Undertakings.

Submissions

6. The tribunal received valuable assistance from the written submissions provided by both sides’ legal representatives as supplemented by further oral submissions, including submissions from Kevin Barrett, on 1 December 2011.

Conclusion

7. Having applied the relevant principles of law to the findings of fact, the tribunal dismisses the claimant’s claim on the basis that, on the balance of probabilities, his contract was tainted by illegality up to and including 1 October 2010.

Chairman:

Date and place of hearing: 21-25, 28-30 November and 1 December 2011, Belfast.

Date decision recorded in register and issued to parties:

Eamonn Conaghan and Gavin McGlinchey & Others v McGurk & Moore

and Omega Mechanical Services Limited

Submission on behalf of the Second Respondent

1. At the CMD on 20 April 2011 three issues were identified:

a) Whether the claimants, or any of them, were employees rather than contractors?

b) Whether the contracts of the claimants, or any of them, were unlawful and therefore unenforceable?

c) Whether there had been a service provision change for the purposes of TUPE?

Whether the claimants, or any of them, were employees rather than contractors?

2. It is not accepted they were employees because the precise terms and conditions of their alleged contracts of employment are unclear. Article 2(1) of the Service Provision Change (Protection of Employment) Regulations (NI) 2006 defines “contract of employment” as any agreement between an employee and his employer determining the terms and conditions of his employment. It is provided by Article 4 that a service provision change shall not operate so as to terminate the contract of employment of relevant persons and on the completion of a service provision change all the transferor’s contractual rights, powers, duties and liabilities shall be transferred to the transferee. In the present case, it is submitted, none of these terms and conditions are capable of being defined because the due diligence material provided by the 1^st Respondent to the 2^nd respondent and its solicitor conflicts in material respects with the evidence of the claimants who have not provided any evidence, such as bank statements or other records, corroborating the figures they claim were paid.

Whether the contracts of the claimants, or any of them, were unlawful and therefore unenforceable?

Is there illegality in the form of a fraud on HMRC by McGurk & Moore?
If so, did the conduct of any of the claimants constitute participation in the illegality?

The relevant law.

3. Contracts may be held illegal and void at common law as being contrary to public policy on the grounds that they defraud the Inland Revenue. The rule is that if the illegality is apparent on the face of the contract ('illegal in inception'), or the contract is such that it cannot be performed without illegality on the part of either or both contractors ('illegal in performance'), then the contract is illegal and void ab initio, and the fact that either or both of the parties are innocent of any fraudulent intent or design is quite immaterial; for ignorance of the law is no excuse.

4. In Enfield Technical Services Ltd v Payne [2007] IRLR 840, EAT Elias J held that the essential feature of all the cases where there has been found to be illegality 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. Arrangements which have the effect of depriving the Revenue of tax to which it is entitled such as some form of misrepresentation, some attempt to conceal the true facts of the relationship, renders the contract illegal for the purposes of a doctrine that is rooted in public policy. At paragraph 26 Elias J set out the 9 basic propositions of law which were not in dispute and said at 8 and 9:

“(8) 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: Tomlinson v Dick Evans U Drive Ltd [1978] IRLR 77 (EAT) applied in Davidson v Pillay [1979] IRLR 275, both of which were cited with approval by Gibson LJ in the Hall case. 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: see Hyland v J H Barker (North West) Ltd [1985] IRLR 403 where continuity was

broken by a four week period during which the employee received a tax free benefit which both parties knew to be illegal.

(9) Whether there is knowledge or participation is a matter of fact for the tribunal. Absent a misdirection or perverse decision, the Employment Appeal Tribunal cannot interfere.

5. This decision was approved by the Court of Appeal in upholding his judgment on appeal - see [2008] IRLR 500 CA. There the decision was If both parties honestly consider the contract to be one for services (independent contractor), it cannot be contended that it is illegal as being a fraud on the Revenue merely because a court or tribunal later holds that in truth the individual was an employee. The Court (upholding Elias P's judgment in the EAT) held that the crucial question was whether there had been misrepresentation of the tax position. Pill LJ helpfully summed up the position as follows (at paras 27 and 28):

''For present purposes, I am prepared to assume that there could be tax advantage for the respondents in claiming to have self-employed status. I do not accept that, of itself, such advantage renders a contract subsequently found to have been a contract of employment unlawfully performed. I do not accept that a characterisation of the relationship held to be erroneous necessarily prevents an employee subsequently claiming the advantages of being, or having been, an employee.

A contract of employment may, as the cases show, be unlawfully performed if there are misrepresentations, express or implied, as to the facts. An obvious example occurs when what is in fact taxable salary is claimed to be non-taxable expenses. That is, however, distinguishable from an error of categorisation (as in the present cases) unaccompanied by such false representations, even if the employee had claimed the advantages of self-employment before the dispute arose. I accept that there are limits to that principle and that the circumstances in which a miscategorisation is made may amount to misrepresentation and bad faith which would deprive the employee of the right subsequently to claim the benefits of employment.''

