Industrial Tribunals Northern Ireland Decisions

THE INDUSTRIAL TRIBUNALS

 

CASE REFS: 5102/17

5105/17

5643/17

 

 

 

CLAIMANTS: 1. George Morrison

2. Sam Mawhinney

3. Leon McClurg

 

 

RESPONDENT: Department for the Economy

 

 

DECISION (WAGES AND HOLIDAY PAY APPEALS)

 

(A)          In each of these three cases, the claimant's wages appeal, pursuant to Article 233 of the Employment Rights (Northern Ireland) Order 1996 ("ERO"), is not well-founded. Accordingly, that appeal is dismissed.

 

(B) In the Morrison and McClurg cases, the claimant's holiday pay appeal, also made under Article 233 of the ERO, is not well-founded and accordingly is dismissed.

 

 

Constitution of Tribunal:

Employment Judge (sitting alone): Employment Judge Buggy

Appearances:

Each of the claimants was self-represented.

The respondent Department was represented by Mr Neil Cruikshanks.

 

 

REASONS

 

1. I refer to my own Decision in Wiener v Department for Employment and Learning [CRN 1408/12, Decision issued on 24 May 2013]. I refer also to the judgement of the UK EAT in Secretary of State for Business Innovation and Skills v McDonagh; and Secretary of State for Business Innovation and Skills v Pengelly [2013] IRLR 598. The present Decision should be read in conjunction with the Decision in Wiener and the judgment in McDonagh.

 

2. Each of these three appellants worked in the Makhulu 5 restaurant in the Lisburn Omniplex until January 2017. At that time, the restaurant closed down and each appellant was accordingly dismissed.

 

3. At all times which are material for present purposes, the restaurant was run by Shamel Ltd ("Shamel"), which was the employer of these three claimants.

 

4. By the time these three appellant' contracts of employment came to an end, they were owed the following:

 

(1) Mr Morrison was owed wages, holiday pay and notice pay;

(2) Mr Mawhinney was owed wages; and

(3) Ms McClurg was owed wages, holiday pay and notice pay

 

In each instance, each/any such debt had not arisen by the end of October 2016. (See paragraph 8 below).

 

5. The Redundancy Payments Service ("the RPS") is a constituent part of the respondent Department. Each claimant made an application to the RPS, in that Service's role as the statutory guarantor in respect of certain employment debts. In the course of each such application, each applicant asked for a payment in respect of the relevant employment debt/s. The RPS refused each of those requests.

 

6. Each of the three appellants has appealed against the refusal of his/her application(s).

7. This is my Decision in respect of each of those appeals, other than the Mawhinney and McClurg notice pay appeals. (See paragraph 34 below)

 

8. Shamel entered into a corporate voluntary arrangement ("a CVA") in October 2016. Under that CVA, Shamel had to make contributions of £1,000 per month from 11 October 2016 onwards. It failed to comply with those contribution requirements. Therefore, the CVA failed, and the Supervisors of the CVA were the petitioners pursuant to a winding up order process, which resulted in the making of a winding up order on 8 June 2017. The completion, or termination, of the CVA actually took effect from 1 June 2017. The winding-up process had begun with the petition of the Supervisors, which was made on 26 April 2017.

 

9. In each case, Shamel had not become indebted to the claimant, in respect of wages or in respect of holiday pay, prior to the date on which Shamel entered into the CVA.

 

10. Part XIV of the ERO is the legislation which applies in relation to the applications which were made to the RPS by these three claimants; the same provisions apply in the context of these appeals.

 

11. Part XIV of ERO is the Northern Ireland legislation which corresponds to Part XII of the Employment Rights Act 1996 ("ERA"), which applies in Great Britain.

 

12. In the context of these appeals, Part XIV of ERO can be regarded, for all relevant practical purposes, as being practically identical to Part XII of ERA.

 

13. Article 227 of the ERO is contained within Part XIV of that Order.

 

14. Article 227 contains three separate and conjunctive conditions which have to be satisfied, in respect of any particular application under that Article, if that application is to be successful:

 

(1) The relevant employer must have become "insolvent" within the meaning of Article 277. (That condition is satisfied in each of these three cases, because, for the purposes of Article 227, a corporate employer is "insolvent", either if that company has entered into a CVA, or if that company has become the subject of a winding up order).

 

(2) The relevant employee's employment must have come to an end. (In each of these three cases, that condition was satisfied).

 

(3) On the "appropriate date" the relevant employee must have been entitled to be paid the whole of part of whatever debt is the subject of the application to the Department.

 

15. In relation to an Article 227 application in respect of wages or holiday pay, "the appropriate date" is the date on which the employer became insolvent. (See paragraph (a) of Article 230 of ERO). In each of these three cases, the appellant's applications in respect of wages and holiday pay were refused by the RPS because neither of those debts were already owed (to the relevant appellant) on the day on which Shamel entered into the CVA.

 

16. A corporate employer becomes "insolvent" for the purposes of Part XIV of ERO only if it gets into one of the situations which are listed at paragraph (3) of Article 228. The situations there listed include each of the following:

 

(1) entering into a CVA and

 

(2) becoming the subject of a winding up order.

 

17. In each of these three cases, the Department refused to make any payment to the appellant in respect of wages and/or in respect of holiday pay, because of the Department's interpretation, for the purposes of Article 227, of the phrase "the appropriate date".

