United Kingdom Employment Appeal Tribunal

BAILII case number: [1994] UKEAT 803_94_1810

Appeal No. EAT/803/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 18 October 1994

THE HONOURABLE MR JUSTICE MUMMERY (P)

MR L D COWAN

MR P SMITH

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(1) MR J M BENNETT

(2) MRS M L BENNETT          APPELLANTS

(1) FLAIRFIT LTD (IN LIQUIDATION) (2) SECRETARY OF STATE FOR EMPLOYMENT          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant MR P J MOONEY

(Legal Practitioner)

For the Respondents


 


MR JUSTICE MUMMERY (PRESIDENT): This is an Appeal from the decision of the Industrial Tribunal from held at Liverpool on 3 June 1994. For reasons notified on 6 July 1994, the chairman of the Tribunal decided that the applicants, Mr and Mrs Bennett, were not employed by the First Respondent to the proceedings, a company called Flairfit Limited which was in liquidation. Their applications for redundancy and holiday pay failed.

Mr and Mrs Bennett were dissatisfied with that decision and appealed by a Notice of Appeal dated 12 August 1994. The purpose of the preliminary hearing today is to decide whether the Notice of Appeal and the arguments orally submitted in support of it reveal an arguable point of law, deserving a full hearing at this Tribunal.

The facts of the case are very simple and are set out in the Reasons given by the chairman. On 8 September 1983 a company called Flairfit was founded by Mr Bennett and a Mr Brown for the purpose of selling carpet accessories. The directors were Mr Brown and Mr Bennett. Mrs Bennett became company secretary (she was not a director at that stage). A note was drawn up confirming an agreement which had been made, under which Mr Bennett was to be the sole working director, who was to draw a salary of £10,000.00 a year, Mrs Bennett was to be paid £1,440.00 for assisting in the warehouse and there were other items included in the agreement, of which we have been provided with a copy, dealing with the division of profit and the payment of a salary to Mr Brown of an agreed amount, being a fixed percentage of a loan of £9,000.00 which he had made to the company.

The company started trading on 1 October 1983. At first it was a success and extra staff were appointed. There was then a change in 1989. Mr Brown ended his association with the company on becoming a director of another company. He transferred his shares to Mr and Mrs Bennett. Before that Mr Bennett and Mr Brown had held shares 50-50. After Mr Brown left, Mr Bennett held 95% of the shares and Mrs Bennett 5%. Mr Bennett worked about 50 hours a week in the company and Mrs Bennett 40 hours a week. They both received salaries after P.A.Y.E. and national insurance were deducted. They were also entitled to holiday pay and full pay during sickness.

Unfortunately, the company did not continue to prosper; the recession occurred, losses were made and the company went into liquidation on 17 September 1993. It was in those circumstances that Mr and Mrs Bennett made a claim to redundancy payments, holiday pay and arrears of pay against the company. They claimed they were employees. Their claims were contained in originating applications presented to the Industrial Tribunal in November 1993. Mrs Bennett said she was the company secretary and that she was an employee working as a full-time company secretary down to September 1993 paying national insurance. She referred to the agreement drawn up between Mr Brown and her husband and to the buying out of Mr Brown in 1989. Mr Bennett put in a similar application, claiming he was a full-time working director employed as such by the company for a period of 10 years and that he had been paying national insurance contributions. He said he had worked hard in the business and was entitled to redundancy pay.

When this matter came before the Employment Department with a view to the Secretary of State making a payment under Section 106 and 127 of the 1978 Act on the basis that Flairfit was insolvent, the Secretary of State rejected the claim on the basis that neither of the applicants were employees of the company within the meaning of 153(1) of the 1978 Act.

On 5 November 1993, the reasons of the Employment Department were expanded as follows in a letter to Mrs Bennett:

"... I am writing with reference to your claims for payments from the National Insurance Fund through the insolvency of the above company. I regret to inform you that all your claims have been rejected on the grounds that your employee status with the above company has not been satisfied. The reasons for this decision are as follows:

1) You held a 100% shareholding along with Mr J.M. Bennett.

2) You do not have a contract of employment or any other documents relevant to your status as a director or employee..."

The question for the Tribunal was whether or not Mr and Mrs Bennett were employees of the company. The Tribunal looked at the factors relevant to that decision. They noted that salary payments had been made under the P.A.Y.E. system and national insurance contributions as if they were employees. They referred to cases cited and stated, correctly, that these matters were an indicator whether a person was an employee or not but were by no means conclusive evidence of that fact. They also noted, on the other hand, that there were no contracts of employment for either Mr and Mrs Bennett, since the agreement made between Mr Bennett and Mr Brown in 1983. They looked at another matterm, which they described as the important factor to be considered, the question of control. The conclusion they reached on the evidence was that, in effect, Mr and Mrs Bennett had joint control of the company, since they discussed matters before reaching decisions. Although, in her claim to the Department of Employment, Mrs Bennett stated she was subject to control in following the instructions of the managing director, taking a broad view of the situation it appeared that this was a husband and wife who jointly owned and controlled the company. In effect they were a partnership which obtained the protection of status as a limited company.

In those circumstances, although a limited company was in law a different person from the shareholders and the directors, Mr and Mrs Bennett were in effect the company and were therefore not employees of it. Their applications failed.

Mr Bennett made a number of points on the appeal through his representative, Mr Mooney, who also appeared for Mrs Bennett. He submitted that there was an error of law on the part of the Tribunal. He said that no one factor is decisive of the question whether a person is an employee or not. This Tribunal placed undue weight on control as a test, where control was only one of a number of factors. He said that, when you looked at the whole situation, there were more factors pointing to employment than against employment. He submitted that the chairman had mis-directed himself as to the applicable law, in that there was no evidence before him to support the finding of fact that Mr and Mrs Bennett were, in effect, a partnership obtaining the protection for financial purposes of a limited company, especially when the company had been trading for some 6 years before Mrs Bennett became a director. He said that the decision was contrary to the evidence and contrary to the decisions in a number of cases cited to the chairman in support of Mr and Mrs Bennett's case Finally, gathering up all the points into one main legal submission. Mr Mooney's argument was that the decision was perverse, because no reasonable Tribunal could have reached it in the light of the evidence and the authorities.

We have discussed with Mr Mooney all aspects of the points raised on the Appeal. He has referred us, in summary, to a number of decisions in which employee status has been recognised in relation to company directors. He has sought to build on those authorities the proposition that the chairman mis-understood or mis-applied the law to the facts of this case. We are unable to agree. A conclusion whether an application to an Industrial Tribunal is an employee or is self-employed is essentially a question of fact which is to be decided by an Industrial Tribunal looking at all the relevant factors in the situation. It appears to us that the Tribunal in this case correctly conducted that exercise. They looked at some factors which favoured employment, such as P.A.Y.E. and national insurance contributions. They looked at other factors which negative employment, such as the absence of a written contract of employment for either of them. They looked also, as they were entitled to, to the question of control. They were entitled to regard that as an important factor in this case. On the question of control, they reached the conclusion which, in our view, they were entitled to in law, that in this case there was no control by the company over Mr and Mrs Bennett as employees. Because together they owned the company and they were the directors of it, they controlled it. It was, as they said, "in effect a partnership", though in law it was a separate legal entity in the form of a limited company.

There is no arguable point of law deserving of a full Appeal. The Appeal will be dismissed at this stage.