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Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Wiener v Department for Employment and ... [2013] NIIT 01408_12IT (24 May 2013)
URL: http://www.bailii.org/nie/cases/NIIT/2013/1408_12IT.html
Cite as: [2013] NIIT 01408_12IT, [2013] NIIT 1408_12IT
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THE INDUSTRIAL TRIBUNALS
CASE REF: 1408/12
CLAIMANT: Eric Wiener
RESPONDENT: Department for Employment and Learning
DECISION
The claimant’s “complaint” [appeal], against the Department’s refusals to make payments to him in respect of wages and holiday pay, is dismissed.
Constitution of Tribunal:
Chairman (sitting alone): Mr P Buggy
Appearances:
The claimant was not present or represented.
The Department was represented by Mr Philip McAteer, instructed by the Departmental Solicitor’s Office.
REASONS
1. This is one of 12 cases, which are being brought by ex-employees of CNC Components (UK) Ltd (“CNC”).
2. The factual and legal contexts of all of those cases are practically identical. First, each claimant had made applications to the Department for Employment and Learning (“the Department”) for payments in respect of wages and holiday pay allegedly owed to the claimants by CNC. Secondly, all of the relevant applications were refused and, in their industrial tribunals proceedings, each claimant appeals against those refusals. Thirdly, in all of the relevant cases, the Department refused the applications because of the following circumstances and for the following reasons. CNC has gone into administration. Prior to that, the company made a corporate voluntary arrangement (“CVA”). CNC was still subject to that CVA at the time the company went into administration. The alleged wages and holiday pay debts did not become due to any relevant claimant prior to the company entering into the CVA. In each case, the relevant debts were however due by the time the company went into administration.
The legislation
3. The legislative scheme in respect of the statutory guarantee in Great Britain, in relation to certain debts, is clearly summarised at paragraph 39-195 of Volume 2 of “Chitty On Contracts”, Thirty-first Edition, in the following terms:
“Under ss.166 and 167 of the Employment Rights Act 1996 the Secretary of State may, where an employer is insolvent, pay the unpaid amount of a redundancy payment owed to an employee by the insolvent employer, the payment being made directly out of the National Insurance Fund, which is subrogated to the rights of the employer. Under Pt XII of the Employment Rights Act 1996 the same system is extended to a number of other debts owed to the employee by the insolvent employer, which have accrued due by the time of the employer’s insolvency and the termination of the employee’s employment … The list includes:
“(a) arrears of pay for up to eight weeks;
(b) statutorily guaranteed payments due in respect of statutory minimum notice periods, or compensation due for failure to give statutory minimum notice;
(c) arrears of holiday pay, for up to six weeks …
(d) any basic award of compensation for unfair dismissal;
(e) any reasonable sum by way of reimbursement of [certain fees
and premiums].
Insofar as these sums accrue due in respect of particular periods of time, they are limited to the fixed maximum statutory week’s pay for this purpose. The employee may complain to an employment tribunal of a failure of the Secretary of State for Employment to make or make in full an amount payable to the employee out of the National Insurance Fund under these provisions and the tribunal may make a declaration upholding the complaint and declaring the amount due. The Secretary of State is subrogated to the rights of the employee in the employer’s insolvency …”
4. The Employment Rights Act 1996 (“ERA”) applies throughout Great Britain, and only to Great Britain. However, there is Northern Ireland legislation, which precisely corresponds, for all practical purposes, to the provisions of sections 166 and 167 and of Part XII of ERA.
5. Articles 201 and 202 of the ERO are the provisions of that legislation which correspond to the provisions of sections 166 and 167 of the ERA. Part XIV of the Employment Rights (Northern Ireland) Order 1996 (“the Order”) is the Northern Ireland legislation which corresponds to Part XII of ERA.
6. Article 227 of the Order is contained within Part XIV of the Order, and provides as follows:
“If, on an application made to [the Department for Employment and Learning] in writing by an employee, the Department is satisfied that—
(a) the employee's employer has become insolvent,
(b) the employee's employment has been terminated, and
(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,
the Department shall, subject to Article 231, pay the employee out of the Northern Ireland National Insurance Fund the amount to which, in the opinion of the Department, the employee is entitled in respect of the debt”.
7. As already indicated above, the claimant in the present case made applications under Article 227 to the Department, in respect of wages and holiday pay, and those applications were unsuccessful.
8. Article 227 contains three separate and conjunctive conditions which have to be satisfied if an application under that Article is to be successful:
(1) The employee’s employer must have become “insolvent” within the meaning of Article 227. (That condition was satisfied in this case, because CNC has gone into administration, and administration is a form of “insolvency” in the sense in which that concept is used in the context of Article 227).
(2) The employee’s employment must have terminated. (That condition was satisfied in the present case).
(3) On the “appropriate date” the relevant employee must have been entitled to be paid the whole or part of whatever debt is the subject of the application to the Department.
9. The Department accepts that the first of those two conditions were satisfied in the circumstances of this case.
10. According to the Department, the claimant’s application had to be refused only because the Department concluded that, on “the appropriate date”, this claimant was not entitled to be paid any of the wages or holiday pay which were the subject of his application to the Department.
11. According to the Department, in the circumstances of this case, “the appropriate date” was the date of the CVA, not the date of CNC’s administration.
12. Article 230 of the Order defines “the appropriate date”, for the purposes of Part XIV of the Order, in the following terms:
“(a) In relation to arrears of pay (not being remuneration under a protective award made under Article 217) and to holiday pay, [it] means the date on which the employer became insolvent,
(b) In relation to a basic award of compensation for unfair dismissal and to remuneration under a protective award so made, [it] means whichever is the latest of—
(i) the date on which the employer became insolvent,
(ii) the date of the termination of the employee's employment, and
(iii) the date on which the award was made, and
(c) in relation to any other debt to which this Part applies, means whichever is the later of—
(i) the date on which the employer became insolvent, and
(ii) the date of the termination of the employee's employment”.