The application of the law to the facts of the cases:

The following claimants remain:

POSITION LETTER 5.6.10 SERVICE AGE

1. Patrick Robinson stores manager 13 42

2. Gavin McGlinchey plumber X 9 35

3. Martin William Moore plumber X 20 38

4. Barry Conaghan plumber X 12 31

5. Eamonn Conaghan Electrician 1.5 27

6. Paul Doherty foreman plumber 12 47

7. Aaron Cassidy plumber X 4 22

8. Joseph Canning plumber X 8 26

9. James McMonagle plumber 1 37

10. Samantha Carlin office worker 2 26

11. Kevin Donnelly labourer 2 47

6. The second respondent submits for the following reasons applicable to them all that the evidence demonstrates a clear fraud on HMRC; that the claimants were participants in it and consequently the contract was illegal in its performance and consequently void ab initio:

a) They were all accepting their wages in cash, without a payslip and took no interest in the payment of PAYE or NIC, nor receiving a P60. Whilst it will no doubt be argued that receiving cash is not unlawful, that is not the point. The question is whether the Tribunal is satisfied on balance of probability that they knowingly participated in a fraud on HMRC. It will be argued that at worst they acquiesced in the illegality; but the fact that they were accepting precise round figure sums - £300, £330, £367, £270, £160/£204, £220, £180, £135 – paid each week without variation is evidence of participation in the fraud. If there had been an hourly rate multiplied by the hours worked and then tax and NIC deducted it is highly unlikely the net sum would be such precise round sums.

b) The fact that the claimants say no payslips or P60’s were given over supports the illegality argument because it indicates strongly that either they knew precisely what was happening because they had been told so or they suspected and didn’t particularly care. Because the P60 documents do not reflect accurately the wages actually paid, they have simply denied ever seeing them. The reason for their denial is that if they admitted they had seen them that would mean they would know their wages were being fraudulently declared to HMRC.

c) The due diligence Employee Records for Year 2010, supplied by Mr Barrett to the 2^nd Respondent on 17.9.10, refer to all the claimants doing such overtime as is required of them. This overtime is not accounted for in the wages paid each week. The explanation for this, according to the claimants who admit to working overtime, is that such overtime as was done was not paid for, rather the workers took time off in lieu.

d) The evidence of Mr Barrett, supported by the claimants, was that a Mr Liam Moore did the vast majority of the callouts each week so the possibility of accumulating TOIL was very limited. There are 3 matters that throw doubt on the veracity of this assertion and that overtime was taken as TOIL.

(i) The first is that, given the geographic area covered by the contract, it would be very difficult for one man to cover 15-20 calls every week at all times of the day or night, 7 days a week.

(ii) The second is that if the out of hours calls were being done by Liam Moore there was no need to have anyone on callout / standby being paid £35 per week.

(iii) The third and most compelling is that several of the staff signed a letter dated 5 June 2010 - apparently written by a Gregory Moore – which refers to them having been told on 1 June, without consultation, that their terms and conditions with regard to callout payments and overtime were to change. The evidence from the claimants was that since 2006/07 they had not been paid for overtime, rather they had to take TOIL. This was a practice, they said, introduced by Mr Barrett and with which most of the claimants were very unhappy. However when the letter of 5 June 2010 was written 3-4 years after this changeover to TOIL, it fails to mention TOIL at all. It does refer to “current terms which have been custom and practice for at least 8 years” being “overtime is paid” at time and half and double time on Sundays. The claimants were unable to explain why there is no reference to TOIL which is what they say is the central pillar of the complaint in this letter.

The reason, it is submitted, is that the terms are as stated in the letter; they were being paid in 2010 in accordance with those terms; they knew full well the overtime and callout payments were not being accounted for in their pay; and the real purpose of the letter of 5 June was to complain about Mr Barrett proposing to introduce a new overtime rate of single time – see para 13 of Exhibit R5, his document entitled “Statement of Main Terms and Conditions of Employment” – which would have reduced their take home pay.

e) When it became obvious that the 1^st Respondent was going to lose the contract to the 2^nd, the illegal arrangement with the claimants became disadvantageous to them because the records – P60’s and P11’s – showed much lower wages than they actually received. If they were to enjoy the same level of net pay following a transfer their recorded wages had to be altered and it is beyond doubt that this is precisely what happened in July 2010.

f) They maintain that they have no knowledge of this raising of their wages in the P11 records yet doing this is of no advantage whatsoever to the 1^stRespondent, indeed it is to its detriment. The only reason for so doing is to ‘regularise’ the pay situation to reflect what the claimants’ base wages were. This is to their advantage if a transfer took place.

g) The most likely reason for the 2 sets of due diligence documents being different is quite simply that someone, when asked for details in early September 2010, provided the information concerning the old cash in hand arrangements whereas by the time Babington & Croasdaile made the second request on 24.9.10 the information provided accorded with the ‘regularised’ situation reflecting higher wages than originally declared or stated in the P60’s.

7. The response of the claimants to the matters outlined above has been to say they simply received a wage in their hand every week and did not know their gross hourly rate or annual pay; to deny all knowledge of the under-declaration of their wages, callout payments and overtime to HMRC and to attempt to explain away the letter of 5 June 2010 by claiming it

relates to a complaint about TOIL. With one exception no attempt has been made by any of them to produce bank statements; documents that are likely to support their claims of what they were actually paid.

8. Patrick Robinson - stores manager. The case of Patrick Robinson, a man of 42 with 13 years service who claims to be the stores manager earning £135 for a 25 hour week, barely more than minimum wage, illustrates the widespread illegality reflected in the false tax records in that on 15.11.11 when Mr. Noel Lavery inspected records he discovered a payslip for Mr Robinson in the sum of £300. There has been no satisfactory explanation as to how this could have occurred. His evidence was that he didn’t receive itemised pay statements and didn’t ask about pay details or deductions. In common with all the other claimants he said, in effect, that the question of tax and NIC deductions did not concern him.

9. Gavin McGlinchey – plumber. He had worked for McGurk & Moore since October 2001, paid £330 net per week in cash without a pay slip. He had asked Paula McGurk about that and she said she would deal with it but never did. His P60 for 2010 declares a gross wage of £15,600 - £300 per week gross. He did not see this document or pay slips and did not concern himself with the question of deductions. He had applied for a mortgage but did not use his P60 - which evidence shows recorded a much lower wage – rather a letter from McGurk & Moore. However on 5 June 2010 he signed the letter which demanded P60’s . His hours of work “went up and down” and if he worked less than 40 hours his pay was reduced whereas if more than 40 hours TOIL applied. He was not happy with TOIL when it was introduced by Mr Barrett in 2006/07 and signed the letter of 5 June 2010 which he believes was concerned with TOIL despite not mentioning it. He claimed that he did not do much overtime yet he was paid £35 to be on callout. This payment was made in cash in addition to his wage. In July 2010 the P11 shows his gross pay increasing from £300 to £424 per week. He cannot explain why this is so.

10. Martin William Moore - plumber. He had been with McGurk & Moore for 20 years during which he was paid in cash without a payslip. He never asked about NIC or tax because it never crossed his mind, yet on 5 June 2010 he signed a letter which demanded P60’s for the workers. He says he was paid £300 pw net whereas his 2010 P60 shows £15600 - £300 pw gross. He applied for a mortgage in 2005 but didn’t use his P60. He used a letter from CJ McGurk (page 223) which shows an income of £20,750 per annum which equates to £399 gross per week. His P60 for 2008/09 shows a salary of £14900 - £286 gross per week. The claimant explained the 2005 figure by saying it included overtime. Assuming the same level of wage in 2005 as 2008/09 the level of overtime is £113 per week. He too was not happy with TOIL when it was introduced by Mr Barrett in 2006/07 and signed the letter of 5 June 2010 which he believes was concerned with TOIL despite not mentioning it. In July 2010 the P11 shows his gross pay increasing from £300 to £381 per week. He cannot explain why this is so.

11. Barry Conaghan – plumber. He had been with McGurk & Moore for 11 years during which he was paid in cash without a payslip. He never asked about NIC or tax. He used a letter of earnings when applying for mortgage rather than a P60 yet he signed the letter of 5 June 2010 demanding a P60. He says he was paid £300 pw net whereas his 2010 P60 shows £15600 - £300 pw gross. He said that at the start he would have preferred TOIL when it was introduced by Mr Barrett in 2006/07. 3 years later he signed the letter of 5 June 2010 which he believes was concerned with TOIL despite not mentioning it. In July 2010 the P11 shows his gross pay increasing from £300 to £380 per week. He cannot explain why this is so.

12. Samantha Carlin - office worker. She joined McGurk & Moore in June 2007 working for and being paid by Grafton Recruitment who gave her a payslip. From June 2008 she was paid by McGurk & Moore £270 net pw and who did not give her a payslip. She never asked anyone about payslips and did not consider tax or NIC. Her bank statement – page 87 – 90 – for the period 6 April to 6 July 2010 shows a number of deposits of up

to £270 per week. She has a second job with Spar working 14 hours per week at £5.92 per hour. This wage does not appear on these bank statements. A wage slip from Spar dated 13 August 2010 shows a tax code of 647L whereas her P45 dated 1 October 2010 shows a tax code of 587L. She should not have 2 tax codes in the same year. A letter signed by Paula McGurk on 24 June 2010 (page 86) purports to certify her income for a loan application at £270 net per week whereas the P60 for 2010 (page 103) declares an income of £11750 - £226 gross per week. This letter has written on it “P60 or Tax return”. She did not proceed with the loan application. The P11 record (page 106) shows an increase in July from £250 to £340. She cannot explain why this is so.

13. Eamonn Conaghan – Electrician. He joined McGurk & Moore in March 2008 earning £270 net per week which rose to £300 in 2009 for a 40 hour week, less if he worked 35 hours. He was paid in cash and not given a payslip. He never asked about NIC or tax. His P60 for 2010 (page 18) declares an income of £15600 - £300 gross per week. He worked 35 hours, was not paid for overtime and did not sign the letter of 5 June 2010. In July 2010 the P11 shows his gross pay increasing from £300 to £380 per week. He cannot explain why this is so. He said he never considered applying for tax Credits

14. Paul Doherty - foreman plumber. He joined McGurk & Moore in April 1980 and was always paid in cash for his wage and overtime without a payslip. He did speak to Pearse Moore recently about payslips and was told “You don’t need them.” He was paid £300 net pw until May 2010 after which it rose to £370. The P11 record (page185) records his gross income pw until 16 July 2010 at £300 and £482 thereafter. His P60 for 2010 (page 181) declares an income of £15600 - £300 gross per week.

Overtime was paid at time and a half until about 4 years ago when it changed to TOIL. He worked overtime every week between 3 July – 11 September 2010 – see page 187a – yet appears to have received no TOIL during this period. His holiday record is the only one that shows TOIL. This was for a period before 3 July 2010.