18. The implications of the latter concept were considered in considerable detail in the Wiener Decision, and in the McDonagh judgment. The remainder of this decision focuses on that concept.

 

19. It seems to me that, both because of the Wiener Decision and because of the judgment in McDonagh, it is clear law that, if a company goes into a CVA, never actually leaves that CVA, and subsequently goes into some other form of "insolvency" (within the meaning of Article 228 of ERO), "the appropriate date" is the date on which the company entered into the CVA.

 

20. Unfortunately, in relation to the wages and holiday pay applications, each appeal must be dismissed, because of the particular factual and legal circumstances of these three cases.

 

21. It seems to me that, because of the legal principles which are set out in Weiner and in McDonagh, it is clear that if one "insolvency" within the meaning of Article 228 is replaced with another type of "insolvency" within the meaning of Article 228, and if there is deemed to be no gap between the two insolvencies, the date of commencement of the earlier of the two insolvencies has to be treated as "the appropriate date" for the purposes of Article 227 of ERO.

 

22. The effect of paragraph (2) of Article 109 of the Insolvency (Northern Ireland) Order 1989 is that, in the event of a winding-up order, the winding up is deemed to commence at the time of presentation of the petition for winding up.

 

23. Accordingly, in the circumstances of these three cases, the winding up order is deemed to have commenced prior to the termination of the CVA.

 

24. In relation to Shamel Ltd, the CVA actually terminated on 1 June 2017 and the winding-up order did not actually begin until 8 June 2017. However, because of the effect of Article 109 of the Insolvency Order, that winding up is deemed to have begun on 26 April 2017 (which was the date of the winding-up petition).

 

25. I have arrived at the determinations set out and referred to above with no enthusiasm whatsoever. In my view, both in respect of wages and in respect of holiday pay, the outcomes of each of these three appeals are very unjust.

 

26. However, my obligation is to apply the law. I cannot ignore the law, even if I believe, as I do believe, that the effects of the relevant provisions are arbitrary and that those provisions serve no useful social purpose.

 

27. As was noted by Langstaff P in McDonagh, employees who are owed wages and holiday pay debts which have been incurred after the commencement of the second of two relevant insolvencies are unlikely to have been aware, at the time when those debts were being incurred, of the potential unavailability, in those circumstances, of the statutory guarantee in respect of wages and holiday pay. (See paragraph 54 of the judgment).

 

28. In Weiner, at paragraphs 85 and 86, I referred to a statement in the House of Commons, by a relevant UK Government Minister, when he was introducing amendments to Part XIV of ERA which had the effect, for the first time, of imposing a requirement that a relevant wages debt, or a relevant holiday pay debt, had to be already owed at the time a corporate employer "became insolvent". As I pointed out in that part of the Weiner Decision, the relevant comments were made by Lord Cameron of Lochbroom during the course of a House of Lords debate on 2 April 1985. On that occasion, Lord Cameron explained the Government's rationale, for the relevant amendments, 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 [currently] defined as the date of the employer's insolvency or the date that the employee's job ended, whichever is the later. This had meant that some of the unpaid wages and holiday pay which receivers, and indeed liquidators, had 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. Backpay and holiday pay accrued up to and including the date of insolvency only will now be payable under the provisions". [My emphasis].

 

29. It is arguable that that stated rationale, for imposition of the relevant requirement, was based on a misconception. What misconception? In my view, it is a misconception to conclude that a company escapes liability for a particular debt just because that debt is within the scope of that statutory guarantee. The reality is that, even if a particular debt is within the scope of that guarantee, the true debtor (the employer) does not cease to be liable in respect of it. In that situation, the only relevant effects of the statutory guarantee are as follows:

 

(1) The Government, in its role as the statutory guarantor, pays the employee-creditor the amount of the debt which is owed by the employer.

 

(2) The Government does not write off that debt.

 

(3) Instead, in its role as the statutory guarantor, the Government is subrogated to the rights which the employee-creditor had previously had in respect of that debt.

 

30. I hope that an early opportunity will be taken to change the relevant legislation in Northern Ireland, so as to remove this anomaly.

 

31. However, if those who have responsibility in respect of the relevant legislation consider it to be a step too far to completely remove the anomaly, new legislation could at least impose an obligation, on any Supervisor of a CVA or upon any corporate employer which enters a CVA, to promptly inform relevant current and future employees that, in future, their wages and their holiday pay may fall outside the scope of any statutory guarantee.

 

32. In the circumstances of the wages and holiday pay applications in each of these three cases, the law itself is arbitrary. I am very sorry that I had been unable to find a basis upon which justice could be done in these cases.

 

33. What if a corporate employer went into a CVA, and subsequently became the subject of a winding up order, but the CVA had terminated prior to the subsequent actual or deemed commencement of the winding up order? Is the commencement of the CVA, or the commencement of the winding up order, the "appropriate date" in that context? This Decision should not be regarded as providing an answer to that question.

 

34. As already noted (at paragraph 5 above), Mr Morrison and Ms McClurg also made applications in respect of notice pay. I note that the respondent Department accepts that notice pay entitlement can exist even if the relevant employment terminated, and indeed began, after the date of the first of two successive and continuous "insolvencies".

 

 

Employment Judge:

 

 

Date and place of hearing: 9 January 2018, Belfast.

 

 

Date decision recorded in register and issued to parties: