United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 744_95_1011

Appeal No. EAT/744/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 10th November 1995

THE HONOURABLE MR JUSTICE MUMMERY (P)

MRS M T PROSSER

MR J A SCOULLER

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MR B CULVER          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 MISS H WILLIAMS

(of Counsel)

Messrs Freeth Cartwright Hunt and Dickins

Solicitors

Willoughby House

20 Low Pavement

Nottingham

NG1 7EA


 


MR JUSTICE MUMMERY (PRESIDENT): This is the preliminary hearing of an appeal against the decision of the Industrial Tribunal held at Sheffield on 19th April 1995. The Tribunal heard a claim by Mr Brian Culver against the Secretary of State for Employment, arising out of the Secretary of State's refusal to pay redundancy and other related payments on the liquidation of the company called Regis Control and Engineering Ltd, of which Mr Culver was managing director. It became insolvent at the end of 1994.

In the extended reasons, sent to the parties on 25th May 1995, the Tribunal explained why they had reached the unanimous decision that Mr Culver was not an employee and was therefore not entitled to payment from the Secretary of State. Mr Culver appealed against that decision by Notice of Appeal served on 3rd July 1995.

At the preliminary hearing Mr Culver was represented by Miss Williams who submits that the Notice of Appeal raises arguable points of law which would justify a full hearing of this appeal. We have to decide whether the Notice of Appeal does raise points of law which can be reasonably argued. If it does not, the appeal should be dismissed at this stage. If they do raise an arguable point, the matter will proceed to an inter-partes hearing.

The law on this point has been helpfully summarised in Harvey on Industrial Relations and Employment Law Volume 1, in a series of paragraphs beginning paragraph 178, under the heading "Company Directors". It is pointed out that:

"[178]

Directors of a company are not as such servants of the company. By virtue of their appointment they become officeholders. A director may however enter a service agreement with the company and thereby become its servant as well as a director of it."

Paragraph 181 refers to the case of Folami v Nigerline (UK) Ltd [1978] ICR 277, EAT:

"A service agreement with a director may be express or implied. The courts seem prepared to say there is a presumption of a contract of service if the director is required to work full-time for the company in return for a salary, ... but it depends on the actual evidence in each case."

They cite a case where a full-time working director was paid by way of director's fees rather than salary, and had not been treated as an employee for National Insurance purposes. The Court declined to infer a service agreement.

Finally, Miss Williams referred us to a summary of what is indicated by the editors of Harvey to be a change in direction in the attitude of the Tribunals to this kind of case.

"[182]

Some of the early tribunal cases, taking the point that control is the cardinal feature of the contract of service, held that a director who had a controlling interest in the company's shares could not be regarded as a servant of the company, at least for redundancy purposes. He was not subject to any effective control by the company in his capacity as worker, since he, in his capacity as shareholder, could dictate to the company."

Reference is made to three decisions dating back to 1967 and 1968. There are other cases which suggest that the real issue is whether the alleged contract of service is a bona fide arrangement between the company and the director and to the fact that the director is also the controlling shareholder is but one factor to take into account when determining that issue.

With that summary of the law, we now turn to the decision to see if, on the facts found by the Tribunal, there is a legal error in the Tribunal's reasoning and in the result at which they arrived.

Mr Culver presented his case in person with some assistance from the Citizens Advice Bureau, but he had no representation at the hearing. The Secretary of State was not represented. He put in some written submissions. They referred to the cases cited. The Tribunal said that Mr Culver was 63. He was a very straightforward and reasonable individual, who explained to them that he is an electrical engineer who, until seven or so years ago, worked for another company called British Matthews Limited. The company for which he was working ceased to operate in Sheffield. He was invited to move with the company to Epping in the South of England, but decided not to do so. Instead he decided to remain in Sheffield. He went to work for a company called Regis Vale Ltd. for twelve months. After twelve months he was invited to become a director. He was given a small shareholding with the company before it went into liquidation six months later. He received some payments from the liquidators.

Rather than be out of work, he joined up with Mr Williams Richmond to start up a business. Mr Richmond and Mr Culver thought they had the necessary expertise and experience. They bought some office equipment from the Receivers of Regis Vale. They formed the company, called Regis Control and Engineering Ltd. That name was picked because, within the title, where the two disciplines of the two mens experience.

