United Kingdom Employment Appeal Tribunal

BAILII case number: [1996] UKEAT 1125_95_1801

Appeal No. EAT/1125/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 18 January 1996

THE HONOURABLE MR JUSTICE MUMMERY (P)

MISS J W COLLERSON

MS D WARWICK

---

MR M DURCHSLAG          APPELLANT

SECRETARY OF STATE FOR EMPLOYMENT          RESPONDENTS

---

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING

Revised


 


---

APPEARANCES

For the Appellant APPELLANT IN PERSON


 


MR JUSTICE MUMMERY (PRESIDENT): This is the Preliminary Hearing of an appeal against the decision of the Industrial Tribunal held at London (North) on 19 December 1994. The Tribunal heard a claim for redundancy pay and other related payments, direct from the National Insurance fund against the Secretary of State for Employment. The claim was made by Mr Mark Durchslag. Mr Durchslag conducted his case in person. The Secretary of State submitted written representations. The Tribunal heard evidence from Mr Durchslag and came to the unanimous decision, after considering the arguments and evidence, that Mr Durchslag was not an employee of the company, Mark B Durchslag Associates (UK) Ltd., and that his claim for redundancy payment should be dismissed.

Unfortunately, there was a delay in the provision of extended reasons. They were not sent to the parties until 27 April 1995. Mr Durchslag appealed by a Notice of Appeal served on 9 June 1995. There were delays in dealing with his application for an extension of time in which to appeal. It was not until 19 October 1995 that an Order was made granting the extension. It appears from an examination of the correspondence on the Court file that the main reason for the delay was that, after receipt of the Notice of Appeal, a letter was sent by the Registrar to the Treasury Solicitor (who acts for the Secretary of State) asking whether or not he consented to the application for extension. No reply was received to the letter, sent in June, until the beginning of October. It appears that the explanation given by the Treasury Solicitor for the failure to reply earlier was that there was no record of the Registrar's June letter having been received in the Treasury Solicitor's office. When the Treasury Solicitor did reply in October, it was stated that there was no opposition to the application for extension. That extension was granted on 19 October.

We mention those matters because Mr Durchslag has drawn the attention of the Tribunal in correspondence to his dissatisfaction about the delay in dealing with that aspect of the case. As to his complaint about delay in the provision of extended reasons, that is not a matter over which the Appeal Tribunal has any jurisdiction. That is a matter for the Regional Chairman or the President of the Industrial Tribunals.

The Notice of Appeal stated the grounds of appeal as these: that Mr Durchslag had a contract of employment with the company; there were written Minutes; he had paid taxes and National Insurance for twenty-five years; as a salaried employee he worked approximately fifty hours a week. The Secretary of State's entire case was based solely on one matter. That was the decision in the case of Eaton v Eaton [1988]. Those grounds were further amplified in helpful skeletal arguments submitted by Mr Durchslag, who has argued this appeal in person. The case was listed for a Preliminary Hearing in order to determine whether the various grounds advanced by Mr Durchslag raised an arguable point of law. This Tribunal, as pointed out to Mr Durchslag in correspondence, only has jurisdiction to hear an appeal from an Industrial Tribunal on a question of law. A question of law which involves the interpretation or application of the relevant law to the facts of the case. The decision on the relevant facts is exclusively within the jurisdiction of the Industrial Tribunal. There is no appeal on fact.

We have had a lengthy dialogue with Mr Durchslag on his points to see whether or not there is a point of law. If there is, what is it? In order to decide that question, it is necessary first to examine the extended reasons and the basis on which the Tribunal rejected Mr Durchslag's contention that he was an employee of the company. The company was founded in 1978 by Mr Durchslag with his wife. Two shares were issued. One to each of them. Mrs Durchslag was the Secretary of the company. There was no written agreement recording terms of employment. The Tribunal found no real agreement about how much holiday they should each take. At the company's most successful period, there were six employees of the company. They all had written contracts of employment. Mr Durchslag stated that he was in charge of the business, looking after clients and sales, and doing designs, while his wife worked part-time and did the book-keeping. After pressure from the bank - because of an overdraft - he stopped paying his own salary to try and improve the position.

In his submissions to the Tribunal, Mr Durchslag relied on a brochure issued by the Employment Department stating that directors may be employees if they work in an executive or other capacity under a contract of employment. Mr Durchslag gave evidence that he kept normal office hours: 8.30 a.m.-5.30 p.m. Monday to Friday, 8.30 a.m.- midday on Saturday and/or Sunday. He ran the company. He hired, fired and trained staff. He authorised all purchases and was authorised to sign cheques. He solicited new business. He was the main liaison between the company and the clients. He was consulted by all the staff on all aspects of day-to-day business. He explained to the Tribunal that he was subject to the guidance of other shareholders, i.e. his wife. He was also subject to the National Westminster Bank, who provided finance to the company and to the guidance and advice of the company's accountant. As to the salary he received, he was taxed on a PAYE basis and did not waive it, though it was paid late when the company was short of funds. The business failed for economic and technological reasons, not for mis-management. As the Tribunal correctly said, that was not relevant to the issue: they had to decide whether he was an employee.

The Secretary of State responded to these contentions and points of evidence by written representations. He admitted that the company was insolvent, but did not admit that Mr Durchslag was an employee of the company, or that he was entitled to receive the payments which he claimed under the provision of Section 106 and 122 of the Employment Protection Act. The Secretary of State made legal submissions along these lines that the liability on his part to make payment was confined to "employees" of insolvent companies. An employee is defined as someone who has entered into, or works under, a contract of employment. A contract of employment is defined in Section 153(1) of the 1978 Act as a contract of service, whether express or implied, or if it is express, whether it is oral or in writing. The Secretary of State accepted that a director of a company can be an employee, in addition to holding the office of a director. The Tribunal's attention was drawn to the decision in Eaton v Secretary of State [1988] IRLR 83 in which the Appeal Tribunal gave guidance for Tribunals in deciding whether or not a director is an employee. The written submissions made observations on the facts of the case. It was accepted that, on the question of whether a person is an employee or not, no one factor will be conclusive, but it was submitted that, on balance of all the evidence, the position of Mr Durchslag was not that of an employee. They contended that the application should be dismissed.

The Tribunal's conclusions in paragraph 4 of the decision were that they followed the guidance in Eaton v Eaton as to all the factors which should be considered in deciding whether a director is an employee. Their conclusion was that the functions actually performed by Mr Durchslag should be considered. They should particularly consider whether he was under the control of a Board of Directors. It was clear to them that he was in control of the company. They referred to his own admissions that he hired and fired staff, and was directly responsible for obtaining new clients and controlling the work in hand. No person had control over the work that he did. No-one could discipline him in any way. The only other shareholder was his wife, who was a part-time worker. The Tribunal found that he was not an employee. As to the basis on which he was paying tax under Schedule E, they said that factor alone was not conclusive. They pointed to the fact that, whereas other employees had written contracts of employment, he had no written contract: there were no Board Minutes minuting such a contract.

That was the decision of the Tribunal. There was one piece of evidence which was not before the Tribunal. Mr Durchslag asked us to take it into account. We made it clear to Mr Durchslag that we were not giving leave to adduce further evidence. We could not give him leave, because it appeared the evidence he wished us to look at was available for use at the hearing before the Industrial Tribunal. It simply had not been produced to them. We did agree to look at a retirement benefit arrangement in the form of a policy taken out with Sun Life Assurance. That was a pension scheme provided for the benefit only of employees of the company. Mr Durchslag was a person who benefitted under that scheme. He made the point that that was an additional piece of relevant evidence, which could not be disputed factually. It supported his contention that he was an employee.

Where is the legal error in this decision? Mr Durchslag's submissions have been helpful. We particularly concentrated on his comprehensive summary of his points. He set out in the summary in fourteen numbered points. They are the legal considerations on which he wishes to argue the appeal. They are these: he kept normal and often extended business hours: he had a contract of employment with the company: his salary was taxed on a PAYE basis: the company was insolvent and claims can be made by employees of an insolvent company under the 1978 Act: he paid tax under Schedule E: he correctly pointed out that, as a matter of law, it is possible to be both a director of a company and an employee of the company: he said it was not totally correct, as the Tribunal said, that he made all the company decisions, he was accountable to the other director: he was accountable to the NATWEST bank and to the company's accountants who advised them.

The rejection of his case was based on one legal authority, Eaton v Secretary of State for Employment. He pointed out a number of respects in which there were significant differences between the facts of his case and the facts in the case of Mr Eaton. He pointed out that, in the Eaton case, Mr Eaton was the Managing Director of a small company, originally designed as an engineering consultancy business and then for many years, owned and operated as a hotel. He pointed out that Mr Eaton had not been paid any remuneration since 1981, and only shortly before his dismissal, when the sale of the business had been arranged, was he paid a minimal sum in the hope of qualifying for redundancy payment. He said that in his case, unlike Mr Eaton, he had received remuneration by way of salary, not directors' fees. That salary had been fixed in advance, not ad hoc, as in Mr Eaton's case. He had been entitled to four weeks paid holiday a year. He was a member of the company pension scheme which was limited to employees. He never received directors' fees, bonuses or remunerations, other than a modest salary of just below £20,000 per year. Durchslag Associates (UK) Ltd., was a relatively small company. It had six full-time employees and enjoyed an excellent reputation. He added to those points these legal propositions; first, as laid down in the case of Folami v Nigerline (UK) Ltd., [1978] ICR 277, there is a presumption that a person who exercises the functions of a Managing Director is an employee of the company of which he is the Managing Director. There was also authority in the case of Parsons v Parsons [1979] IRLR 117. That the fact that there is no memorandum or minute relating to the functions and duties of a Managing Director, is not of overriding importance on the question of employment.

There were a number of more detailed points which Mr Durchslag made: his salary was paid while he was sick or injured; he did no work for other companies or individuals, and was prohibited from doing so. That was consistent with the status of an employee. A full-time employee of a duly incorporated and registered company for a long number of years should qualify for redundancy payments under the 1978 Act. That was the summation of his argument.

We have considered all these points. We have come to the conclusion that there is no error of law in this decision that can be reasonably argued at the full hearing of the appeal. No purpose would be served in allowing the case to proceed to an inter-party hearing. The question whether a person is an employee or not is essentially a question of fact, to be determined by looking at all the relevant factors. Some factors are more relevant than others. One factor which has always been held to be of considerable importance in determining whether a person is employed or not, is whether they are in control or whether they are under control. It is unusual for an employee to be in control of decisions on what work he will do, when he will do it, what he will be paid for it and on what terms he works. The essence of employment is that the person in the employed position is ultimately under the control of others in relation to most of those matters. The crucial factor relied upon by the Tribunal was their finding, on hearing Mr Durchslag's evidence, that he was in control of the company and that no-one was in control of him. There were people advising him. There were people who were owed money by his company and therefore had some power over the future of the company. Having found that it was Mr Durchslag who was in control of the company, and that no-one was in control of the work that he did, the Tribunal were entitled to come to the conclusion that this was a case where the Applicant had failed to establish that he was an employee. They made particular note of the fact that he was unable to produce a written contract of employment. Other employees of the company had been issued with one. That is not a determinative factor, but it is a relevant consideration. As to the matter of PAYE, the Tribunal took it into account, but said it was not conclusive.

We would be able to interfere with this decision, if the Tribunal had given themselves an incorrect legal direction as to what was the proper test for determining whether a person was an employee. They have not done that. They have given themselves a correct legal direction. They were entitled to follow the guidance in Eaton v Secretary of State, even though the facts of that case are, we agree, different from the facts of this case. They correctly directed themselves to the legal test for employment. We are unable to say that they misapplied that test to the facts of the case. In our view, applying the correct test, they were entitled to come to the conclusion on the facts that Mr Durchslag was not an employee and therefore did not qualify for the payment claimed. In those circumstances there is no arguable legal point. We dismiss the appeal.