United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	The Appellant in person
For the Respondent	No appearance or representation by or on behalf of the Respondents


 


MR RECORDER UNDERHILL QC

1. The Appellant was employed as a Development Manager in a software business called "Template Europe". The Employment Tribunal found that he was employed by the First Respondent, Template Europe Ltd, which was owned or controlled by the Second Respondent, Mr Pant, and that accordingly, he was not employed by Mr Pant personally. That is a finding against which there is no appeal. The Appellant was also at the material times a Director of the First Respondent.
2. The sequence of events leading to this claim can be taken, verbatim, from the clearly expressed findings of the Employment Tribunal in paragraphs 10 - 15 of the Extended Reasons:

"10 The Tribunal accepted that the Second Respondent had serious financial problems. It was possible that at some future date it would have a substantial income but in the meantime there were considerable cash-flow problems. The result was that in April 1999 it was agreed by all staff that there would be a 25% reduction in salaries. If it had not been for this reduction the company would have reached a position of trading while insolvent.

11 The financial position worsened in November 1999 with the collapse of negotiations with a venture capitalist and it was agreed that salaries must be further reduced or deferred. It was agreed that salaries should only paid if and when the Second Respondent could afford to do so. That was an agreement made with all staff including Mr Shamshiri-Fard. The alternative was for the company to cease to trade.

12 At a board meeting on 28 February, at which Mr Shamshiri-Fard was present, it was noted that there had been some improvement in the cash-flow position which was "partly through revenue and partly through voluntary salary suspension". However, it was said that "now there is a worsening again". The issue of whether the company should continue trading was discussed.

13 From September 1998 Mr Shamshiri-Fard's notional salary had been £39,000 a year payable by monthly instalments. However, it was agreed that in the financial year ending on 5 April 2000 he received £10,750 before tax less than that amount. He received no payment for the months of April and May 2000 or for the days worked in June 2000. The Tribunal was satisfied that the company was not in a position to make those payments and to continue trading. If it had done so it would have been trading while insolvent. The failure to pay him was in accordance with the earlier agreement that salaries should only paid if and when the Second Respondent could afford to do so.

14 A board meeting was held on 31 May 2000 at which it was clear that the company's finances continued to be in a very parlous state. A vote was taken whether to close the company or to carry out a further restructuring. Mr Shamshiri-Fard voted to close the company but was out-voted by the other two directors.

15 On 2 June 2000 Mr Pant wrote to Mr Shamshiri-Fard as follows:-

"Following the board meeting of this company on 31 May 2000, the Directors have decided that in order to continue trading, it is essential that we close the company's in-house development activity. This regrettably results in your position becoming redundant with effect from June 2, 2000.

In order to compensate you for this redundancy and in order to take into account your participation as an employee of the company during its start-up, we, the Directors, have decided to make the following discretionary payments to you.

1. An immediate payment of £4,000.

2. A further payment of £10,000 to be paid in stages by 31 December 2000 subject only to the company's ability to pay.

3. A further payment of up to £10,000 in 2001, payable if and when the company meets its profit and cash forecasts. We shall advise you the terms under which this final payment will be made by the end of September 2000".

The Tribunal was satisfied on the evidence which it heard that the company has never been in a position to be able to pay the two sums of £10,000, referred to in that letter."

3. By his Originating Application, the Appellant claimed:

(a) £10,750 for what he described as the financial year "1998-1999", but that must have been, as the Tribunal noted, a slip for "1999-2000". The reference is of course to the sum foregone in that year, as described in paragraph 13 of the Reasons.

(b) "Salaries for May and June 2000": that, as appears from the Tribunal's Reasons, might more accurately be described as the period from 6 April 2000 to the ending of his employment on 5 June 2000 - see again paragraph 13 of the Reasons.

(c) Redundancy payment: that is not in issue on this appeal.

(d) Interest incurred due to late payments

4. The claim was originally made against the Second Respondent, i.e Mr Pant personally. The First Respondent was later added by amendment.
5. The Employment Tribunal dismissed the claims under heads (a) and (b) on the basis of the agreements which it had found in paragraphs 10 and 11 of the Reasons, i.e. firstly an agreement that there would be a 25% reduction in salaries, which it found was made in April 1999; and further an agreement that no salary would be paid until the company could afford it, which it found was made in November 1999. Paragraphs 20 and 21 of the Reasons are in the following terms:

" 20. The second issue was whether Mr Shamshiri-Fard agreed to a reduction of his salary and, on occasions, to forego his salary altogether during 1999 and in April-May 2000. It was clear that the finances of the company were in a very poor state. From April 1999 it could not continue to pay salaries in full to its staff. If it had done so it would have been trading while insolvent. This position could only be resolved by, firstly, a reduction in salaries and subsequently by an agreement that salaries would be paid only if the company could afford to do so. The position would not have been resolved if it had simply been agreed that salaries would be deferred: if that had been agreed the company would have been incurring ever-greater debts to its employees and would have been trading while insolvent. Mr Shamshiri-Fard, as a Director, would in part have been responsible for that.

21. The Tribunal unanimously found that Mr Shamshiri-Fard's contract of employment was varied first by a reduction of 25% and then by including a pre-condition that the company be able to pay any salary otherwise due. Mr Shamshiri-Fard agreed to that variation and it was open to him to make such an agreement without it being reduced to writing. The agreement was binding on him. The Tribunal further found that the Second Respondent was not able to pay Mr Shamshiri-Fard in April and May 2000 or for the days which he worked in June 2000. The Tribunal, therefore, held that Mr Shamshiri-Fard was not entitled to recover the monies alleged to be due to him in respect of the financial year 1999 to 2000, or for payments alleged to be due to him in April, May and June 2000."

6. As already noted, the Tribunal found that the Appellant was employed by the Second Respondent and the claim against the First Respondent was dismissed on that basis.
7. The Appellant appealed. He named only the Second Respondent as the Respondent to the appeal and the text of the grounds of appeal make it plain that there is no appeal against the decision that he was employed by the company, and that no claim is being pursued against Mr Pant individually.
8. The appeal came before this Tribunal for a preliminary hearing on 24 October 2001. On that occasion the Tribunal permitted the appeal to proceed on the basis of a ground of appeal identified by his ELAAS representative, Mr Wilson, which is now incorporated in amended Grounds of Appeal as follows:

"(a) The Tribunal having found as a fact that the Applicant had orally agreed to a variation of his contract failed to take into account that if a deduction is authorised by a provision in a contract of employment even if oral it is still necessary for the employer to notify the employee of the effect of that provision in writing in accordance with s.13(2)(b) ERA 1996.

(b) Paragraph 23 of the Applicant's contract requires any variation to be notified in writing. The Tribunal erred in failing to have regard to this evidence when it said in paragraph 21 that it was open to the Applicant to agree a variation without it being notified in writing."

Those amended grounds are preceded by the words

"Further or in the alternative"

However, as we read the judgment of the Appeal Tribunal, they are the only grounds on which the appeal was allowed to proceed.

9. Today the Appellant appears in person, though with the benefit of a Skeleton Argument prepared by Mr Wilson. There is no appearance by the First Respondent to the appeal, that is by the company. The Appellant tells us that he had heard that the company is now in voluntary liquidation which would, no doubt, explain its non-appearance.
10. The position as regards the Second Respondent to the appeal, Mr Pant needs a little amplification. As already noted, the Appellant's Notice of Appeal did not identify him at all. However, the Respondent's answer, which was put in by a firm of solicitors, purported to be on behalf of both of the Respondents in the Employment Tribunal. On 16 July 2002 Mr Pant, apparently acting for himself, wrote to point out that there appeared to be no appeal as regards the decision affecting him, and asked him to be dismissed from the appeal. The Registrar replied on 25 July 2002, refusing to discharge him from the appeal, we need not be concerned at this stage with the reasons. At the invitation of Mr Pant, Mr Wilson, who was then apparently acting for the Appellant, wrote stating in terms:

"We write to advise that we do not intend Mr Pant to be a Respondent to this appeal."

In those circumstances, it is clear to us that there is no appeal against any aspect of the Decision affecting the Second Respondent and he should be discharged from the appeal.

11. In these circumstances, we have not had the benefit of any oral legal argument on the issues in the appeal. However, they are short and reasonably straightforward. We believe that the grounds of appeal now relied on are well founded. The steps in our conclusion are as follows:

(1) The Appellant had, prior to the agreements described by the Tribunal in paragraphs 10 and 11 of the Reasons, a contractual right to payment at the rate of £39,000 per year.

(2) Any non-payment of those amounts such as is common ground occurred in this case, was therefore prima facie a "deduction" within the meaning of Part II of the Employment Rights Act 1996, particularly having regard to the wide meaning given to that term in the case law. Section 13(1) of the 1996 Act is in the following terms:

"(1) An employer shall not make a deduction from wages of a worker employed by him unless -

(a) the deduction is required or authorised to be made by virtue of a statutory provision or a relevant provision of the worker's contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction."

(3) The Tribunal found in this case that there had been an agreed variation to the contract of employment to permit the non-payments in respect of which the Appellant complains. The Respondent would, no doubt, therefore say that the case falls under head (a) in subsection (1) and that the deduction was accordingly permitted. However, subsection (2) of section 13 provides as follows:

"(2) In this section "relevant provision", in relation to a worker's contract, means a provision of the contract comprised -

(a) in one or more written terms of the contract of which the employer has given the worker a copy on an occasion prior to the employer making the deduction in question, or

(b) in one or more terms of the contract (whether express or implied and, if express, whether oral or in writing) the existence and effect, or combined effect, of which in relation to the worker the employer has notified to the worker in writing on such an occasion."

(4) The question therefore is whether there was any such written notification of the varied provision as was required by subsection (2)(b). As to this, the Tribunal made no explicit finding. However:

(a) In paragraph 17 of the Reasons the Appellant was recorded as submitting that:

"he should have had written notification of any reduction."

It is not clear to what legal point that submission was being addressed, but it is clear that the question of written notification was squarely before the Tribunal.

(b) In paragraph 21 of the Reasons, fully set out above, the Tribunal records that the Appellant agreed to the two variations in question and observed

"…it was open to him to make such an agreement without it being reduced to writing."

Those words seem to us clearly to indicate that there was no evidence before the Tribunal that the agreement had been reduced to writing, or indeed of any contemporary documentation of the agreements in question that might constitute written notification. Quite apart from the implications that one can draw from the phrase quoted at (b) it would be remarkable, if there had been any such documents, which would plainly have been central to the issues in the case, that they were not referred to in the Tribunal's findings of fact. We are in no doubt, therefore, and still less in the absence of any representation from the Respondents, that we are entitled to conclude on the basis of the Tribunal's Reasons that there was no written notification of the variation agreements such as would satisfy the requirements of section 13.

(5) It necessarily therefore follows that the Appellant at all time remained entitled at law to the salary that he would have been entitled to but for the agreements in question. So far as the year 1999-2000 is concerned, that figure has been quantified at £10,750. As regards the period from 6 April - 5 June 2000, the Tribunal made no formal quantification. However, with the agreement of the Appellant, it seems to us that we can and should quantify it straightforwardly at two months' salary, which amounts to £6,500.

12. On this basis, it is unnecessary for us to consider the other aspect of the grounds of appeal, relating to the provision of the Appellant's contract requiring any variation of the contract by the employer to be notified to him in writing within one month. That may or may not afford an alternative route to the same conclusion, though it seems to us that there may be some difficulties about the effect and construction of such a provision.
13. We therefore allow the appeal and direct that the First Respondent, now the only Respondent, namely Template Europe Ltd, pay to the Appellant the sum of £17,250. The question of interest will have to be remitted to the Employment Tribunal. Of course the Appellant must be aware that the fact that the company is now in liquidation must render doubtful whether he will recover all or any of that sum. That, however, is a matter outside our remit and he will have to take what advice he can as to how to proceed to enforce our Order
14. Although the Originating Application made no reference to any claim for damages for wrongful dismissal, or in ordinary language "notice money", the Employment Tribunal in its Reasons did briefly deal with and reject such a claim. It is unclear to us precisely what the claim was, or to what extent it was properly before the Tribunal. However, the Appellant has indicated to us that he is in any event willing to forego any such claim in this regard that he might have. We do not, therefore, deal with that point further.