United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR T KIBLING (of Counsel) Instructed By: Messrs Browne Jacobson Solicitors 44 Castle Gate Nottingham Notts NG1 7BJ
For Miss J T Wild (Respondent) For Mr P O'Hara (Respondent) For Mr P Cambell (Respondent)	NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF THE RESPONDENT NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF THE RESPONDENT NO APPEARANCE OR REPRESENTATION BY OR ON BEHALF OF THE RESPONDENT


 


JUDGE J McMULLEN QC:

1. As encapsulated in the Skeleton Argument of Mr Thomas Kibling, who appears for the Appellant, this appeal raises the vexed question as to when directors and shareholders of limited companies can also claim to have entered into or worked under a contact of employment. The judgment represents the views of all three members who pre-read the relevant papers. We will refer to the parties as Applicant and Respondents as below.
2. It is an appeal by the Respondents in those proceedings against a reserved decision of an Employment Tribunal, Chairman Mr M Humphreys, sitting at Leeds, registered with Extended Reasons on 13 November 2002. The Applicant represented herself. The two Respondents in the original proceedings were represented separately by solicitors.
3. The Applicant made a number of claims, three of which depended upon the determination of her status as an employee and the fourth, her status as a worker. The Tribunal did not deal with the latter. The Respondents contended that the Applicant was not an employee or a worker.
4. The essential issue confronting the Employment Tribunal, the facts not being in dispute, was to decide whether the Applicant was an employee when Leebra Ltd ceased to trade. The Tribunal decided that she was an employee of Leebra Ltd which subsequently went into liquidation. It did not decide whether or not she was a worker. That issue would become relevant if the correct analysis of the relationship was that the Applicant was not an employee. As will be clear, it is not necessary for us to refer this matter back to the Tribunal for its decision. The Respondents appeals against the decision.

Preliminary directions

5. Directions sending this appeal to a preliminary hearing were given by me in Chambers and, following the submission of arguments for the purposes of that preliminary hearing, I sent it directly to a full hearing. Directions were given relating to any material which does not sufficiently appear from the decision of the Employment Tribunal. Those directions were given twice. Mr Kibling at all times had conduct of the hearing and of the paperwork.
6. Today, an application was made to argue a point relating to one of the Officers of the Respondents, Mr John Maher, and to adduce a statement said to have been put before the Employment Tribunal.
7. The Applicant has submitted a short letter indicating that she could not attend today, but that she wished to rely on her Notice of Appeal which relies on the Tribunal's findings and made additional points. Thus, she is not aware of the application made to adduce Mr Maher's statement. We decided that it was unfair for this to happen, particularly because it is in breach of the two directions I gave relating to the conduct of this case. Had she been here it might have been a simple matter to resolve, but she is not and did not know the point would be taken.
8. Faced with that Mr Kibling attempted to argue the bald point in the Notice of Appeal which is that the Tribunal paid no attention to a statement adduced by Mr Maher. His instructions are that this document was put before the Employment Tribunal without live evidence from Mr Maher. It would have been a simple issue again to resolve, for the Applicant could have agreed it and if not the matter could have been referred to the Chairman.
9. We note that at the very outset of the Tribunal's reasons there is a reference to statements submitted by Stephanie Norton and Melanie Muldowney. An explanation is given as to why Stephanie Norton was unable to attend. There is no reference to Mr Maher at all throughout the hearing. We consider it would be unsafe for us to accept the assertion that his witness statement was given to the Tribunal, for the contention is that no or insufficient regard was had to his evidence. It may be that there was a simple oversight, but it does reinforce our judgment that it would be unfair that specific mention is made of two witness statements which were put in but not of Mr Maher's.

The legislation

10. The relevant provisions of the legislation are the Employment Rights Act 1996, sections 230(1) and (3):

"230 Employees, workers etc.

(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.

...

(3) In this Act 'worker' (except in the phrases 'shop worker' and 'betting worker') means an individual who has entered into or works under (or, where the employment has ceased, worked under) -

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;

and any reference to a worker's contract shall be construed accordingly."

11. The Tribunal directed itself by reference to the former and what we hold to be the leading authorities which are cited in its Extended Reasons: Secretary of State for Trade and Industry v Bottrill [1999] ICR 592 CA and Hauxwell v Secretary of State for Trade and Industry (Unreported EAT, 19 June 2002) Mr Justice Wall and Members.
12. Since this case is argued as a mixed question of fact and law it is necessary for us to take the unusual step of citing in full the factual determination of the Tribunal.

"2 Initially, H N Wild Parcels Limited, in which the Applicant was a Director from August 1984, ran the franchise from Interlink although it was the father who held the franchise personally because at that time Interlink did not allow companies to do so. In 1998 the father gave up work and the franchise was initially transferred to the Applicant and her brother but then at a later time the franchise was assigned to Leebra Limited when Interlink changed its policy to allow companies to hold the franchise. During the history of the company, there were up to 35 employees and at the end of its existence there were 20.

