United Kingdom Employment Appeal Tribunal

BAILII case number: [1994] UKEAT 721_94_0811

Appeal No. EAT/721/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 8 November 1994

Before

THE HONOURABLE MR JUSTICE MUMMERY (P)

MISS C HOLROYD

MR R JACKSON

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MR P K DALTON          APPELLANT

SECRETARY OF STATE FOR EMPLOYMENT          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING

Revised


 


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APPEARANCES

For the Appellant APPELLANT IN PERSON


 


MR JUSTICE MUMMERY (PRESIDENT): This is an Appeal by Mr P K Dalton against a unanimous Decision of the Industrial Tribunal held at Hull on the 7th June 1994.

Mr Dalton's claim for redundancy payment against the Secretary of State for Employment was dismissed on the ground that he was not entitled to such a payment, because the Tribunal concluded that he was not an employee, within the meaning of the Employment Protection Consolidation Act [1978] of the company which had become insolvent, Vinelow Ltd. Mr Dalton was dissatisfied with that Decision.

He appealed by Notice of Appeal dated 7th July. This is the Preliminary Hearing of the Appeal. The purpose of the hearing is to decide whether the Notice of Appeal raises a question of law that is reasonably arguable. If it does not, then there is no point in the Appeal continuing and it will be dismissed at this stage. Mr Dalton has represented himself. He has made careful criticisms of the Decision under appeal.

The background to the case is that the company Vinelow Limited went into liquidation in the middle of 1992. On the 23rd February 1994, Mr Dalton presented an Originating Application to the Industrial Tribunal claiming redundancy payments against the Secretary of State for Employment, in respect of his employment over a period ten years from 16th September 1983 to 18th January 1993.

The Secretary of State had resisted the claim. He admitted that the company Vinelow Limited was insolvent within the meanings of Sections 106 and 127 of the Employment Protection Consolidation Act [1978], but did not admit that Mr Dalton was an employee within the meaning of the Act and did not admit that he was entitled to receive any payment under that legislation.

The Decision of the Tribunal sets out the facts which they found and the relevant legal provisions. The facts found by the Tribunal were that in 1980 Mr Dalton went into a night club business. He became a 25% shareholder with three other 25% shareholders in a limited company called Acorn Leisure Limited. That owned and ran a nightclub called Grinder's. Mr Dalton was paid director's remuneration for his role in the business.

In 1983, Vinelow Limited was incorporated. Mr Dalton put money into it, along with three others. They all became 25% shareholders. Mr Dalton was the licensee of the nightclub owned and run by Vinelow Limited. That club was called Jezebels. He worked full-time in the nightclub business, taking the role of the bar manager. He was not simply a director. The same year one of the four shareholders resigned his share holding. The remaining three became one third holders.

In 1985 another of the shareholders sold his shares and Mr Dalton's wife acquired some. The position, at that time, was that Mr Dalton and his wife each had 25% and a Mr Blissett had a 50% holding. The Tribunal looked at a letter from Mr Blissett, in which he confirmed that Mr Dalton was under the control and guidance of the rest of the board of directors, while Mr Blissett was a major holder in Vinelow. That letter the Tribunal thought was relevant to the question whether Mr Dalton was subject to someone else's control so as to be an employee. They found that right up to 1988 or 1989 Mr Dalton received no remuneration for his work at Jezebels and Vinelow Limited. He continued to draw director's remuneration from Acorn Leisure Limited, but he did not take any active role in that company's club Grinder's.

The holdings changed at about 1989-1990. Mr Blissett sold his holding to Mr Dalton. The position, therefore, was, that from then on and down to the date of insolvency of the company Vinelow, Mr Dalton was the majority holder, holding 75%, his wife holding the remaining 25%. From that time, Mr Dalton ceased to draw remuneration from Acorn Leisure. He drew regular remuneration from Vinelow.

The company went into liquidation in the middle of 1992. Mr Dalton continued to run the business as a manager. The question for the Tribunal was whether he was an employee of Vinelow at the date when that company became insolvent so to entitle him to make claims under Sections 106 and 122.