13. In the context of Article 227 of the Order, and in the context of Article 230, the expressions has “become insolvent” and “became insolvent” have special, artificial, meanings. In those contexts, Article 228(3) provides that a corporate employer (like CNC) has become insolvent, for the purposes of Part XIV, in each of the following situations:
“(a) if a winding up order has been made, or a resolution for voluntary winding up has been passed, with respect to the company,
(aa) if the company is in administration for the purposes of the Insolvency (Northern Ireland) Order 1989,
(b) if a receiver or a manager of the company's undertaking has been duly appointed, or possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or
(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part II of the Insolvency (Northern Ireland) Order 1989 has been approved under that Part”.
14. At paragraph (1) of Article 229, the Order specifies the debts to which Part XIV applies:
“(a) any arrears of pay in respect of one or more (but not more than eight) weeks,
(b) any amount which the employer is liable to pay the employee for the period of notice required by Article 118(1) or (2) or for any failure of the employer to give the period of notice required by Article 118(1),
(c) any holiday pay—
(i) In respect of a period or periods of holiday not exceeding six weeks in all, and
(ii) to which the employee became entitled during the twelve months ending with the appropriate date,
(d) any basic award of compensation for unfair dismissal or so much of an award under a designated dismissal procedures agreement as does not exceed any basic award of compensation for unfair dismissal to which the employee would be entitled but for the agreement, and
(e) any reasonable sum by way of reimbursement of the whole or part of any fee or premium paid by an apprentice or articled clerk”.
15. It will have been noted that, under Article 227, the Department is only required to make a relevant payment if it is satisfied, in any particular case, that all of the three conditions, as mentioned in paragraph 8 above, have been satisfied in the circumstances of that case. Accordingly, if the Department is not so satisfied, on any of those points, it will refuse to make a payment in any particular case.
16. However, that is not the end of the matter, because Article 233 provides what amounts to a right of appeal to an industrial tribunal.
17. Article 233 is in the following terms:
“(1) A person who has applied for a payment under Article 227 may present a complaint to an industrial tribunal—
(a) that the Department has failed to make any such payment, or
(b) that any such payment made by the Department is less than the amount which should have been paid.
…
(3) Where an industrial tribunal finds that the Department ought to make a payment under Article 227, the tribunal shall -
(a) make a declaration to that effect, and
(b) declare the amount of any such payment which it finds the Department ought to make”.
18. Pursuant to Article 233, a tribunal is not in any sense reviewing the Department’s decision. Instead, pursuant to Article 233, the tribunal is replacing the Department as the decision-maker: the tribunal is stepping into the Department’s shoes. Accordingly, upon an appeal under Article 233, a claimant is entitled to succeed, and is only entitled to succeed, if the tribunal is satisfied that all of the three Article 227 conditions (as listed at paragraphs 8 above) are met in the circumstances of the particular case.
The Directive
19. The statutory guarantee provisions of ERA, and the equivalent provisions in the Order, purport to implement the United Kingdom’s obligations under EU Council Directive 2008/94/EC. As was pointed out at paragraph 23 of Division G of “Harvey on Industrial Relations and Employment Law” (“Harvey”), that Directive was a codifying provision. It consolidated provisions which had previously been contained in EU Council Directive 80/987/EEC, as amended by 1987 and 2002 Directives.
20. As Harvey points out, at paragraph 23:
“The social objective of [the 2008 Directive] is to guarantee all employees a minimum level of protection in the European Union, in the event of the employer’s insolvency, through payment of outstanding claims resulting from contracts of employment (or employment relationships) and relating to pay for a specified period …”
21. The statutory guarantee provisions of the Order (as already described above at paragraphs 3 to 18) are the provisions whereby the United Kingdom has purported to implement the requirements of the 2008 Directive (and of its predecessors) in respect of Northern Ireland. The equivalent provisions of ERA (which have already been referred to above at paragraph 3) are the provisions whereby the United Kingdom has purported to implement the requirements of the 2008 Directive, and of its predecessors, in respect of Great Britain.
The issue
22. What is the true meaning of the phrase “became insolvent” as used in Article 230(a) of the Order? That was the key question in this case.
The stages
23. In order to answer that question, I needed to ascertain the meaning of that phrase, as used in the currently applicable version of section 185 of the ERA. Having regard to the structure, legislative history, and detailed wording of the statutory guarantee provisions, both of the Order and of the ERA respectively, it is obvious that it was intended that the meaning of the expression “became insolvent” in Article 230(1) of the Order would be exactly the same as the meaning of the expression “became insolvent” in section 185 of ERA, as amended. So the real question was: what is the meaning of the phrase “became insolvent” in Section 185 of ERA?
24. It is appropriate first to determine the answer to the latter question solely in light of United Kingdom principles of statutory interpretation, without referring to any requirements of the 2008 Directive or of its predecessors. (That is “Stage 1” of the interpretative process).
25. If, having completed that first stage of the interpretation exercise, I had been satisfied that the meaning of “became insolvent” presented no impediment to the success of the claimant’s appeal application, I would not have needed to go any further.
26. However, at the end of that first stage of the interpretation exercise, I did conclude, on the basis of United Kingdom principles of statutory interpretation, that the phrase “became insolvent” was to be construed as not referring to a company which has gone into administration immediately after having been the subject of a corporate voluntary arrangement.
27. Accordingly, it was necessary to go on to Stage 2 of the interpretation process. At Stage 2, I had to consider whether the relevant legislation, if interpreted in according with my conclusions at Stage 1, would put the United Kingdom into breach of its obligations under the 2008 Directive.
28. At the conclusion of Stage 2, I was satisfied that interpreting the legislation in line with my conclusions at Stage 1 would not put the United Kingdom into breach of its obligations under the 2008 Directive.
