United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellants	MR J HOSKINS (Solicitor) Appearing under the Employment Law Appeal Advice Scheme


 


MR JUSTICE LINDSAY (PRESIDENT): We have before us by way of preliminary hearing the appeal of Mr Malcolm Brooke and Mrs Noelyne Hill and they have appeared today by way of Mr Hoskins of Counsel under the ELAAS scheme. Mr Hoskins has said everything that can reasonably be said on behalf of the Appellants and we are grateful to him for the assistance which he has given us.

1. The case concerns whether or not Mr Brooke and Mrs Hill were employees of a company called Imageline Fashions Ltd, back in 1996. This is the second time that the matter has come to the EAT and that is the explanation of the unfortunate gap in time between the relevant events in 1996 and today.
2. Since 1996 the form of the legislation has changed but the sense remains the same and it would be as well therefore to begin by making some reference to the relevant sections. Section 182 of the Employment Rights Act 1996 (I am not suggesting this was the Act in force at the time but corresponding words were used in the earlier provisions) provides as follows:

"182 Employee's rights on insolvency of employer

If, on an application made to him in writing by an employee, the Secretary of State is satisfied that -

(a) The employee's employer has become insolvent,

…

the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt."

3. Section 183 defines "Insolvency" for this particular purpose but as it is admitted here I do not need to read it. Section 184 describes the classes of debts which the employee may call upon the Secretary of State to pay, for example, certain arrears of wages and holiday pay and so on. Section 188 confers jurisdiction on the Employment Tribunal in relation to complaints in this area and Section 190 indicates that the Secretary of State is enabled to require information to be given. This is a case where, on a particular topic, information was given.
4. All that supposes that an application is made by an "employee" that his "employer" has become insolvent and one therefore needs to know what is "an employee" for this purpose. That is dealt with a little later in the Act (and again I am looking at the 1996 Act, although the earlier provisions are the same). Section 230 says:

"(1) In this Act 'employee' means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act 'contract of employment' means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

…

(4) In this Act 'employer', in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.

(5) In this Act 'employment' -

(a) in relation to an employee, means (except for the purposes of section 171) employment under a contract of employment, and

…

'employed' shall be construed accordingly."

Those are the relevant statutory provisions.

5. The issue of whether a man or a woman is or is not an employee is often very clear and straightforward but, as one gets close to the borderline, it is often a question of real difficulty, largely an issue of fact. The most recent and authoritative view of the matter is that provided in the case of Secretary of State for Trade and Industry v Bottrill [1999] IRLR 326 in the Court of Appeal. The Employment Tribunal in the case before us specifically referred to that authority (they had it laid in front of them) and the Appellant draws attention to two passages in the Bottrill case. There is a passage at page 331, paragraph 23, that says this:

"If an individual has a controlling shareholding, that is certainly a fact which is likely to be significant in all situations, and in some cases it may prove to be decisive. However, it is only one of the factors which are relevant and certainly is not to be taken as determinative without considering all the relevant circumstances."

And, another passage, again from Bottrill and taken from the judgment of Lord Woolf, is also cited, namely that at page 331, paragraph 25, and it is as follows:

"… it is right to note that, in a case such as this where national insurance contributions have been paid, to deprive an individual of his claims under the ERA could be to deprive unjustly that individual of the benefits to which he could properly expect to be entitled after he and his 'employer' had made the appropriate contributions."

6. The Appellant, rightly here latching on to the notion that no one factor is likely to be decisive but rather that the case has to be assessed in the round, from an assessment of all the competing factors, says in the Notice of Appeal as follows:

"The Employment Tribunal should have considered and weighed all other relevant factors in determining whether the applicants were employees [in context, 'all other' means 'other than the fact about controlling shareholding'] . This approach was adopted in Adamson v Arthur M Smith (Hull) Ltd … and Road Transport Ltd v Readers Garage Ltd … . Relevant factors will include:

The Appellants Functions

The fact that they were subject to PAYE and NIC

The method in [by] which they were remunerated; salary entitlements, bonus or dividends.

