United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MISS EMMA SMITH (of Counsel) Instructed by: Miss C O'Neill USDAW 188 Wilmslow Road Manchester M14 6LJ
For the Respondents	THE RESPONDENT NEITHER PRESENT NOR REPRESENTED


 


MR JUSTICE MORISON (PRESIDENT): This is an appeal from the unanimous decision of an Industrial Tribunal held at Leeds on 20th June 1997. By their decision contained in written extended reasons sent to the parties on 18th August 1997, the Industrial Tribunal held that the applicant did not have continuity of employment so as to enable her to bring a claim for unfair dismissal.

The applicant, Mrs Pemberton, who is the appellant before us, had made a complaint of unfair dismissal against a company called Claimstart Ltd t/a Parkin Westbury & Co.

The question at issue concerned the nature of the relationship between Mrs Pemberton and that company between 1993 and 1996. If that relationship was not one of employment then she did not have the requisite period of continuous employment to make a complaint. If, on the other hand it was of employment, then she did have the necessary qualifying period of service.

The Industrial Tribunal concluded that the applicant owned one third of the issued shares of the company along with two other named individuals and that the three of them together jointly owned and ran the business of the company between 1993 and 1996. She worked in the business as a clerk dealing with the financial matters and she also bore the title Company Secretary. It is not entirely clear to us from reading the decision and the Notes of Evidence which have been provided, as to whether she was, in addition to being Company Secretary, also a director of the company. The tribunal said this:

"3. ... In deciding the direction of the business the applicant's and her colleague directors took advice from Mr Parkin from time to time and from a business consultant Mr Crayford. Nevertheless, they were the people who ultimately decided the direction of the business. The applicant received a salary and paid tax and national insurance on a employee basis but was in effect her own boss in that there was nobody within the structure of the company that could direct the manner in which she did her job and indeed she and her fellow directors jointly managed the business on a day to day basis in addition to taking strategic decisions at board meetings. In 1996 the applicant and her 2 colleagues concluded that the business was in financial difficulties and after taking advice decide to put the business into receivership."

Mrs Pemberton was then taken on by Mr Parkin who had by this stage been discharged from his bankruptcy, and had bought a majority shareholding, that is acquiring Mrs Pemberton's shares as well as the shares of one of the other two people. She then started to work on a part-time basis. That employment came to an end; hence her complaint for unfair dismissal.

This a case, therefore, in which the question at issue for the Industrial Tribunal was whether Mrs Pemberton, as a shareholder and possibly a director of the company, also an employee of the company or not. The Court of Appeal have repeatedly reminded us that in the ordinary case:

"Where the determination of the question depends not only on reference to written documents but also on an investigation and in an evaluation of the factual circumstances in which the work is performed, a quite different situation arises [namely not a question of law]. In such a case as these two authorities show, the responsibility of determining and evaluating all the relevant admissible evidence (both documentary and otherwise) is that of the tribunal at first instance; and an appellate tribunal is entitled to interfere with the decision of that tribunal, that a contract of employment does or does not exist, only if it is satisfied that in its opinion no reasonable tribunal, properly directing itself on the relevant question of law, could have reached the conclusion under appeal, within the principles of Edwards v Bairstow [1956] AC 14."

That extract comes from a recent decision of the Court of Appeal in Clark v Oxfordshire Health Authority [1998] IRLR 125.

Yet more recently in a judgment given on 7th April 1998 in a case called Gareth Evans v Secretary of State for Trade and Industry, the Court of has re-affirmed that this question, that is whether somebody is an employee or under a contract for services, is a question of fact for the fact finding tribunal:

"One has to look at the facts surrounding the working relationship. ... A contract of service requires that there be a servant and master or employer who is able to control what the employee does. In this particular case it does not appear from the documents nor from what we have been told, that there was any real control. Whether or not that is the view that I would form of the matter, it was in any event for the Industrial Tribunal Chairman to determine the relevant facts. On the facts which he found, it seems to me, it is impossible to find a material question of law such as would properly found an appeal."

In the face of those authorities, on behalf of the appellant Miss Emma Smith nonetheless has persuaded us that in the circumstances of this particular case the Industrial Tribunal should have the opportunity of further considering the issue. What she says is this. Essentially, the Industrial Tribunal appeared not to have asked themselves in relation to Mrs Pemberton what position she actually held in the company hierarchy. In other words, she says that her position has been lumped together with that of the other two shareholders so that they have corrupted the real test which they had to ask themselves. In paragraph 4 of their decision the Industrial Tribunal said this:

"4. ... The Employment Appeal Tribunal took the view, particularly in the first of those 2 cases, that the issue for the tribunal was really to decide whether the applicant could be described as an employee or an entrepreneur on business on their own account."

Miss Smith says, and in our judgment says fairly, that the real test for them was whether Mrs Pemberton could be described as an employee or an entrepreneur in business on her own account.

Furthermore, it seems to us, that the tribunal have not had the benefit of having an opportunity of reading the decisions which have emerged since the two to which they specifically refer, namely the case of Fleming v Secretary of State for Trade and Industry [1997] IRLR 682 and a further decision of the Employment Appeal Tribunal in Secretary of State for Trade and Industry v Bottrill [1998] IRLR 120. Those cases are concerned, as was Buchan & Ivey with a person who held a majority shareholding. That is not the position of Mrs Pemberton. Industrial Tribunals should be careful when approaching the issue as to whether a shareholder is also an employee not to fall into the trap of assuming that was is said in Buchan & Ivey or the other cases to which we have referred, will be of great assistance to them. There is nothing incompatible with an employment relationship between a person who is a director and a person who is a shareholder. Such a person may be an employee or not.

In this case the Industrial Tribunal would have been assisted, we think, if it had asked itself a number of specific questions such as: was the salary which she received under her employment determined by the Board of Directors? That would indicate, if had been, that the control of the company was properly exercised by the Board of Directors in the normal way. Was her salary commensurate with the responsibilities which she was undertaking and what remuneration did she receive by way of dividends during the relevant period? This enquiry will enable the Industrial Tribunal to form a view as to whether the person concerned was effectively drawing the bulk of their remuneration or a significant proportion of it as a shareholder rather than as an employee and that might suggest that the real relationship between herself and the company was that of an entrepreneur in business on her own account. The tribunal might also wish to enquire as to whether she was an employee who was listed in the company's wages book which every company is obliged to keep. If she was not, that of course would be a strong indication that she was not genuinely an employee. If she was, that would be consistent with employment, although of course not determinative of it. Next was her salary increased at any stage during the course of the three year period? If it was not, that might an indication that this was not a real employment relationship, if it was, it might be consistent with an employment relationship. But obviously the tribunal would also wish to determine the basis on which, if a salary increase was made, the new salary was determined. Again, the tribunal might wish to ask itself whether the Board of Directors met in the normal course of business and carried out the controlling function which a board has over the company's activities; or whether in effect the three owners of the business between them did not observe the formal company structure. If the latter, that is at least a strong indication that there may not have been a genuine employment relationship between the parties.

It seems to us unfair to criticise the Industrial Tribunal for what they have done so far. They did not have the benefit of any legal representation by either of the parties before them. They have had to rely on their own researches and they obviously did not have the benefit of the two later decisions to which we have referred.

In this case, bearing in mind that there is no reason why a shareholder should not also be an employee and a director, it seems to us that it would be sensible that the Industrial Tribunal which has already considered this matter should revisit the case, taking account of such guidance as we have been able to give them. Accordingly, we will remit this case back to the same Industrial Tribunal for them to give it further consideration. It may well be that they will require further evidence to be given and that will be entirely a matter for them. We would like to make it absolutely clear that we are not seeking to steer the Industrial Tribunal to reach a particular conclusion one way or the other. We would re-emphasise what we said at the outset of this judgment that the question at issue is essentially a question of fact for them, but it would be helpful if they were to consider the further matters to which we have referred.