29. Accordingly, Stage 3 of the interpretation process did not have to be pursued. (Under Stage 3, a tribunal would have to consider whether it was possible to interpret the Northern Ireland legislation in a broader manner than was indicated at the end of Stage 1, so as to bridge any gap between the requirements of the Directive and the provisions of the Northern Ireland legislation).
Purposes
30. The statutory guarantee legislation is social protection legislation. Accordingly, it is appropriate to consider the purposes which the current legislation is intended to serve.
31. Who are the intended beneficiaries of the legislation? Certainly not employers, because the statutory guarantee legislation does not relieve employers of the relevant debts. Instead, the Government is subrogated to the rights of the employee, in relation to the relevant debts. Accordingly, employees are the only intended beneficiaries of this legislation.
32. What debts are covered by the legislation? Not all debts arising out of an employment relationship are within the scope of the statutory guarantee. For example, compensation in respect of all kinds of discrimination is excluded from the scope of the guarantee. In summary, the guarantee applies mainly to the following types of employer’s debts:
(1) pay
(2) holiday pay
(3) notice pay
(4) redundancy pay (and the basic award of unfair dismissal, which roughly corresponds to the amount which would be available by way of redundancy payment).
33. What quantitative limits apply in relation to the statutory guarantee?
34. First, the guarantee legislation guarantee deems wages to be limited to a certain figure per week (currently £450). Secondly, only statutory notice pay is covered by the guarantee. (Any more generous contractual notice pay is outside the scope of the guarantee). Thirdly, there are also quantitative limits regarding the duration of cover. (Only eight weeks of pay falls within the scope of the guarantee. Only six weeks holidays are within the scope of the guarantee).
35. In relation to some (but not all) relevant debts, the statutory guarantee is also subject to time limitations.
36. There are no time limitations in relation to notice pay, or in relation to redundancy pay (although there will be no statutory guarantee entitlement to a payment in respect of redundancy if the right to that redundancy payment has itself been extinguished).
37. The time limitations on the scope of the statutory guarantee are at the heart of this case:
(1) Arrears of pay are only within the scope of the statutory guarantee if the employee was entitled to be paid all or some of those wages “on the appropriate date”.
(2) Holiday pay is only within the scope of the guarantee if the employee was entitled to all or some of that pay “on the appropriate date”.
In this connection, see Article 227(c) of the Order.
38. Both in respect of arrears of pay and in respect of holiday pay, “the appropriate date” means “the date on which the employer became insolvent”. (See Article 230 of the Order).
39. Finally, 227(b) provides another limitation on the scope of the statutory guarantee, by imposing a precondition, in respect of entitlement of the statutory guarantee, that the relevant employee’s employment must have been terminated.
The legislative history
40. The provisions which are now to be found in Part XIV of the 1996 Order were originally contained in Article 42 of the Industrial Relations (Northern Ireland) Order 1976.
41. The provisions of Article 42 were drafted so as to be identical to the provisions of earlier, and exactly equivalent, employment legislation in Great Britain. The latter provisions were re-enacted in Part VII of the Employment Rights (Consolidation) Act 1978. Section 122 and section 127 were the two key provisions in that part of the 1978 Act.
42. At this point in this Decision, it will be helpful to set out subsections (1) to (3) of section 122 as originally enacted:
“(1) If on an application made to him in writing by an employee the Secretary of State is satisfied—
(a) that the employer of that employee has become insolvent; and
(b) that on the relevant date the employee was entitled to be paid the whole or part of any debt to which this section applies,
the Secretary of State shall, subject to the provisions of this section, pay the employee out of the Redundancy Fund the amount to which in the opinion of the Secretary of State the employee is entitled in respect of that debt.
(2) In this section the " relevant date " in relation to a debt means the date on which the employer became insolvent or the date of the termination of the employee's employment, whichever is the later.
(3) This section applies to the following debts: —
(a) any arrears of pay in respect of a period or periods not exceeding in the aggregate eight weeks;
(b) any amount which the employer is liable to pay the employee for the period of notice required by section 49(1) or (2) or for any failure of the employer to give the period of notice required by section 49(1);
(c) any holiday pay in respect of a period or periods of holiday, not exceeding six weeks in all, to which the employee became entitled during the twelve months immediately preceding the relevant date;
(d) any basic award of compensation for unfair dismissal (within the meaning of section 72);
(e) any reasonable sum by way of reimbursement of the whole or part of any fee or premium paid by an apprentice or articled clerk”.
43. As can be seen, there are a number of similarities between the scope of the statutory guarantee which was set out in section 122 of the 1978 Act as originally enacted, and the scope of that guarantee as now set out in section 185 of ERA. In particular, the types of debts which are within the scope of the guarantee under the 1978 legislation are practically identical to the types of debts which are within the scope of the guarantee under Part XII of ERA.
44. However, there are some differences as well.
45. First, under the 1978 Act, an employee could avail of the statutory guarantee even if he or she had never been dismissed by the debtor employer.
46. Secondly, and more significantly in the context of this appeal, there are differences between the time limitation originally imposed in respect of the 1978 Act’s statutory guarantee and the time limitation which has been imposed in respect of ERA’s statutory guarantee.
47. As already explained above:
(1) Wages and holiday pay are within the scope of the guarantee under ERA only if the claimant was entitled to be paid, in respect of those wages, or in respect of that holiday pay, on “the appropriate date”; and, in that context, “the appropriate date” is defined as meaning the date “on which the employer became insolvent”.
(2) However, by way of contrast, the position under the 1978 legislation was as follows. The wages and holiday pay had to be due on “the relevant date”. However, in that context, “the relevant date” was the date on which the employer became insolvent or the date of the termination of the employee’s employment, whichever was the later.
48. Accordingly, if section 122 of the 1978 act as originally enacted (or its Northern Ireland equivalent, Article 42 of the 1976 Order) applied to this case, the claimant would be bound to win his appeal, because the relevant wages and holiday pay debts were due when his employment ended.
49. For the sake of completeness, I now set out provisions of subsection (1) of Section 127 of the 1978 act, which made provision relating to the subject-matter of section 185 of ERA and that of paragraphs (2) and (3) of Article 228 of the 1996 Order. According to subsection (1) of Section 127 of the 1978 Act, a corporate employer was to “be taken to be insolvent” if:
“ …
(c) a winding up order is made or a resolution for voluntary winding up is passed with respect to it, or a receiver or manager of its undertaking is duly appointed, or possession is taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge”.
50. Why do section 185 of ERA and Article 230 define “the appropriate date”, in relation to wages and holiday pay, as meaning the date “on which the employer became insolvent”, whereas the previous equivalent provision (in section 122 of the 1978 Act) defined “relevant date” as including the date of the termination of the employee’s employment, if that date was later than the date on which the employer “became insolvent” for the purposes of that legislation?
51. In order to decide this appeal, it has been necessary to answer that question. However, before attempting to do so, it is necessary to consider how the legislation came to be amended so as to include the stricter definition of “appropriate date”.
52. Section 218 of the Insolvency Act 1985 amended section 122 of the 1978 act in the following material respects. First, a new precondition for payment, namely that the employment of the employee must have been terminated, was imposed by subsection (2) of section 218.
53. Secondly, subsection (3) of section 218 of the 1985 Act amended the 1978 Act’s definition of “the relevant date” (as then contained in sub-section (2) of section 122) by substituting the following:
“(a) In relation to arrears of pay (not being remuneration under a protective award made under section 101 of the Employment Protection Act 1975) and to holiday pay, means the date on which the employer became insolvent”.
54. It is I think useful to set out here the whole of the “new” subsection (2) of section 122, of the 1978 Act as substituted by section 218 of the 1985 Act:
“(2) In this section ' the relevant date '—
(a) in relation to arrears of pay (not being remuneration under a protective award made under section 101 of the Employment Protection Act 1975) and to holiday pay, means the date on which the employer became insolvent;
(b) in relation to such an award and to a basic award of compensation for unfair dismissal, means whichever is the latest of—
(i) the date on which the employer became insolvent;
(ii) the date of the termination of the employee's employment; and
(iii) the date on which the award was made;
(c) in relation to any other debt to which this section applies, means whichever is the later of the dates mentioned in sub-paragraphs (i) and (ii) of paragraph (b)”.
55. It is instructive to compare the detailed provisions of the post-Insolvency Act subsection (2) of section 122 with the provisions of that subsection as originally enacted.
56. According to the unamended 1978 Act, an employee could make a successful application under the statutory guarantee in respect of notice pay or in respect of unfair dismissal even if the sums had not become due by the time the employer “became insolvent”, provided that they had become due by the date of the termination of that employee’s employment. After the 1985 amendments to sub-section (2) of section 122 of the 1978 Act, the situation remains the same in relation to such debts. Both before and after the relevant amendments, an employee can successfully claim under the statutory guarantee in respect of notice pay and in respect of unfair dismissal, if that debt was one which the claimant was entitled to be paid upon the date of the termination of that employee’s employment.
57. However, the situation is different in relation to wages and holiday pay. In relation to those categories of debts, the situations prior to and after the 1985 amendments are as follows:
(1) Before the 1985 amendments, wages and holiday pay could successfully be applied for under the statutory guarantee if they were due at the time of the termination of the claimant’s contract of employment, even if they had not been due at the time when the employer “became insolvent”.
(2) After the 1985 amendments, those categories of debt could not be successfully applied for unless they were due by the time the employer “became insolvent”.
58. Accordingly, in relation to wages and holiday pay, the 1985 amendments were clearly intended to make the time limitation restrictions, on the scope of the statutory guarantee, more onerous. But why? That question is explored later in this Decision.
59. In the meantime, it is important to note that amendments to Article 42 of the 1976 Order were made in Northern Ireland by Article 380 of the Insolvency (Northern Ireland) Order 1989 (“the 1989 Order“). It is also important to note that the changes brought about by Article 380 are, for practical purposes, practically identical to the changes which were made to section 122 of the 1978 Act by section 218 of the 1985 Act.
An unambiguous meaning?
60. It seems to me that, as a starting point for the interpretation of the relevant provisions of the 1996 Order, I should ask myself whether, by using the grammatical and ordinary or technical meaning of the relevant provisions, in the context of the 1996 Order as a whole, the meaning of the relevant provisions is clear and unambiguous. (If it is, I am under an obligation to construe the relevant provisions in accordance with that meaning, subject to any issues arising from the requirements of the 2008 Directive).
61. So, if I carry out the task envisaged at paragraph 61 above, is it clear and obvious that the wages and holiday pay debts, in the circumstances of this case, were due on “the appropriate date”? Certainly not. Why not? Because Article 230(a) of the 1996 Order does not define “the appropriate date”, in the context of wages and holiday pay, as meaning the date on which the employer “last” became insolvent. Instead, if one is to construe that provision as referring to the date on which an employer last became insolvent, it is necessary to imply the word “last” into the provisions of Article 230(a).
62. Secondly, if I carry out the task envisaged at paragraph 61 above, does paragraph (a) of Article 230 unambiguously mean that “the appropriate date” is the date on which the employer first became insolvent?
63. Mr McAteer, on behalf of the Department, strongly argued in favour of that proposition. On balance, and not without hesitation, I concluded that I was not convinced that that proposition is correct.
64. In my view, there would be no argument but that Mr McAteer’s proposition is correct if Article 230(a) referred to the date on which the employer first became insolvent; but; it does not contain the word “first”.