Provisions of other benefits e.g. pension, car.

Holiday entitlements

Exclusivity of employment

Sick pay entitlement

Whether there was a bona fide arrangement between the Appellants and the Company and whether they exercised such control as they had in their own interest or in the interests of the company and its other employees."

And the Appellant adds this:

"On all these matters the appellants gave evidence on which they were not challenged. In particular, no weight was given by the tribunal to the fact that the appellants were subject to PAYE and NIC."

And then they quote the passage on that subject from the speech of Lord Woolf in Bottrill which I have already cited.

7. The decision of the Tribunal, which was under the chairmanship of Mr D. Thompson, sitting with Mr Allen and Mrs Mapstone in Cardiff, was as follows:

"The unanimous decision of the Tribunal is that the applicants were not employees of Imageline Fashions Limited and are not entitled to payments out of the National Insurance Fund pursuant to sections 166 and 182 of the Employment Rights Act 1996."

8. Remarkably for this character of case, which is usually dealt with far more shortly, the case took four days, plus a further day for the three members to confer together. They note the admitted insolvency. They say in their paragraph 2:

"The Secretary of State defended both applications on the same basis [that is the applications of Mr Brooke and Mrs Hill]. It was admitted that Imageline Fashions Limited was insolvent within the meaning of [and then it quotes the relevant sections] and it was not admitted that the applicants were employees within the meaning of section [and there again they quote the then relevant section]."

9. They set out a series of commercial ventures which Mr Brooke and Mrs Hill had previously been engaged in. They had been directors and shareholders of a company called "Peakaze Limited" and it ceased trading. They founded a company called Tina Jayne Fashions (Cardiff) Limited; that was a company that got into financial difficulties. They formed a company called Carmel Clothing Limited; it ceased trading. They founded a company called Carmella Manufacturing Ltd; it, too, ran into financial difficulties.
10. In May 1994 Imagineline Fashions Limited was incorporated. It began trading in September 1994 and it ceased trading in January 1996. The Tribunal said, at paragraph 11:

"11 Both applicants were directors and 50% shareholders in Imageline Fashions Limited and it is out of the collapse of this company that the applicants claim insolvency payments from the Secretary of State."

There was no suggestion that there were any other directors of Imageline. The Tribunal continued, at paragraph 12:

"12 Neither applicant had a written contract of employment, statement setting out the main terms and conditions of their employment, letter of engagement or appointment, nor written memorandum setting out the terms and conditions of a director's contract as an employee."

And then the Tribunal continues, with features some pointing one way and some pointing the other; hence they say, at paragraphs 13 to 18:

"13 Both applicants worked full-time for the company, Imageline Fashions Limited, and had PAYE/ERNIC deducted from their pay.

14 Both applicants had agreed to draw no salary for a period of time, owing to cash-flow problems.

15 Both applicants stated on the form submitted to the Secretary of State that they were not subject to any control or guidance.

16 Both applicants were directors and 50% shareholders of the company.

17 Both applicants lost a considerable capital sum of money which they had invested in the business. Evidence was given that that was approximately £50,000 between them. This included money they had lost that they had invested in the previous companies.

18 The two applicants made all the decisions relating to the company's business, and eventually agreed that Mr Brooke should dismiss all of the employees of the company. Both applicants re-mortgaged their houses to the bank to cover their indebtedness in respect of the monies that they had invested in the companies."

11. The two rival contentions were then briefly summarised and then the Tribunal set out the number of authorities to which they had been referred. They say in paragraph 21:

"21 In its deliberations, the Tribunal were referred to and considered the cases of [I will mention them briefly] Wilson v Trenton Service Station Ltd, Buchen and Ivey v Secretary of State for Employment, Crees v Royal London Insurance, Eaton v Robert Eaton Ltd & Secretary of State for Employment, Fleming v Secretary of State for Trade & Industry, Secretary of State for Trade & Industry v Bottrill, Hall v Lorimer and Lee v Chung." [a considerable body of law was obviously ventilated in front of them].