He applied for tax credits in 2009 and 2010 certifying the same income for both years of £15600 gross (pages 187d – 187l), explaining the reason for his income being falsely declared being that he passed the papers to Paula McGurk who did it for him. It is of note that the documents in which his false income appears are letters addressed to him.

He kept the overtime diary for the men but has destroyed it.

15. Aaron Cassidy – plumber. Born on 28.4.89 he started with McGurk & Moore in September 2006. He received £160 net per week until June 2010 when he asked Mr Barrett for a rise and his pay increased to £204 net. All wages were paid in cash without a payslip. He did not know what a P60, P11, P35 or P45 was until recently. The P11 covering weeks from 9.4.10 – 1.10.10 records his gross weekly pay as £242. He was unaware of the minimum wage. He was paid the £35 callout payment and never paid for overtime which he took in TOIL. He was not happy with TOIL. He signed the letter of 5.6.10 because the £35 was to be taken away and overtime would be single time whereas he wanted to be paid. He believes the letter was concerned with TOIL despite not referring it.

16. Joseph Canning –plumber. He was born on 21.9.85 and joined McGurk & Moore in September 2002. He was paid £300 per week net, all wages were paid in cash since he started and he had never received a payslip. He said he had never asked about tax and NIC deductions. His P60 for 2010 (page 72) declares a gross income of £13000 - £250 pw – and his P11 (page 76) shows £250 gross pw until 16.7.10 when it increased to £382. He could not explain why this was so. He did not ask for his P60 to apply for a mortgage yet in June 2010 he demanded one. He too was not happy with TOIL when it was introduced by Mr Barrett in 2006/07 but said that he got used to it. He signed the letter of 5 June 2010 which he believes was concerned with TOIL despite not mentioning it. He said that he understood the new proposed contract was that the £35 payment would be lost and overtime would be paid at single. He did not do much overtime yet he was paid £35 to be on callout.

17. James McMonagle – plumber. He is aged 37 who started as a labourer in December 2008 and after about one year started to be trained as a heating engineer. He was paid £180 pw net in cash without a payslip. He knew everyone paid in cash but this didn’t make him suspicious. He was not aware of the minimum wage. He didn’t apply for tax credits until child born. He did not work overtime although the Employee Record for 2010 (page 211) states he did as required at time +half. His P60 (page 214) declares £11709.75 gross - £225.19 pw and his P11 (page 215) records gross pay of £248 until 16.7.10 then it increased to £250.

18. Kevin Donnelly – labourer. He is aged 47 and he rejoined McGurk & Moore in February 2008 having worked for them from 2002-2004. He was paid £208 net pw and had always been paid in cash without a payslip. He states he didn’t think tax and NIC was important and didn’t ask “the McGurk girls” about it. He didn’t know about tax credits. His P60 for 2010 (page 196) declares an income of £11715.42 - £225.30 pw gross. The earn £208 net requires a gross wage of £250. His P11 (page 200) records £250 gross pw. The reason for the differences in these figures is far from clear. He claims he never worked any overtime whereas the Employee Record for 2010 states he did so as required at time+ half.

Whether there had been a service provision change for the purposes of TUPE?

19. Before a relevant service provision change can be held to exist the condition set out in Reg 3(3)(a)(i) must be satisfied:

“there is an organised grouping of employees situated in Great Britain which has as its principal purpose the carrying out of the activities concerned on behalf of the client.”

20. The claimants rely on Mr Barrett for corroboration of their claim that their principal purpose was the contract with NWH. The percentages of hours worked by tradesmen in the 3 months up until 1 October have been given by Mr Barrett. These figures are distorted because the evidence was that

hours were increased from 35 to 40 hours per week. This was because there was a dispute between McGurk & Moore and NWH about the continuation of the contract and there was a push on to do NWH work. To do this extra work for NWH the proportion of time spent on this contract by the tradesmen was increased by 5/35 hours = 14.3% of the original 35 hour week. If this work was not being done for NWH before the hours were increased and was the reason for the increase, logically that proportion significantly distorts the figures given by Mr. Barrett and the claimants.

21. Other than the tradesmen, the stores manager Patrick Robinson who worked 25 hours per week with another man in stores who works the same hours and Samantha Carlin who worked in an office with a number of other people claim to have been principally involved in NWH work. The evidence was that apart from this contract McGurk & Moore had little else to do apart from a contract for Derry City Council and both these workers claim to have worked on little else despite having others either working similar hours or there being a number of others working with them. This begs the question if this contract was the bulk of the work being done and these people spent most of there time on it, what were the others, who remained with McGurk & Moore, working on?

22. In the case of Kevin Donnelly who worked exclusively for NWH since 2008 as a labourer it seems likely that he would transfer, subject to the arguments above concerning his contract terms and conditions and illegality.

S Ritchie,

Bar Library,

30.11.11

ILLEGALITY

ISSUE: Are the contracts of employment of the claimants tainted by illegality? If so, for what period?

1. A contract may be defeated on the ground of illegality: Holman v Johnson [1775] 1 Cowp 341 followed in Hall v Woolston Hall Leisure Limited [2000] IRLR 578 para 28.

2. The legal principles relating to illegality have been recently summarised in Enfield Technical Services v Payne [2008] ICR 30 see paragraph 26

3. If an employee commits an illegal act during the course of his employment he is not prevented from relying upon the period of the contract which was subsequently carried out lawfully: Coral Leisure Group Ltd v Barnett [1981] IRLR 204 at 207

4. There are 3 categories of illegality recognised by the courts. This case involves an allegation of the third: where a contract is lawful when made but illegally performed.

5. The allegation in this case is that there was a fraud on the revenue. The obligation to pay PAYE and NIC rests on the employer in the absence of a direction from the Revenue that the employee is to account for the tax and NIC: IRC v Herd [1993] 1 WLR 1090

6. There is nothing necessarily wrong or illegal in agreeing to pay to an employee a sum free of income tax: one or both of the parties to such a contract may intend an illegality, but such a contract can nevertheless, simply be performed in a lawful manner, if the employer grosses up whatever he has agreed to pay his employee to such a figure that, after deduction of the income tax appropriate to that figure, the employee is left with the agreed cash sum in his or her hands. Such a method of payment is not usual, but it is by no means unknown: Miller v Karlinski (1945) 62 TLR 85

7. In order to establish illegality it must be established that the employee knew of the illegality and had knowingly been a party to the act of illegality: Hall v Woolston Hall Leisure Limited [2000] IRLR 578.

(a) It is not enough to show that the claimant ought to have known about the illegality: Newland v Simons and Willer (Hairdressers) Ltd [1981] IRLR 359 –in which it was held perverse of the tribunal to find illegality when the claimant received a P60 which on examination would have alerted the claimant to the employer’s fraud.

(b) In Hall the receipt of cash payment of £250 per week accompanied by pay statements which showed that the employer was not paying tax on part of the claimant’s income, was not sufficient to show illegality on her part: Hall at paragraph 80

8. The burden of establishing illegality which is a defence rests on the party making the allegation.

9. In order to establish illegality the respondent has relied on 3 arguments:

(a) There was an explicit express agreement between each of the claimants at the outset of their employment.

i. It is alleged that the interviewer explained to each claimant separately that McGurk and Moore committed frauds on the Revenue by under declaring employee earnings.

ii. Further, in this conversation the interviewer also stated that there was a different system for overtime. He explained that any overtime which was worked by the employee would be paid cash in hand and none of it would be declared to the revenue.

Having explained this to each employee the interviewer then asked the for the employee’s agreement, which each employee allegedly gave.

(b) That being paid cash with no itemised pay statements and a failure to provide P60s put each claimant on notice that their employer was committing a fraud on the revenue, and this knowledge was enough to make them an active participant in the fraud.

(c) For the few claimants who requested proof of earnings, that the provision of a letter on headed note paper stating earnings rather than a P60 from McGurk and Moore was enough to involve them in active participation in a fraud on the revenue.

10.The claimants’ response is that

(a) The lack of any evidence from the Revenue that there was an underpayment of tax or national insurance, coupled with the failure to produce any reliable financial records which show a deliberate fraud fall short of establishing any illegality.

i. The second respondent called expert evidence in relation to this matter. The opinion of the expert was that the records were unreliable and he could not say that they showed a deliberate fraud rather than incompetence on the part of McGurk & Moore.

ii. Any argument based on an interpretation of M&M’s financial records must be treated with extreme caution given Mr Lavery’s doubts as to the records provenance, authenticity and unexplained inconsistencies. The records are simply so unreliable as to be virtually worthless. It is submitted that any conclusion which rests solely on an interpretation of them is bound to be fundamentally flawed.

(b) The suggestion of an express agreement with the claimants is purely speculative. It is unsupported by any direct evidence and denied by all claimants and the first respondent.

(c) Payment in cash without itemised pay statements is not a sufficient basis upon which to establish participation in a fraud (if indeed such a fraud took place).

evidence

11. All the claimants and Kevin Barrett of McGurk & Moore stated that they were paid in cash. All the claimants and Kevin Barrett stated that they never received an itemised pay slip.

12. All the claimants emphatically denied that they had been informed by McGurk or Moore that the firm was perpetrating a fraud on the revenue.

13. The draft statement of terms and conditions proposed by Kevin Barrett in June 2010 included the right for the employer to continue to pay wages weekly in cash.

14. All the claimants denied having any knowledge in how the specialist payroll software was operated. Mr Barrett and the claimants stated that the computer records and financial matters were dealt with by daughters of Mr McGurk. This was done in an upstairs office. The men did not have access to the office.

15. The tax documents produced to the hearing by McGurk and Moore (P35s, P11s, P45s and P60s relating to the majority of the claimants) did not accord with the claimant’s oral evidence about the amounts they were receiving until 16^th July 2010.

16. Mr Lavery gave expert evidence in relation to the documents. His opinion was that there were inconsistencies between the documents which should not occur in a computerised system. He agreed that the accuracy of documents output relied upon the accuracy of the input of date, or as it was put GIGO: Garbage In Garbage Out. When asked if the mistakes in the documents were deliberate or incompetent he replied incompetent as there was not enough information to be able to conclude that they were deliberate.

17. It was not contended by Mr Barrett on behalf of McGurk and Moore that the financial documents produced to the tribunal were accurate. No evidence was presented to the tribunal concerning how or when they were generated. It was not clear whether the documents produced to the tribunal were the same as documents provided to the Revenue (if any had ever been provided).

18. There was no evidence that the Revenue had sought to recover from McGurk and Moore any underpayment of tax or national insurance.