65. Mr McAteer argued that, despite the absence of an explicit reference to “first” in Article 230(a), the wording of that article, when considered in light of the overall context of the legislation, shows that the unambiguous meaning of the relevant provision is that pay and holiday pay can only be successfully applied for under the statutory guarantee if those debts had become due on the date on which the employer first became the subject of one of the insolvency situations listed at paragraph (3) of Article 228.
66. Those events can then conveniently be listed as follows:
(1) A winding up order has been made, or a resolution for voluntary winding up has been passed.
(2) The company has gone into administration.
(3) In some situations, a receiver or a manager of the company’s undertaking has been duly appointed, or possession of certain company property has been taken.
(4) A corporate voluntary arrangement (“a CVA”) has been approved in respect of the company.
67. Mr McAteer pointed out that one of the preconditions of payment in respect of wages or holiday pay, as set out in Article 227(c) of the 1996 Order, is that:
“on the appropriate date the employee was entitled to be paid the whole or part of [any wages, debt or holiday debt]”.
He pointed out that, according to the definition of “the appropriate date”, in the context of wages and holiday pay, in Article 230(a), “the appropriate date” means “the date on which the employer became insolvent”.
68. Mr McAteer argued that a company becomes insolvent only once. If, at a time when it is already insolvent pursuant to one act of insolvency, it becomes the subject of another act of insolvency, then, according to Mr McAteer, nothing changes: the relevant company, which became insolvent pursuant to the first act of insolvency, never ceased to be insolvent prior to the second act of insolvency, and accordingly has not “become” insolvent as a result of that second act of insolvency.
69. Perhaps he is right about that.
70. However, I note that, in the context of Article 227 and 230, the expressions “become insolvent” and “became insolvent” do not have ordinary, dictionary meanings. Instead, they are deemed to have the meanings assigned to those expressions by Article 228 of the 1996 Order.
71. According to paragraph (1) of Article 228, an employer has become insolvent for the purposes of Part XIV of the Order if, (and only if) paragraph (3) of Article 228 “is satisfied” in relation to that company. Paragraph (3) of Article 228, as amended, provides as follows:
“(3) This paragraph is satisfied in a case of an employer which is a company—
(a) if a winding up order. . . has been made, or a resolution for voluntary winding up has been passed, with respect to the company,
(aa) if the company is in administration for the purposes of the Insolvency (Northern Ireland) Order 1989,
(b) if a receiver or a manager of the company's undertaking has been duly appointed, or possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or
(c) If a voluntary arrangement proposed in the case of the company for the purposes of Part II of the [1989 NI 19.] Insolvency (Northern Ireland) Order 1989 has been approved under that Part”.
72. Accordingly, an employer company arguably “has become insolvent” for the purposes of the statutory guarantee legislation, if any of the situations listed in paragraph (3) of Article 228 has occurred. The question is, if one of those events has occurred previously, and another of those events subsequently occurs, and there has been no intervening period of solvency, is the employer, on the happening of the second insolvency event, to be regarded as having “become insolvent” for the purposes of the statutory guarantee provisions? In favour of the claimant, I concluded, on balance, that that question is an open question.
73. Accordingly, in summary, the position on the question of whether or not the meaning of the relevant provisions is clear and unambiguous, the position is as follows. In the context of this case, if the process envisaged at Stage 1 in paragraph 24 above is followed:
(1) It is not clear that “the appropriate date” refers to the date on which the claimant last became insolvent.
(2) I am not satisfied that the “appropriate date” means the date on which the relevant employer first became insolvent.
Absurd?
74. The Department drew my attention to the decision of an employment judge in England in the case of Pengelly v Secretary of State for BIS [Case no. 3202963/2011]. In that case, the claimant had been employed by the relevant employer between August 2010 and February 2011. She was dismissed when the company went into compulsory liquidation. When her employment began, the company was already the subject of a CVA, which had been approved in June 2010. The claimant was unaware of this.
75. At the time of her dismissal, she was due one month’s pay. She applied for payment of that amount by the Secretary of State pursuant to Part XII of ERA. The Secretary of State declined to make a payment. The appeal was opposed on behalf of the Secretary of State.
76. The basis for the Secretary of State’s opposition to the appeal was set out at paragraph 5 of the judgment in the following terms:
“5. The basis of Mr Soni’s objection … is based on his construction of [Part XII of ERA]. His argument was as follows. Section 182 provides that the Secretary of State is liable to satisfy debts which arise on or before “the appropriate date”. “The appropriate date” in respect of arrears of pay is identified in Section 185 of the Act as being the date upon which the employer became “insolvent”. Section 183(3) provides that a limited company is “insolvent” when a winding-up order is made, which happened in this case in February 2011, or when a voluntary arrangement is approved in accordance with Part I of the Insolvency Act 1986 which occurred in June 2010. Mr Soni says that because of the CVA the Company was insolvent at all relevant times for the purposes of Part XII and therefore the debt to which this claim relates did not arise before the insolvency. The effect of Mr Soni’s submission is that the Claimant never had recourse to the scheme in Part XII during her employment irrespective of the fact that she was unaware of the CVA her employer had entered into”.
The judge’s conclusions are set out at paragraph 8 and 9 of the decision, in the following terms:
“8. I can see the force of Mr Soni’s argument as a matter of black letter law but I simply do not agree that it can have been Parliament’s intention to leave people like the claimant without any remedy. It seems unjust to me. In my judgment, the definition of “insolvency” and in particular, “the appropriate date” must take account of the nature of the insolvency, namely was it one that brought the business (or the part of it in which the employee worked) to an end? In this case, had there been a claim on the Secretary of State when the CVA was entered into, then all the elements of a successful claim would have been established but there has been no such claim as the company continued as a going concern for the purposes of employment. In my judgment it was only when the company was subject to compulsory liquidation that it became “insolvent” for the purposes of Part XII as, until shortly before this, it had been able to and did pay the claimant’s wages. Accordingly, I find this is when the appropriate date arose and that the liability of the Secretary of State crystallised.