There is no reason to think that they did not have those cases in mind; they specifically say they had considered them. They then recognised the obvious, at paragraph 22, as follows:

"22 There are clearly features in this case which support the applicants' case that the applicants were employees and there are features which support the respondents' case that they are not."

And then they set out their conclusion, at paragraph 23:

"23 In conclusion, the Tribunal has no hesitation in coming to the conclusion that the overwhelming number of factual matters in this case support the respondents' contention that the applicants were not employees of Imageline Fashions Limited. Imageline Fashions Limited, in the Tribunal's view, was the instrument by which the applicants set up a vehicle in order to run a business for profit. The whole history of their business relationship supports this. They were not subject to any control. They were 50% shareholders each, and they invested a considerable sum of money and mortgaged their houses to support that. None of those factors, which the Tribunal consider are overwhelming, are factors which support the contention that either of these applicants was an employee."

12. Where, one asks, is the error of law in that? Broadly speaking, two types of error of law have been urged by Mr Hoskins and the first is a failure to give adequate reasons for the decision. In other words, he raises a Meek v City of Birmingham District Council [1987] IRLR 250 point, but in our view that point fails. There were clear findings of fact and a clear conclusion. The Appellants were entitled to see why they lost but that is quite apparent. They lost because the Employment Tribunal held that they were not employees and they could see the particular factors which the Tribunal most significantly relied upon to come to that conclusion. If one asks if the Meek v City of Birmingham test is satisfied in our view here it was.
13. Then, secondly, Mr Hoskins urges that there was failure on the Tribunal's part to be seen to give weight to all factors which were, in fact, in evidence before the Tribunal. I have already read from the Notice of Appeal some factors which were said to have been given in evidence - for example, holiday entitlements, sick pay entitlements and so on - which are not specifically mentioned in the Decision of the Tribunal. But how much weight to give particular factors is especially the province of the Employment Tribunal. One cannot assume that simply because they have not expressly mentioned a particular factor, it was not in mind at all: see for example, Retarded Children's Aid Society -v- Day [1978] IRLR 128 CA, per Lord Russell of Killowen. There is no prescribed weighing process; it is left to the good sense of a Tribunal to assess what weight to give to each particular factor. The subject, perhaps the most important one, of PAYE and NIC, was specifically in the Tribunal's mind and in mind, of course, as a factor that pointed in favour of the Appellants today. It cannot be said that no weight was given to that important factor; it was there specifically mentioned by the Tribunal. But the reference in Bottrill as to controlling shareholdings is a factor of great weight, a factor which the Appellants obviously had great difficulty in overcoming. The passage suggests that the fact that there is a controlling shareholding is often decisive in favour of the controlling shareholders not being employees and that it is always a significant factor. Against that there is the other quotation about National Insurance contributions, but that cannot be said not to have been in the Tribunal's mind because, as we say, it specifically mentioned the subject.
14. Given that the controlling shareholding is likely to be significant and very often decisive, it is hard to see any error of law in the Tribunal's process. The history of the commercial dealings of Mr Brooke and Mrs Hill having worked together in the same companies and having incorporated companies together seemed to lead to a fair ability in the Tribunal, in reflecting reality, to see the two 50% shareholdings, of Mr Brooke and Mrs Hill, not as being holdings of competitors for control, so that each should not be regarded as a controlling shareholding, but rather as a unified controlling shareholding. The Tribunal do not expressly spell that out but they obviously did take account of the fact that both Applicants were directors and shareholders at 50% each and that each had said that they were not subject to any control or guidance.
15. We have paid attention, we hope, to Mr Hoskins' argument but if one simply says "What error of law is there in the Tribunal's reasoning?" we are unable to find any and, moreover, do not even find any that is arguable. Accordingly at this stage, although recognising that it is a preliminary stage, we see the proper course to be to dismiss the appeal.