19. The claimants gave evidence that they considered McGurk and Moore to be a reputable firm. Two of the claimants (Canning and Cassidy) were referred to McGurk and Moore by a North West Training College to serve their time a as apprentices. Another employee, Carlin, was placed in McGurk and Moore by Grafton recruitment, and paid as an agency worker through Grafton for her first year.

20. They assumed that NIC and Tax were being paid by their employer. Some asked and were assured that this was being done, others said they never really thought about it as they were only concerned about their net wages.

21. The majority of the claimants worked overtime. Their evidence was that since 2007 or 2008 they had received no payment in cash but rather time in lieu at the rate of time and a half. A couple of the claimants were happy with this arrangement others were not.

22. It was suggested that this arrangement was preposterous and no other employer in Derry would give time off in lieu for overtime. The only evidence in this regard was a statement from Mr McMonagle of Omega.

23. Two of the claimants cited examples of time off in lieu for overtime: one claimant was presently receiving time off in lieu for overtime from his employer Western Health and Social Care Trust and another claimant stated he was aware that his close friend was being given time off in lieu for overtime by his employer Altnagelvin Hospital.

24. Mr Barrett of McGurk and Moore stated that the men were given time off in lieu at the rate of time and half for overtime worked. The draft terms and conditions which he sought to agree with the men in June 2010 included the right for the employer to pay the men for overtime by granting equivalent time off in lieu.

25. There was a letter produced before the tribunal which was signed by 5 of the 11 claimants. It was suggested that the author was Gregory Moore. He did not give evidence. The letter was produced in the yard while the men were waiting to be given jobs in the morning. The 5 who signed it all said they read the letter briefly. The letter does not mention time off in lieu but does mention payment for overtime.

26. The 5 men explained that they considered the time off in lieu as payment. They stated that the proposed new terms reduced this to single time off in lieu (which was clear from the terms of the statement before the tribunal). They stated that this along with the removal of the call-out payment of £35 per week was the reason for the letter.

27. The proposed new terms were to be introduced if the contract with North and West was renewed. In the circumstances, this did not happen and the terms were shelved.

28. There were 3 claimants who were asked for proof of earnings for loans or mortgages. These were provided in the form of letters on headed note paper from McGurk and Moore signed by Paula McGurk. All were accepted by the financial lenders.

29. Two of the claimants applied for child tax credits. Their evidence was that the forms and P60s were completed by Paula McGurk. One of the forms showed an annual income which accorded with the claimant’s net earnings (this was Paul Doherty). He was questioned about this. It was suggested that this should have alerted him to an underpayment. He responded

by saying the figure seemed correct to him on looking at it now, and he could not see anywhere on the form that stated that the figure was gross or net.

Service Provision Change

Issue: Were the claimants transferred to Omega by operation of the SPC Regulations?

30.Change (Protection of Employment) Regulations (Northern Ireland) 2006 (“the SPC Regulations”). It is also a requirement that specified conditions are satisfied.

(a) Regulation3(1)(b)provides that a service provision change is a situation in which activities cease to be carried out by a contractor on a client’s behalf and are carried out instead by another person (“a subsequent contractor”) on the client’s behalf.

(b) Regulation 3(2) as far as is relevant to this case is that there is an organised grouping of employees which has as its principal purpose the carrying out of the activities concerned on behalf of the client

ISSUE: Was there a Service Provision Change as defined by the SPC Regulations?

31.The first question for a tribunal is whether or not there has been a service provision change: OCS Group Limited v Jones [2009] at para 14. In determining whether there has been a service provision change the tribunal should look at the activities which were carried out before the alleged transfer and compare those to the activities which were carried out after the alleged transfer: OCS Group Limited v Jones

Evidence

32.Mr Barrett of M&M described the contract a for North & West Housing as carrying out repairs to property, plumbing, electrical, gas. M&M also provided a 24/7 out of hours service for emergency repairs. Mr Barrett agreed that the same activites were carried out by Omega under the contract as had been by M&M.

33.The oral evidence of the claimants was that the specific activities (plumbing, electrical and labouring) which they were employed by McGurk and Moore to carry out for North & West Housing ceased to be carried out by McGurk and Moore after 1^st October 2010 and were carried out by Omega.

34.The Letter from Magill dated 14^th June 2010 states clearly: “the Provision of a Comprehensive Response Maintenance Service Contract in Northern Ireland and County Donegal. The contract was tendered as OJEU Contract Notice Reference Number 13241-2009. The letter informed Omega that they were the successful tenderer and that McGurk and Moore was the “existing contractor”. It invited Omega to contact McGurk and Moore in order to address TUPE issues.

35.Employee Liability Information was requested by Omega, and provided by McGurk and Moore on 17^th September 2010. Further detailed information was sought on Omega’s instructions by Omega’s solicitors. Further employee liability information was sent on 28^th September 2010.

36.There was no evidence on behalf of Omega to suggest that the activities carried out under the contract for North & West after 1^st October 2010 by it was different form the work carried out by McGurk and Moore under the contract with North & West up to 1^st October 2010.

There is no cogent evidence before the tribunal to suggest that the situation was anything other than a service provision as described on regulation 3(1)(b).

ISSUE: Were each of the claimants part of an organised grouping of employees assigned to carry out the activities under the North & West contract?

37.The second question is whether there was an organised grouping of employees assigned to the contract. This is matter of fact for the tribunal based on the evidence before it: Mowlem Technical Services (Scotland) Ltd v King 2005 CSH 46.