The Tribunal described the share holdings in the company. They started off as equal shareholders and joint directors. They put an equal amount of money into the company £750.00 each. The company got going. Mr Culver took on two other engineers, a Mr Edley and a Mr Radcliffe. One a mechanical engineer, the other electrical engineer. They both became directors and were given a shareholding of 12% from Mr Richmond's shareholding. Mr Richmond had become ill and later died. The remainder of Mr Richmond's shares were shared between Mr Culver and Mr Richmond's son. The important point is that Mr Culver ended up with 75% of the shares in Regis Control and Engineering Limited. Mr Richmond's son never took any interest in the business or any part in its affairs. The company was run by Mr Culver and by the other two directors, Mr Edley and Mr Radcliffe.

The Tribunal made what they regarded as an important finding of fact. The salaries of all three were fixed by Mr Culver. His salary was greater than that of the other two. They were not obliged to provide any capital for the business. There was no evidence of any further capital being put in by Mr Culver.

They made findings about the holiday arrangements. Mr Culver had four weeks a year. He received a regular salary, but no bonuses or other fees. He and the other two directors benefited from a non-contributory pension scheme. Mr Culver's position was the same as that of the other two directors in this respect.

The other two directors were minority shareholders. They were issued with contracts of employment by Mr Culver on behalf of the company. Mr Culver himself had no written contract.

They described the move of the company, and certain financial arrangements with the Bank.

All major decisions, the Tribunal held, were joint decisions, though each director could make certain decisions alone. If there was anything important to decide, they would consult and deal collectively with the matter.

They also referred to the way in which decisions were shared out between them.

Paragraphs 12 and 13 are the crucial parts of the decision. In paragraph 12 they said:

"12. There were many factors which supported Mr Culver's contention that he was an employee like the others. Mr Culver had heard from Mr Edley that he had been successful in obtaining payment from the Secretary of State after the demise of the company in October 1994. However, Mr Culver did accept that in the last resort he had the last word within the company. He could dismiss the other two directors but they could not dismiss him. It was clear to the tribunal that this was a company formed by Mr Culver (with Mr Richmond) and that he was primarily responsible for its running, administration and decision making. Although wisely and democratically he consulted and conferred with his two colleagues, at the end of the day with his having a 75% shareholding and fixing the salaries and determining the terms and conditions of the other two Mr Culver was effectively in control of the company. Together with Mr Richmond he had started the company using in part the name of the previous company with which he had been associated as a director, namely Regis Vale Limited."

They stated their conclusion is paragraph 13, prefacing it with an expression of sympathy with Mr Culver who put his heart and soul into the company. It was his sole means of livelihood.

"13. ... He was not an absentee director. He was very much an active working director ... Notwithstanding [the sympathy they expressed the tribunal said they concluded in the last resort, that this] was his company by and large, one which he, to all intents and purposes, ran and controlled himself, he being finally responsible for decision making."

They said:

"With that being the case we do not feel that Mr Culver can properly be regarded as having been an employee of the company. He is not therefore entitled to the payments he seeks from the Secretary of State ..."

We have to ask what is wrong in law with that decision? Miss Williams presented an excellent oral argument supported by a full skeleton argument in which sets out the findings of fact of the Tribunal.

The appeal is brought on three grounds. Miss Williams accepts that ultimately the question whether an individual is an employee or not is a question of fact for the Tribunal. But if the Tribunal, in reaching that decision of fact, misdirect themselves as to the law by applying the wrong legal test or asking the wrong legal question, or failing to take into account all the relevant matters, the appeal can give rise to a point of law.

Miss Williams submitted that there were three respects in which the Tribunal has legally misdirected themselves. The first was that they had failed to apply the correct test. She submitted that the issue whether Mr Culver was an employee should have been assessed by the Tribunal weighing up the overall effect of all the relevant facts that they had found and indentifying the conclusion to which the balance of facts pointed. She cited two recent cases Eaton v Robert Eaton & The Secretary of State for Employment [1988] IRLR 83 EAT; Hall (Inspector of Taxes) v Lorimer [1994] ICR 218 CA. She submitted that in this case the Tribunal had not adopted the process laid down in those cases. Instead of taking into account all the factors and finding where the balance pointed, they treated the question of control as determinative of the issue or, at the very least, as a pre-eminent factor which necessarily outweighed the factors pointing to Mr Culver being an employee. She said that it was clear from the wording of the concluding paragraphs that the Tribunal had incorrectly applied the "old" control test. Emphasis was placed by Miss Williams on the penultimate sentence of the decision, where the Tribunal expressed the view that Mr Culver could not properly be regarded as having been an employee of the company.

The second ground of appeal was that the Tribunal had failed to apply, in its reasoning, a recognised presumption, referred to in the passage from Harvey, that a company director working full-time for a salary is an employee of the company. She referred to the case of Folami summarised in Harvey, and said in this instance, the facts were that Mr Culver did work full-time. He worked in return for a salary. He did not get paid director's fees and bonuses. He had no other source of income. The Tribunal had not applied the presumption, so they started from the wrong base. That was an error of law.

The third and final ground, was that the Tribunal had failed to take into account highly relevant factors or considerations, such as the payment of Schedule E, PAYE, income tax, and Class 1 National Insurance throughout the material period. Those matters, it is true, were not mentioned in the decision. Miss Williams accepts that the Tribunal are not obliged to record in the extended reasons every fact or factor that they took into account in arriving at their decision. It did not follow that the omission of a record of a fact meant that they did not have that fact in mind when they came to their decision.

She submitted that, in circumstances such as there where the Tribunal had given a detailed account of the material facts but have not mentioned one of Mr Culver's strongest points it is to be inferred that they had not had that matter in their contemplation when they made their decision.

Although the decision does not mention the arrangements for paying tax or the insurance contributions, it is right to point out that in the originating application in which Mr Culver presented his case, he did draw clear attention to the fact that, throughout his employment, he had paid income tax and national insurance contributions as an employed person. He said his dealings with the Inland Revenue regarding other persons employed by the company left him in no doubt that had he suggested that he be considered self-employed he would have been quickly corrected. This was his only full-time employment. He received no other payments on the company's failure.

For all those reasons, Miss Williams submitted that we should allow this case to go to a full hearing. On the full hearing she would ask for the appeal to be allowed and for the case to be remitted, on the basis that it would have to be re-heard with proper legal directions. This was not one of those cases where the original decision would be allowed to stand because it could not be said that it was plainly and unarguably right.

We are grateful for those submissions. They have been presented clearly and concisely. They have not, however, persuaded us that this appeal raises an arguable point of law.

In our view, although some further matters could have been spelt out expressly, it is clear that the Tribunal took into account all the matters relating to the issue whether Mr Culver was an employee or not. In paragraph 12 they referred in a general way to many factors which support his contention that he was an employee like Mr Edley and Mr Radcliffe. In our view, that general expression including the points that Mr Culver had drawn to their attention in his IT1 and in his oral arguments.

As to the contention that they did not act on a presumption, we do not find any error. The fact is that the presumption in these cases is not a legal presumption. It is an evidential presumption which can be rebutted by evidence to the contrary. It is clear from the way the Tribunal reasoned the matter in paragraphs 12 and 13 that they looked at the factors in favour of employment. They looked at the factors which did not favour employment. When they came to their decision, they regarded the control that Mr Culver exercised over the company as the matter which really decided the case in favour of him not being an employee. In our view, there has not been an error of law. There is nothing legally wrong in looking at all the factors, and picking on one of those factors as the one which carries the decision on the particular facts. Having found as a fact that Mr Culver fixed the salaries and terms and conditions of employment, including his own salary and terms and conditions as well as those of Mr Edley and Mr Radcliffe and having found that the decisions of the company were his final responsibility, they were almost bound to come to the decision that he was not an employee. It is difficult to conceive of a person as an employee, if he has the right to determine not only his own salary, but also that of his fellow employees. For all those reasons, although the case has been attractively argued, we are unable to agree that there is an arguable point deserving of a full hearing. We therefore dismiss the appeal.