3 When Mr Wild, the father, retired, the Applicant and her brother took over the business and renamed it Leebra Limited. The consideration for taking over the business was the payment of £500,000 or thereabouts to be paid by monthly instalments, by the newly named company over a period of 10 years. The Applicant and her brother each held 50% of the shares in that company and both were Directors.

4 In July 1990 the Applicant was issued with a Statement of Terms and Conditions of Employment in accordance with the Employment Protection (Consolidation) Act 1978 and it states that it sets out the terms and conditions and forms part of the Applicant's contract of employment. The Applicant produced, by way of documentation, three wage slips from August 2001 and a P45, which is dated 31 August 2001. She told us that she was treated as an employee of the company by the Inland Revenue. She received £500.00 per week by way of salary, a company car, and there was a pension scheme, which was non-contributory. Her salary was last reviewed some 8 years ago. It is important to note that the Applicant received her remuneration in consideration for the work done by her and did not receive any dividends. No other employee participated in a pension scheme but an offer was made to set one up some years ago but did not get off the ground because of lack of interest.

5 The Applicant's official title within the company was Administration Director. Her position within the business had evolved over the years but it is clear that throughout her time with the company it was a 'hands on' position. At times she would go out to deliver and collect parcels and broadly she said, and we accept, that she just did what had to be done. Her work included dealing with the post, answering calls from customers, preparing the wages and banking. The evidence from the Applicant was that she worked 10 hour days. There was a question, raised by the statement of Miss Norton, that earlier in 2001 the Applicant had absented herself from the business to a very large extent. The Applicant explained, and we accept, that this was because there was a dispute with Interlink and she had to spend days at a time, working from home, going through a mass of paperwork in order to try and resolve the matter.

6 In respect of her duties as a Director, involving strategic decision-making, we find that this played a very small part in her day-to-day activities. In particular we note that the Third Respondent negotiated the vast majority of the contracts for delivery of parcels. The only significant exception was that the Applicant had attempted to set up a local parcel delivery service at some time in the past.

7 In about February 2001 the Applicant's brother, Gary, decided to cease active involvement with the company. He, however, on the face of it, remained a Director and retained his 50% shareholding. The Applicant's brother had worked mainly on the operational side and it was necessary to replace him by Mr Paul Southwell when he left.

8 The Applicant accepted, during cross-examination, that she had control over what she was paid and could alter those payments. The Applicant agreed that it was her decision, after consultation with her brother, to put the company into liquidation. Further, in cross-examination, the Applicant accepted that there was no one in Leebra who could have disciplined her or dismissed her other than her brother.

9 Reference was made, in particular, to Page 113 of the bundle, which contains part of the Articles of Association of Leebra. Clause 11 a allowed the Applicant to vote on any matter even if she had a direct or indirect interest. Effectively, it was said by the Respondent that that meant she could veto any move to dismiss her.

10 We find as a fact that the contract, skimpy in written detail though it might be, was a genuine one and it certainly was not a sham. It was not suggested by either of the Respondents in cross-examination that the contract was a sham. Taking that document and the work done by the Applicant we find that there was a contract of service, which was partly written and partly implied from the conduct of the Applicant and the company.

11 When the company was renamed Leebra the Applicant took a 50% shareholding in the company but that had no effect whatsoever upon her day-to-day activities in respect of the work done or her terms and conditions of employment.

12 Effectively, when her brother left the business early in 2001, she had sole control of the business. There was no indication to us that her brother had transferred his interest in the company to her or to any other person.

13 We find that throughout the period of her involvement with Leebra, the Applicant was an employee."

13. The Tribunal indicated in further findings that the change in the name referred to above had no legal effect on the status of the Applicant. It referred, on a number of occasions, to its consideration of all of the circumstances and of the facts. It addressed itself to the judgment in Bottrill expressly citing from a leading passage, although criticism is made on behalf of the Respondents of a certain extra sentence. The Tribunal concluded that the relationship was regulated by a partially written contract of employment. There was no sham, nor was it a manipulative device. The Tribunal dealt with the contention that the payment of £500,000 was inconsistent with the relationship of employer/employee and noted that there was no inconsistency between the Applicant being a director and an employee. For good measure, it considered the mutuality of obligation necessary in a contract of employment and came to the conclusion, based on the reality of the situation, that the Applicant was an employee of Leebra Ltd. It also paid attention to the day-to-day activities of the Applicant including the relationship with PAYE. It found that there was a contract of employment from 1990 and the changes which occurred in 1998 to the organisation of the business caused no change in the employment status.

The submissions

14. It is contended on behalf of the Respondents that the Tribunal placed insufficient weight upon certain factors. In each grounds of appeal argued before us, that phrase appears. Thus, it is suggested that insufficient weight was given to the fact that the Applicant was both an employer and an employee of Leebra Ltd (the Controlling Interest point), that insufficient weight was given to the purchase price and that the decision was perverse. It is also contended that the Tribunal misunderstood the evidence relating to the documents.
15. The Applicant in her letter supported the decision of the Tribunal and it is not necessary for us to set out the short details of her contentions in support.

The principles to be applied

16. We agree that this is a subject upon which there has been considerable attention by Employment Tribunals and all levels above them. Fortunately, careful guidance was given at the invitation of the Secretary of State by the Court of Appeal when Lord Woolf MR gave the judgment of the Court in Bottrill. The principal basis upon which guidance was given included the passage which we have referred to above and which we cite in full:

"The first question which the tribunal is likely to wish to consider is whether there is or has been a genuine contract between the company and the shareholder. In this context how and for what reasons the contract came into existence (for example, whether the contract was made at a time when insolvency loomed) and what each party actually did pursuant to the contract are likely to be relevant considerations.

If the tribunal concludes that the contract is not a sham, it is likely to wish to consider next whether the contract, which may well have been labelled a contract of employment, actually gives rise to an employer/employee relationship. In this context, of the various factors usually regarded as relevant (see, for example, Chitty on Contracts, 27^th ed. (1994), vol. 2, pp. 703-704, para. 37-008), the degree of control exercised by the company over the shareholder employee is always important. This is not the same question as that relating to whether there is a controlling shareholding. The tribunal may think it appropriate to consider whether there are directors other than or in addition to the shareholder employee and whether the constitution of the company gives that shareholder rights such that he is in reality answerable only to himself and incapable of being dismissed. If he is a director, it may be relevant to consider whether he is able under the articles of association to vote on matters in which he is personally interested, such as the termination of his contract of employment Again, the actual conduct of the parties pursuant to the terms of the contract is likely to be relevant. It is for the tribunal as an industrial jury to take all relevant factors into account in reaching its conclusion, giving such weight to them as it considers appropriate."

17. That enjoins the Tribunal to consider the factors but once it does the giving of weight to them is a matter for it as it finds appropriate. Obviously, the Court in that passage stressed that some matters were likely to be seen as important, but it must be borne in mind that the task entrusted to the Tribunal is the attribution of weight to the factors. Similarly, in Hauxwell the EAT had the judgment in Bottrill which the Tribunal in that case did not and was able to come to the conclusion as follows:

"We cannot find in the overall facts of the case any material factor which the Tribunal has failed to take into account, nor ... can we detect any error of law in their conclusion….

"We also accept ... that the Tribunal undertook a balancing exercise between the facts and the circumstances which tended towards a relationship of employment and those which did not, and that the significance attached to [the Applicants'] controlling shareholding did not exclude a proper consideration of other factors, notably that they were paid a fixed salary through the PAYE system and that their terms and conditions of employment were similar to the other employees."

18. That indicates that different Tribunals can come to different conclusions when applying the factors held to be relevant in Bottrill. We observe that in Bottrill the decision of the Employment Tribunal was upheld by the EAT and the Court of Appeal. In Hauxwell the decision of the Employment Tribunal (against the employment status and against the Applicants) was upheld by the EAT. That indicates to us that the task of the Tribunal is indeed one of appreciation and of weighing the evidence once it makes correct findings and once it applies the judgment of those two cases.
19. We ourselves cannot find any error in its attribution. As we look at the factors which it considered, some may strike us as having more weight than others, but that is not a task that we have to undertake. We are asked to consider whether or not the Tribunal gave attention to the factors and explained its reasons. Thus, we reject the contention that, as a matter of law, an allegation of insufficient weight will sound in a case dealing with the factors in Bottrill.
20. Further, we are asked to consider specifically the Tribunal's reliance upon the sole contractual document relating to the employment status which is a statement of terms and conditions. This was made in 1990. Given the Tribunal's finding that the contractual relationship was regulated by implied terms and by conduct, the Tribunal cannot be faulted for paying attention to this document. Undoubtedly, the relationship went through a number of changes, as the business shrank and as the franchise was reallocated, but the Tribunal cannot be faulted with its finding that the change had no legal effect on the status of the Applicant, nor that this partially written contract was a sham.
21. In those circumstances, the grounds of appeal fail and we dismiss the point raised in relation to the statement of Mr Maher following our ruling about its admissibility.
22. In conclusion, this Tribunal did not make a perverse decision upon undisputed facts which all went one way. In our judgment it properly weighed the factors, some going one way, others going another, and we reject the contention that all of the factors pointed ineluctably in one direction. The resolution of those competing factors was for the Tribunal and not for us. The submission comes nowhere near the high standard now required since Crofton v Yeboah [2002] IRLR 634 for a decision to be condemned as perverse.

Disposal

23. This case will now go on to a substantive hearing before the Employment Tribunal and we will give some directions.
24. An application has been made for permission to appeal based on one submission alone, that is, that the decision of the Tribunal. Following the Court of Appeal in Crofton v Yeboah [2002] IRLR 634, we refuse the application.