38. The test for determining who is assigned to an economic entity for the purposes of a TUPE transfer was considered in Duncan Web Offset (Maidstone) Limited v Cooper [1995] IRLR by Morrison J at paragraph 15:

… There will often be difficult questions of fact for industrial tribunals to consider when deciding who was 'assigned' and who was not. We were invited to give guidance to industrial tribunals about such a decision, but decline to do so because the facts will vary so markedly from case to case. In the course of argument a number were suggested, such as the amount of time spent on one part of the business or the other, the amount of value given to each part by the

employee; the terms of the contract of employment showing what the employee could be required to do; how the cost to the employer of the employee's services had been allocated between the different parts of the business. This is, plainly, not an exhaustive list; we are quite prepared to accept that these or some of these matters may well fall for consideration by an industrial tribunal which is seeking to determine to which part of his employers' business the employee had been assigned.

(a) In Botzen (another TUPE case) the Court of Justice held that it was not a requirement that an employee worked full-time for the part of the undertaking which was being transferred: it was sufficient that he worked “wholly or mainly”.

(b) In Kimberley v Hambley [2008] IRLR 682 the activities performed in Middlesborough were performed by two transferees: the finding was that 71% was carried out by Kimberley, and the remaining 29% by Angel. On the basis of that finding the Employment Appeal Tribunal concluded that the relevant employees of Leena Homes transferred to Kimberley.

(c) Also see the discussion of this point in TUPE Law and Practice, Upex, at paragraphs 3.20 to 3.23

Evidence

39. Mr Barrett stated that the North & West contract was over 80% of McGurk and Moore’s work. When questioned about other contracts he pointed out that other contracts had been lost years before: The Fold, Ulidia, Open Door, Western Health Board. Only Derry City Council and some private work remained.

40. Mr Barrett stated that M&M had 46 employees of which 29 to 31 were predominantly working on the North & West contract

41. A letter from Claremount chartered accountants confirms that “North and West Housing have contributed approximately 80% of [McGurk & Moore’s] turnover for the year ended 31^st March 2010” [Bundle 2 Tab A page 13].

42. All bar two of the claimants spent 80% or more of their time on the North & West contract according to the time sheets provided by Kevin Barrett.

43. The specific breakdown for each claimant is included in the individual schedule.

Unfair dismissal: If there was a service provision change

Issue: If there was a service provision change were the claimants unfairly dismissed?

44. Regulation 4(1) of the SPC regulations provides for the continuation of the contract of employment, and regulation 7(1) provides that any dismissal shall be treated as unfair for the purposes of the Employment Rights (NI) Order 1996 if the reason for dismissal was the transfer itself:

4.—(1) Except where objection is made under paragraph (7), a service provision change shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the service provision change, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee.

7.—(1) Where either before or after a service provision change, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of Part XI of the 1996 Order (unfair dismissal) as unfairly dismissed if the sole or principal reason for his dismissal is—

(a)the transfer itself; or

(b)a reason connected with the transfer that is not an economic, technical or organisational reason entailing changes in the workforce.

Evidence

45. The claimants were not told at any stage that they were being dismissed by M&M. The claimants all worked to the date of the service provision change.

46. The claimants all attended Omega’s premises on 4^th October 2010 when they were told there was no work for them.

47. No evidence was put before the tribunal of any economic technical or organisational reason why the claimants were dismissed.

Mitigation

ISSUE: Did the claimants mitigate their loss?

48. All the claimants gave evidence of seeking work: some ahd greater success than others. This is reflected in the schedules of loss.

49. The claimants were not cross-examined on mitigation

50. No evidence has been led by the respondent’s in respect of mitigation.

Statutory Dismissal Procedure

Did Omega comply with the statutory dismissal procedure, and if not what uplift if any should be applied?

51. There was no evidence that the claimants were invited in writing to a meeting by Omega to discuss their dismissal. There was no dismissal meeting. There was no right of appeal.

52. Mr McMonagle, on behalf of Omega, stated that he had made his bid for the North & West tender setting rates for the contract with M&M without any consideration of TUPE.

(a) M&M had identified employees which it considered would be transferred.

(b) North & West Housing had mentioned TUPE considerations in its letters of 14^th May 2010 and 14^th June 2010.

(c) There was no evidence that Omega had made any attempt to ascertain the proportion of M&M’s work which was dedicated to the North & West contract

(d) There was no evidence that Omega had made any attempt to ascertain the proportion of time which the employees identified by M&M as affected by the service provision change, worked on the North & West contract.

53. Mr McMonagle stated that TUPE simply did not apply. He said he was unaware of TUPE despite the terms of the letters he received.

54. It is submitted that the total failure to comply with the statutory dismissal procedure was due to a deliberate and calculated financial decision by Omega. In the circumstances an uplift of 50% is sought.

Consultation and information

Issue: Did the respondents comply with their obligations to inform and consult with the elected representative of the claimants?

55. There is an obligation on the employer under regulation 13(2) of the SCP Regulations to inform an appropriate representative of the affected employees of the following:

(a) the fact that the change is to take place, the date or proposed date of the change and the reasons for it;

(b) the legal, economic and social implications of the change for any affected employees;

(c) the measures which he envisages he will, in connection with the change, take in relation to any affected employees or, if he envisages that no measures will be so taken, that fact; and

(d) if the employer is the transferor, the measures, in connection with the change, which he envisages the transferee will take in relation to any affected employees who will become employees of the transferee after the change by virtue of regulation 4 or, if he envisages that no measures will be so taken, that fact.

56. Regulation 13(3) provides that the appropriate representative can be an official of a trade union recognised by the employer (no union was recognised), or an employee elected in accordance with regulation 14.

57. Regulation 15 provides for a complaint to be made to the industrial tribunal in the case of a failure by an employer to comply with regulation 13 or 14.

Evidence

58. There was no election of a representative under regulation 14.

59. No evidence was offered in defence of this allegation.

60. Up until the week before 1^st October 2010 Kevin Barrett told the claimants that McGurk and Moore would continue with the contract.

61. On 1^st October 2010 Mr Barrett informed the men that McGurk and Moore had lost the contract but they would be protected under TUPE and Omega would employ the men on their existing terms.

62. Mr Barrett admitted that he had no assurances, and had sought no assurances from Omega that this information was correct. The information provided by McGurk and Moore to the individual employees was incorrect.

63. The claimants had no elected representative and individually were given incorrect and misleading information.

Remedies

64. If the tribunal finds that there has been a failure by McGurk and Moore relating to the election of employee representatives (application under regulation 15(1)(a)) the tribunal shall make a declaration to that effect: regulation 15(7).

65. The tribunal may make an order for a failure to inform affected employees regulation 15(7).

66. The award is capped at 13 weeks pay: regulation 16(3).

67. The calculation of a week’s pay is not capped by the Employment Rights (NI) Order 1996.

Redundancy

68. If there was no service provision transfer, then were the claimant’s unfairly dismissed

69. The employer terminated employment on 1^st October 2010. No notice was given. The only reason before the tribunal for the termination is redundancy. The claimants’ evidence is that they were assigned to the North & West contract and that contract was lost.

70. The dismissal is automatically unfair. The statutory dismissal procedures were not complied with: there was no written notice of intention to dismiss with reasons. There was no reasoned decision. There was no right of appeal.

71. The evidence to the tribunal from the first respondent is that although the claimants were assigned to the North & West contract there were other employees who were also assigned to the contract who did not wish to transfer and therefore were kept on.

72. There was no redundancy procedure across the workforce. There was no process of consultation. There were no pools selected. There were no criteria applied.

73. There is no question of contributory fault.

Brian McKee

Bar Library

30^th November 2010

SCHEDULE I

LIST OF AUTHORITIES

Name of Proceedings: McGlinchey and Others v McGurk & Moore and Omega Mechanical Services Limited

Party Providing List: The Claimants

Name of Counsel: Brian McKee

CASES:

Holman v Johnson [1775] 1 Cowp 341......................................................................................

Miller v Karlinski (1945) 62 TLR 85.........................................................................................

Coral Leisure Group Ltd v Barnett [1981] IRLR 204................................................................

Newland v Simons and Willer (Hairdressers) Ltd [1981] IRLR 359.........................................

IRC v Herd [1993] 1 WLR 1090.................................................................................................

Duncan Web Offset (Maidstone) Limited v Cooper [1995] IRLR..............................................

Hall v Woolston Hall Leisure Limited [2000] IRLR 578...........................................................

Botzen ......................................................................................................................................

Mowlem Technical Services (Scotland) Ltd v King 2005 CSH 46.............................................

Kimberley v Hambley [2008] IRLR 682.....................................................................................

OCS Group Limited v Jones [2009] .........................................................................................

LEGISLATION:

The Service Provision Change (Protection of Employees) Regulations (NI) 2006...................

Employment Rights (NI) Order 1996..........................................................................................

TEXTS:

TUPE Law and Practice, Upex and Ryley, 2006........................................................................

SCHEDULE II

CHRONOLOGY

June 2002 McGurk & Moore (“M&M2) starts 5 year contract for North & West Housing

June 2007 Five year contract extended by 5 years

Late 2009 North & West put the contract out to tender

14^th May 2010 Letter from North & West to Omega [TAB A page 13B]

1^st June 2010 Employees told by Barrett that new terms would be imposed if M&M continued with the contract

5^th June 2010 A letter is circulated in the yard before work and signed by 5 claimants [TAB A p 13A]

14^th June 2010 Letter from North & West confirming award of contract to Omega [TAB A page 13D]

1^st July 2010 North & West give M&M 3 months’ notice of termination of the contract

17^th September 2010 Letter to Omega from M&M stating the belief that TUPE applied [TAB A page 13E] & Employment Liability information is sent by M&M to Omega

24^th September 2010 Letter from Omega’s solicitors seeking further details [TAB A pages 13F-H]

28^th September 2010 Letter from M&M clarifying Employee Information & enclosing further details.

30^th September 2010 Letter from Colm McGurk & Pearse Moore to all employees [TAB A page 13J]

1^st October 2010 North & West contract with M&M terminates. North & West contract with Omega commences. Claimants are told that their employment with M&M is ending but they should attend for work at Omega’s premises on Monday 4^th October 2010.

4^th October 2010 Claimants attend Omega premises but are turned away.

5^th October 2010 Letter from ELAS to Omega’s solicitors [TAB A pages 13K-L]

7^th October 2010 Letter from Claremount confirming North & West amounted to approximately 80% of M&M turnover in 2009/10 [TAB A page 13]

About BAILII - FAQ - Copyright Policy - Disclaimers - Privacy Policy amended on 25/11/2010