As I have mentioned, we only have jurisdiction to hear appeals on questions of law.

Mr Dalton has to satisfy us that there is an error of law in the Decision. The Tribunal correctly referred in the opening paragraphs of their Decision to the relevant parts of the 1978 Act defining an "employee" and a contract of employment. They correctly referred to the well-known tests in Readymix Concrete (South East) limited v Minister of Pensions and National Insurance [1968] 2QB 497 for deciding when the contract of employment exists.

Applying those legal provisions to the facts the Tribunal noted that no particular factor was decisive. It was a matter of general impression on the whole of the evidence. They found in Mr Dalton's favour on some points. He regularly worked in the business. He was paid for his work. He paid national insurance and tax as an employed person.

On the other hand, they looked at the long period during which he was working for, but not paid by the company Vinelow. While expressing sympathy for Mr Dalton, they felt that the right conclusion was that it was impossible to find by implication, any contract of service. The contract did not have to be in writing but they thought that the reality of the situation was that Mr Dalton and his co-holders in these companies were partners in a business on their own account. If you are in business on your account, you are not employed by your own business. The Application was dismissed for the Reasons sent to the parties on the 29th June 1994.

Mr Dalton criticises the Decision in a number of respects. He submitted that the main error in the Decision was that the Tribunal failed to differentiate between his functions as a director along with his wife, who was a co-director, and his status as an employee, working in the business of the company. He was working as a general manager, drawing a weekly wage, paying national insurance contributions and income tax. Those were indicators that he had an oral contract of employment.

He referred to the definition of a contract of employment, pointing out, correctly, that it may be implied and it does not have to be in writing. He asks why, if he is not regarded as an employee by the Secretary of State now, were tax and national insurance contributions taken from him as from other people who were employees.

He commented in earlier documents, in the Tribunal bundle, on the various points made by the Secretary of State, for saying that he was not an employee. The Secretary of State states as the reason for refusing to pay out that Mr Dalton was a majority holder earning 75% of the shares but he was not subject of control and guidance for anyone else, that he took a reduction in salary, which is found as a fact in the Decision. He did not pay class 1 contributions throughout his employment.

We have considered Mr Dalton's comments. He agrees he was a 75% shareholder, though he had not been that throughout the period. He was a 75% holder at the date when the company became insolvent. He admits he did not have a written contract, but says, "Why should that matter. What mattered is that he worked for the company. If he was not an employee, who in a managerial position would be?"

We have taken note of those points along with his points on the tax and national insurance position. We have taken note of his disillusionment with the Department, when he tried to claim unemployment benefit and redundancy payment. He has lost everything he has worked for: his business, his house and his dignity and his pride. We can well understand why the Tribunal said in the last part of their Decision said that they had considerable sympathy with his position.

Like the Industrial Tribunal, we must decide cases in accordance with the law. The only power we have to interfere with the Industrial Tribunal's Decision, is if we find a legal error in the reasoning of the Decision. There is no legal error. The Tribunal clearly stated what the facts were. They applied the Act of 1978 and the Decision in Readymix Concrete correctly to the facts. The position is that the Tribunal were entitled in law to come to the conclusion that Mr Dalton was not, at the relevant time, an employee, because he ultimately controlled the company Vinelow. He was not under the control of Vinelow. As he owned 75% of the shares it was in his power to decide the future of the company, how its business was conducted and who would be employed in it.

If there was a deadlock on the board of directors, between himself, his wife and the secretary, he could call a general meeting of the company, of which he is the majority holder and could pass whatever resolutions he proposed. It would be open to him, for example, as a majority shareholder, to pass a resolution at a general meeting of the company, putting the company into liquidation, even though it was solvent, so that he could realise the assets of the company and take them for himself, subject to claims of creditors. He, through this ultimate control, could decide what work he would do, when he would do it, how much he would be paid for doing it. He could decide who would be co-directors of him on the board of the company.

In those circumstances, the Tribunal was fully entitled to conclude that he was not an employee and therefore was not entitled to payment he claimed from the Secretary of State. For those reasons, there is no arguable point of law on this appeal. It is bound to fail and we will therefore dismiss it at this stage.