9. In these circumstances, I am satisfied that the claimant is entitled to a payment from the fund in respect of her arrears of pay …”
77. In my view, the judgment in Pengelly is based on the following implicit conclusions. Firstly, the employment judge concluded that the meaning of the relevant provisions was ambiguous. Secondly, he considered that his particular interpretation of “the appropriate date”, as set out in paragraph 8 of his judgment, was necessary in order to avoid absurdity.
78. Like the judge in Pengelly, I consider that it is anomalous and unjust that a claimant should be prevented from making a successful claim under the statutory guarantee merely because she worked in a company at a time when it was a subject of a CVA. After all, the whole purpose of a CVA is to encourage and facilitate the continuation of the business. Furthermore, the claimant will not have been informed that rights under the statutory guarantee are unavailable to her merely because she works while the company is a subject of CVA.
79. I respectfully agree with the judgment in Pengelly on the anomaly and injustice issues. However, I have no authority to tweak the meaning of a statutory provision merely because it is anomalous or unjust. I do of course realise that I am entitled, and obliged, to adopt an interpretation of the relevant provisions which is different from the interpretation which would be arrived at by following the grammatical and ordinary sense of the words, if to follow the latter course would lead to some “absurdity” (in the sense in which the term “absurdity” is used in the context of statutory interpretation). However, unfortunately, I do not consider that the interpretation being contended for by the Department would produce absurdity in that sense.
A purposive approach?
80. The statutory guarantee legislation is social protection legislation. Accordingly, it is appropriate to adopt a purposive approach to the interpretation of the relevant provisions.
81. Clearly, the 1985 amendments to Section 122 of the 1978 Act were designed to make sure that an employee could not successfully make a statutory guarantee application in respect of wages or holiday pay if the debts had arisen at a time when the debtor had become “insolvent” within the meaning of the statutory guarantee legislation. But what purpose was that modification, of the conditions of entitlement in respect of the statutory guarantee, designed to achieve?
82. I would not feel able to confidently answer that question, merely by analysing the legislation in its context, or even by analysing it in light of the legislative history which preceded the enactment of Part XII of ERA.
83. Against that background, I am glad that I am entitled to consider the contents of the reports of the Parliamentary debates which occurred during the process which led to the enactment of Section 21 of the Insolvency Act 1985.
The parliamentary debates
84. As already explained above, I have assumed, in favour of the claimant, that the legal meaning of the relevant statutory provisions is ambiguous or obscure. That assumption establishes one precondition which is necessary if I am to take account of any Government statement on the relevant provisions of the 1985 Bill (the Bill which culminated in the Insolvency Act 1985), as set out in Hansard.
85. That precondition having been met, the next issue is whether the other conditions, for consideration of any such parliamentary statement, have been met. The other conditions are as follows. First, the relevant statement must be clear. Secondly, it must have been made by or on behalf of the minister who was the promoter of the Bill. Thirdly, the statement must disclose the mischief aimed at by the enactment, of the legislative intention underlying the relevant words. (In this general connection, see Hasbury’s Laws of England”, Fourth Edition Reissue, Volume 44(1), at paragraph 1421). In my view, all of those other conditions have been met in respect of statements made by Lord Cameron of Lochbroom, during the course of a House of Lords debate on 2 April 1985, when he was moving amendment number 283 to the Insolvency Bill.
86. During the course of his speech on that occasion, Lord Cameron, who was speaking on behalf of the Government, explained the rationale for the 1985 amendments to section 122 of the 1978 Act in the following terms:
“Among other debts, employees can claim back pay and holiday pay outstanding at the “relevant date”. For these debts the relevant date is defined as the date of the employer’s insolvency or the date that the employee’s job ended, whichever is the later. This has meant that some of the unpaid wages and holiday pay which receivers, and indeed liquidators, have been able to pass on to the redundancy fund, accrued after the date of their appointment. In other words, they have been able to use the redundancy fund to finance or underwrite their decision to continue trading. Clearly, this is not the purpose of the legislation and the effect of the first two subsections of this new clause will prevent this practice. Back pay and holiday pay accrued up to and including the date of insolvency only will now be payable under the provisions”.
87. Because all of the preconditions specified at paragraph 86 above were met in relation to Lord Cameron’s 2 April 1985 statement, I decided to take that statement into account, in construing the legislation.
88. In my view, the quoted extract explains the then Government’s rationale for the relevant amendments to section 122 of the 1978 Act.
89. On the basis of the quoted comments, it seems to be clear that the amendment to subsection (2) of section 122 was designed to prevent people being able to make a claim in respect of any debt which had accrued at a time when the relevant employer was in a state of insolvency.
90. The quoted extract from the parliamentary debates also indicates that the rationale for the relevant amendment may have been based on a misunderstanding of the legal position, because receivers or liquidators, under a statutory guarantee provision, are never able to “pass on”, (to the redundancy fund), liability for the relevant debts. Instead, all that the statutory guarantee does, for a receiver or a liquidator, in those circumstances, is to replace one creditor (the employee) with another (the Government). Furthermore, the amendment is out of line with the general purposes of the statutory guarantee. However, those considerations are, in reality, irrelevant to the task which I have to perform.
91. As an employment judge, my obligation is to construe the legislation as enacted, not to decide what legislation ought, in my view, to have been enacted. Judges expect governments to pay due regard to the principle of judicial independence. It therefore behoves judges to be respectful of the proper role of the legislator.
92. On the basis of the foregoing, and subject to any issues relating to the requirements of the 2008 Directive (see paragraph 29 above), I concluded that Article 227 of the 1996 Order, read in conjunction with Article 230 of that Order, has to be construed as not including an entitlement to successfully claim wages and holiday pay in circumstances in which the debts accrued at a time when the employer company was already the subject of one or more of the insolvency events listed at Article 228(3).
EU law requirements?
93. Would my provisional conclusion, as set out at paragraph 93 above, result in the Order being construed in a manner which is incompatible with the requirements of the 2008 Directive? In my view, it would not, for reasons which are explained below.
94. Accordingly, the provisional conclusions set out at paragraph 93 above is my final, confirmed conclusion, in this case.
95. During the course of the hearing, the Department drew my attention to a decision of an employment judge in McDonagh v Secretary of State for Business, Innovation and Skills (Case Reference Number 2349986/2011).
96. In that case, the employment judge (sitting alone) decided that the claimant’s application in respect of wages and holiday pay, under the statutory guarantee legislation, should be successful.
97. The facts of that case were as follows. The claimant, along with other claimants whose circumstances were analogous to his own, had been employed by the relevant employer company (“the company”) at least since April 2010, when the Company entered a CVA. No relevant debts were owed by the company to the claimant at the time the CVA was made. His employment continued until either the end of 2010 or January 2011. In March 2011, the Company was the subject of a compulsory winding-up order. At that date, there were wages due to the claimant, who had also become entitled to accrued leave pay on the termination of his employment.
98. The argument in that case, for the Secretary of State, was summarised at paragraph 7 of the judgment. On behalf of the Secretary of State it was noted that, in April 2010, no relevant debts were owing to the claimant. There was no provision in the statute for the employer to be made insolvent more than once. Therefore the consequent winding-up order did not trigger any liability, on the part of the Secretary of State, to make payments in respect of any of the debts to the claimant which would then be outstanding and due from the company.
99. In his judgment in that case, the employment judge referred to provisions of the 2008 Directive. He noted that Article 1 of the Directive defines its scope, and provides that the Directive is to apply only in relation to employment debts existing against employers “who are in a state of insolvency within the meaning of Article 2(1) [of the Directive]. He noted that paragraph 1 of Article 2 of the Directive provided as follows:
“(1) For the purposes of this Directive, an employer shall be deemed to be in a state of insolvency where a request has been made for the opening of collective proceedings based insolvency of the employer, as provided for under the laws regulations and administrative provisions of a Member of State, and involving the partial or total divestment of the employer’s assets and the appointment of a liquidator or a person performing a similar task, and the authority which is competent pursuant to the said provisions has:
(a) either deciding to open the proceedings; or
(b) established that the employer’s undertaking or business has been definitively closed down and that the available assets are insufficient to warrant the opening of proceedings” [My emphasis].
100. At paragraph 9 of McDonagh, the judge pointed out that the type of insolvency referred to in the 2008 Directive, in respect of which protection is to be provided by the guarantee institution, is one which involves “the partial or total divestment of the employer’s assets and the appointment of a liquidator”, and that the 2008 Directive does not cover any other form of insolvency. At paragraph 10 of McDonagh, it was decided that administration, receivership or a CVA did not involve the partial or total divestment of the employer’s assets and the appointment of a liquidator. Those conclusions are crucial to the ultimate outcome of the McDonagh appeal, (which was that the appeal was allowed). In relation to that conclusion, the reasoning of the tribunal is contained at paragraphs 11, 12 and 17 of the judgment:
“11. I find that for the purposes of the Directive [the company] did not become insolvent until the winding-up order was made … but not at any earlier date. The Directive was clearly drafted so as to protect certain payments due to employees in the circumstances of an insolvent liquidation. The Claimants, and the nature of the sums claimed by them, therefore in my judgment, undoubtedly fall within the protection to be afforded by the Directive.
12. I further find that [the company] first became insolvent within section 183 of [ERA] on 13 April 2010 by virtue of subsection 3(c) of that section. If [the company] had not entered into a CVA then the making of the winding-up order would have meant that [the company] first became insolvent within section 183 on 31 March 2011 and it appears that the Secretary of State could not then have disputed liability. There is no suggestion to the contrary by the Secretary of State.
…
17. The United Kingdom has seen fit to include insolvency procedures in the 1996 Act procedures other than the liquidation procedure referred to in the Directive. It is within the discretion of a Member State to provide protection wider than is required by the Directive. That is what has been done here. However, that widening of the protection cannot by a side-wind diminish the protection of employees afforded by the Directive. That would be the effect of accepting the submission by the Secretary of State that there was only one state of insolvency which commenced in April 2010. All that is necessary in construing the domestic legislation is to treat the entering into of the CVA and the subsequent winding-up order as different insolvency procedures so as to provide the employees in question with the protection intended by the Directive to be provided to them. That is what I have done”.
101. It is clear that the judge in McDonagh, like the judge in Pengelly, and like myself in this case, took the view that it would be both anomalous and unjust to deprive a claimant of the benefit of the statutory guarantee, in relation to wages and in relation to holiday pay, merely because those debts had accrued at a time when the employer company was currently insolvent.
102. I regret that I feel unable to endorse the legal conclusions which were the basis by which the judge in McDonagh felt able, in that case, to avoid such an anomalous and unjust result.
103. I have regretfully arrived at the latter conclusion, for the following reasons and against the following background.
104. Paragraph (4) of the preamble to the 2008 Directive was in the following terms:
“In order to ensure equitable protection for the employees concerned, the state of insolvency should be defined in the light of the legislative trends in the Member State and that concept should also include insolvency proceedings other than liquidation …”
105. Paragraph (4) of the preamble goes on to state the following:
“In this context, Member States should, in order to determine the liability of the guarantee institution, be able to lay down that where an insolvency situation results in several insolvency proceedings, the situation is to be treated as a single insolvency procedure”.
Arguably, if the Department’s interpretation of “became insolvent” is correct, that is precisely what has been done in the circumstances of this case.
106. The ultimate conclusion in McDonagh is based on the validity of the conclusions which were set out at paragraph 10 of the judgment in that case. (See paragraph 101 above).
107. Unfortunately, I am unable to accept the conclusion of the judge in McDonagh that a CVA and an administration do not involve the “partial or total divestment of the employer’s assets”.
108. The 2008 Directive should be construed in light of the pre-existing EU legislative context. As Mr McAteer has pointed out, Council Regulation (EC) No 1346/2000 provides as follows. First, Article 1.1 provides that the Regulation is to apply to “collective insolvency proceedings which entail the partial or total divestment of a debtor …”. Secondly, Article 2 then goes on to define “insolvency proceedings,” within the meaning of Article 1.1, as those proceedings which are listed in Annex A of the Regulation. Thirdly, Annex A, in relation to the United Kingdom, includes “voluntary arrangements under insolvency legislation” and “Administration” within its list.
109. Furthermore, I note that the definition in Article 2 of the 2008 Directive does not require that a liquidator be appointed. It simply required that “a person performing a similar task” is appointed. In my view, the supervisor under a CVA and the administrator under an administration, both perform similar tasks to the central tasks which are carried out by a liquidator.
The course of the proceedings
110. At a case management discussion which took place in October 2012, I was told that the Pengelly and McDonagh decisions were under appeal, to the Employment Appeal Tribunal, in Great Britain. In those circumstances, I was asked to stay the present proceedings, pending the outcome of the EAT appeals. I declined to do so, for reasons which were specified in the record of proceedings of the October CMD:
“In view, a stay is inappropriate, against the following background and for the following reasons. First, the scheme of the statutory guarantee legislation is that appeals should be the subject of ultimate adjudication within a relatively short period. Secondly, I have no means of knowing whether or not the EAT appeals will ultimately be pursued, or whether they will ultimately be abandoned (by one side or the other). Thirdly, my understanding is that the GB appeals are not due to be heard until February 2013.”
111. During the course of that October CMD, I expressed interest in being informed as to the policy background to the amendments to the statutory guarantee legislation which had given rise to the issue which was at the heart of this appeal. The Department asked me to postpone the main hearing until research could be carried out. I agreed to that request. The main hearing took place on 6 December 2012. By that date, the Department had obtained copies of the instructions to the legislative draftsman which had constituted the draftsperson’s brief, at the time when the amendments to Article 42 of the 1976 Order were being made (in 1989). I obviously found those instructions to be of interest, as background to the legal interpretation issue. However, I expressed doubt as to whether I could properly take account of those instructions in construing the legislation. (Incidentally, I have ultimately come to the conclusion that that provisional expression of doubt was correct).
112. Perhaps because of the doubts which I then expressed, the Department asked for more time to check whether the reports of any relevant parliamentary debates would provide a clear rationale for the relevant amendments. Accordingly, another day’s hearing was arranged. Ultimately, the only date which suited both myself and Mr McAteer, (for the Department) was 8 February.
113. The hearing did resume on 8 February. During the course of that February hearing, the Department did provide me with copies of extracts from the parliamentary debates in relation to the enactment of relevant provisions of the Insolvency Act 1985. (See paragraph 87 above).
114. At the end of the 8 February hearing, I announced that I was minded to dismiss the appeal and I stated that my written Decision would be issued as soon as practicable.
115. On 19 February, in the course of another case, Mr McAteer told me that at least one of the two pending EAT appeals had been determined, that the claimant’s appeal in that particular case had been dismissed, and that the written judgment of the EAT was expected to be made available in the near future.
116. Against that background, I decided to refrain from issuing a written Decision in the present case until the judgment of the EAT in the relevant case had been issued. That judgment has recently been issued.
117. That judgment is to be found on www.bailii.org under the title Secretary of State for Business Innovation and Skills v Pengelly and Another [2013] UKEAT 0312 12 1402 [14 February 2013]. That judgment is, it turns out, a judgment both in respect of the Pengelly appeal and in respect of the McDonagh appeal. In each instance, the appeal was unsuccessful. The headnote to the EAT judgment provides a good summary of what was decided by the EAT in that case:
“Two separate Employment Tribunals decided that Claimants who had been employed (without knowing it) by a company which had entered a CVA were entitled to claim arrears of pay and holiday pay from the National Insurance Fund when subsequently the company went into liquidation. In each case, the reasoning was flawed:
The first Judge introduced concepts which were not present in Part XII of the ERA 1996; the second relied on a view of the meaning of the EC Directive 2008/94 which was shown by the Appellant to be mistaken. The parties agreed that unless modified by reference to the Directive the domestic legislation precluded the claim; the EAT held that the Directive did not require any such modification, nor any different interpretation”.
118. I note that, in Pengelly, the respondents to the appeal accepted that the relevant municipal legislation, if interpreted without reference to the requirements of the Directive, could not properly be construed as allowing a statutory guarantee applicant to recover wages and notice pay which had accrued only at the beginning of a second insolvency, in circumstances in which that second insolvency had been preceded by a first insolvency which had continued right up to the beginning of the second insolvency. No similar concession has been made in this case. (The claimant did not participate in the main hearing).
119. Paragraphs 1-110 of this Decision were drafted prior to the publication of the EAT judgment in Pengelly. I have reconsidered all of the ultimate conclusions set out in those paragraphs, in light of the decision of the EAT in Pengelly. Having carried out that reconsideration, I have concluded that there is no need to alter those ultimate conclusions, which I had already set out in those paragraphs.
120. Unfortunately, the EAT has arrived at substantially the same ultimate conclusions as those which are set out and explained at paragraphs 1-110 above.
Chairman:
Date and place of hearing: 6 December 2012 and 8 February 2013.
Date decision recorded in register and issued to parties: