United Kingdom Employment Appeal Tribunal

BAILII case number: [1996] UKEAT 934_95_1809

Appeal No. EAT/934/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 18th September 1996

THE HONOURABLE MR JUSTICE HOLLAND

MRS M E SUNDERLAND JP

MS B SWITZER

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MISS A COWELL          APPELLANT

PENNY LANE WINE BAR LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant MR R BRADLEY

(of Counsel)

Wilson Gowrie & Dillon

Solicitors

10 James Street

Liverpool

L17 0AP

For the Respondents MR M DALE

(Consultant)

Richard C Hall & Partners

Crown Buildings

121a Saughall Road

Blacon

Cheshire

CH1 5ET


 


MR JUSTICE HOLLAND: We are concerned with an appeal from an Industrial Tribunal sitting at Liverpool. The tribunal in question was constituted by the Chairman sitting alone, and the decision appears from the reasons sent to the parties on 1st August 1995.

The tribunal had before it an application by the present appellant, Miss Cowell, alleging unfair dismissal by the respondents on 13th July 1994, that is, unfair dismissal from her employment with that company as catering manageress of a wine bar, the Penny Lane Wine Bar. The IT1 contends that the employment in question had begun in May 1989 and had continued to her dismissal. By way of their Appearance, the respondent employers took two points. The first was as to the circumstances in which the employment terminated, but second and more pertinently for present purposes, they contended that her service with them was insufficient to found jurisdiction for this tribunal.

That point arises by virtue of Section 64(1)(1) Employment Protection (Consolidation) Act 1978 which prevents this tribunal having jurisdiction over complaints of unfair dismissal if the employee "was not continuously employed for a period of not less than two years ending with the effective date of termination". Said the respondents, the then applicant, the present appellant did not have that requisite period of continuous employment prior to termination. That being the issue taken, it was decided that it should be tried by the tribunal as a preliminary issue.

The essential chronology appears from the Reasons and shows that the matters proceeded, as it were, by three stages. We are concerned throughout with this one wine bar. Stage 1 features the period from May 1989 to October 1993. The finding is that during that period the appellant was employed as manageress of this wine bar by the then owners, a partnership featuring a married couple Mr and Mrs Cottrell. That stage came to an end when both Mr and Mrs Cottrell were declared bankrupt, that declaration apparently being in October 1993.

We then move to the second stage of the history. As to that, it seems that the wine bar became vested in the Trustee in Bankruptcy and that that trustee was concerned to keep the business going, presumably in order that it could be sold as a going concern. Whether or not that is correct, it was thereafter conducted during what we have called "Stage 2" by a limited company established for the purpose, that is, Penny Lane Information Limited. The directors of the company were the appellant and a Mr Gray. As to what happened during that period, the findings of the Chairman are as follows:

" The applicant and Mr Gray between them ran the wine bar. No one controlled them or gave them instructions. They were the ones who made the decisions. They ran the business jointly, with no formal disposition of authority. They were both on the payroll and were recorded as paying income tax by way of PAYE and National Insurance as employed persons. They employed people in the business. The applicant dealt with the accountant and with the Inland Revenue, though it appears not very diligently. Both wrote cheques. The applicant decided when she took her holidays and how long she should take. She decided when she should arrive at and leave work . Neither she nor Mr Gray had a written contract of employment. The applicant, in addition to running the business, continued to do the tasks she had done as manageress; such was her choice. Her weekly wage in the latter job had been under £200. As a director she took £554 a week."

That then was Stage 2.

We then move the final, Stage 3. That is the period from March 1994 to 13th July 1994. The findings as to this period are short. They are:

" In March 1994, Mr and Mrs Riley, as directors of the respondent firm, bought the business. They thenceforward ran it and they employed the applicant as their manageress. She says that her employment ended on 13 July 1994."

It would seem to be an acceptable inference that the respondent firm was a company set up by Mr and Mrs Riley for the purpose of acquiring and running this wine bar.

The issue then as presented to the tribunal was as to whether, given those three stages, there had been the continuity of employment such as would satisfy Section 64. The way in which the tribunal approached the problem, seemingly at the invitation of the parties, was to focus on Stage 2. The question that was posed for the deliberation of the tribunal was whether during Stage 2 the appellant had been employed in the wine bar as a manageress or whether her sole association with the wine bar was as director of the Penny Lane Information Limited. The essential argument presented at the tribunal by the respondents was that her connection with the wine bar during that interim period was to be categorised as no more than that of a director, that is that she was an officer of the organisation conducting the wine and that she was in no way an employee. The argument no doubt raised in response was that whether or no she was an officer, she had in addition been an employee and so that the continuity of her employment was not broken during that interim stage.

It is trite but important law, that it is not for this tribunal to substitute findings of fact for those made by the Industrial Tribunal; and on behalf of the respondents to this appeal, Mr Dale has forcefully reminded us of this principle, and has submitted strongly that were we to take any different view as to the result of this issue, then we should trespassing upon the role of the Industrial Tribunal as a fact finding body. We have taken very much to heart what Mr Dale has submitted, as indeed is our obligation. That said, it becomes of importance to identify the issues to which those facts as found have to apply. Before one gets an effective fact finding exercise, it is necessary for the tribunal correctly to direct itself as a matter of law as to what the issues are that it has to resolve.

With those words of introduction, we then move to the way in which this tribunal resolved the problem. It is simple now to quote paragraph 5 of the extended reasons:

"5. The applicant was employed by Mr and Mrs Cottrell. She was employed by the respondents. But between October 1993 and March 1994 she was not employed pursuant to a contract of employment. Her name was on the payroll and the Inland Revenue and DHSS for their purposes accepted her as an employed person. But there matters do not themselves necessarily decide the question. I looked at all the circumstances set out above. I concluded that she was a director of Penny Lane Information Limited, its officer and not its employee. Such was the reality of her relationship with it: there were no contractual rights and obligations as between employer and employee; the company was run from day to day as she and Mr Gray chose to run it free from control and subject only to the constraints of trade.

6. It follows that the applicant does not have two years' continuous employment and thus may not present a complaint of unfair dismissal. Consequently this application is dismissed."

On behalf of the appellant, Mr Bradley attacks this judgment, contending in effect, that the Chairman misdirected himself as to law, and that in those circumstances the fact finding exercise was fatally flawed. In essence what Mr Bradley submits is this: that in approaching his fact finding task, the Chairman as tribunal, failed to make any clear distinction in his mind between first, the company, Penny Lane Information Limited; second, the directors when acting as such; and third, the employees of the company, which employees, he submitted, could if the facts permitted, include one or both of the directors. He submits that given this failure to make this clear distinction the whole fact finding exercise became so flawed that we could and should allow an appeal against it.

Submits Mr Dale in response, we can be satisfied that the Chairman as tribunal did indeed correctly direct himself as to law, once that is done then the fact finding is beyond reach of this tribunal and we must loyally accept it.

It is we think helpful to refresh one's approach to this problem, that is the problem as to how far a director can also be an employee; by reference to a passage from the judgment of this tribunal, as delivered by Sir Ralph Kilner-Brown in Eaton v Robert Eaton Ltd Secretary of State for Employment [1988] IRLR 83. The issue in that case was as to whether the managing director of the respondent company was entitled to a redundancy payment when the company ceased trading. That entitlement would arise if he was "an employee" of that company. The issue therefore was as to whether his role in the company was purely that of officer or whether it was not only the role of an officer but also he had the role of an employee.

In setting out the approach, the judgment helpfully proceeds as follows:

"Over the years Industrial Tribunals, the Employment Appeal Tribunal and the Court of Appeal have approached the question whether or not there is a contract of service or an agreement to render services as a self-employed person by looking at various factors and assessing in which direction they point and coming to a conclusion on balance. If Industrial Tribunals carried out the same process with relation to alleged employment of a director by a company, there would be no grounds for appeal and many attempts to appeal would be stopped in their tracks.

Without presuming or intending to lay down principles or guidelines because every case depends on its own facts we have over the years been able to identify some of the factors which crop up in these cases. In the first place Industrial Tribunals have to bear in mind that generally speaking, a director of a company is the holder of an office and is not in employment (see McMillan v Guest (1942) AC 562). Evidence is required to establish that a director is employed by a company. Any descriptive term such as managing director or technical director may provide the first indication of employment. Obviously the position of a properly appointed managing director or the so-called working director who draws a weekly wage is one which is more likely to present an arguable case for a contract of employment. In this context the most pertinent question is whether or not there was an agreement to employ a person as managing director which should either be an express contract or minuted at a board meeting or noted by a memorandum in writing. This is not conclusive. It may then have to be ascertained whether remuneration is by way of salary or by way of director's fees. If the latter, it points away from employment. Then it might be appropriate to consider whether there was remuneration fixed in advance or merely made on an ad hoc basis. If the latter, this too points away from employment. In some cases remuneration may be identified as gratuitous and not by way of entitlement. Again this would point away from employment. Finally there is the important consideration of the functions actually performed by the director. Was he merely acting in a directorial capacity or was he under the control of the board of directors? An Industrial Tribunal may not find it necessary to pose all of these questions and they may identify other factors as relevant. It is entirely a matter for the Tribunal to approach the problem as it thinks appropriate."

Turning back then to the instant situation, granted that from November 1993 the appellant was an officer of Penny Lane Information Limited was she in addition an employee of that company? Had that question been posed by the tribunal with the factors as identified by that judgment in mind, then the subsequent fact finding exercise would have focused beyond any criticism on the precise issue that was posed. In that way any tribunal would have been forced to confront the conundrum as to whether when the appellant appointed herself as manageress she was acting as an officer or an employee? More pertinently, when she was acting as manageress whether she was then an officer of the company or an employee? In either way one would then come directly to the issue as posed. In the event however, we think there is force in Mr Bradley's criticism that this clarity of thought deserted the tribunal when it came to the fact finding exercise. There are abundant indications that the distinction necessary to be drawn between the limited company, its directors and its employers, was not drawn consistently throughout the forming of the judgment. We need only cite, for example, from the sentence in the passage already set out in this judgment "They employed people in the business" and "Such was her choice", to underline our impression that the principles were not fully to the mind of the tribunal in the course of this fact finding exercise.

In the event, we are reluctantly of the view that the fact finding exercise was fatally flawed, so flawed that we should allow the appeal from it and that we should send the matter back for a re-hearing before a differently constituted tribunal, preferably a tribunal containing not only just the Chairman but the lay members in addition.

Before departing from this matter, we would also wish to draw attention to a further aspect that may not have been put before the Chairman for his full consideration, but would seem to bear strongly upon the issue raised by the complaint of unfair dismissal. That relates to the circumstances in what we have described as "Stage 3" commenced. It is presumably the appellant's case that in March 1994 there was a transfer of an undertaking sufficient to transfer any contract of employment from Penny Lane Information Limited to the present respondents. That being her case, it would seem important to investigate precisely what happened in March 1994 by way of a transfer. When in the findings the phrase "bought the business" is used, what, we ask rhetorically, was the business that was bought? Did the business as bought include employees and if so, was one of those employees the appellant? This by a different route would go straight to what is the basic issue raised by the appellant's complaint in this matter. It is pertinent that in a letter to this tribunal of 27th September 1994, solicitors then acting for the respondents appeared to say that the business as bought included the appellant as employee. We emphasise "appeared" because we readily acknowledge that the letter is not entirely clear in its terms. Further, and more importantly, that which it said was never seemingly explored in the evidence before the tribunal. We would hope that in the course of the re-hearing attention is drawn to this point that is essential if continuity of employment is to be established and which in its turn must inevitably throw a great deal of light upon the status of the appellant during the critical period between October 1993 and March 1994. One also acknowledges that there is an additional question raised as to the transfer of the undertaking in October or November 1993, but there it seems to have been accepted before the tribunal, certainly not put in active dispute, that a transfer of undertaking then took place that maintained the appellant's continuity of employment save for any change in her status so soon as Penny Lane Information Limited was founded.

For those reasons, our decision to allow this appeal and to remit this matter for a re-hearing as already specified is underlined.

Legal Aid taxation for the appellant allowed. An application for leave to appeal by the respondent is refused.