United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	Mr Stephen Oliver (Solicitor) Messrs Woodfines LLP Solicitors 16 St Cuthberts Street Bedford MK40 3JG
For the Respondent	Mr Robert Kellar (of Counsel) Instructed by: The Treasury Solicitor – Employment Team 1 Kemble Street London WC2B 4TS


 


Summary

Contract of employment – Definition of employee

This case is concerned with whether a shareholder and director is an employee. There were no findings in the original decision as to whether the Appellant had ever been an employee and, if so, whether their status had been lost by subsequent events.


 


HIS HONOUR JUDGE PUGSLEY

1. This is an appeal from a decision of a Chairman sitting alone at the Watford Employment Tribunal. The facts of this case are that the Appellant was a company director and shareholder in a firm called T19 Design Ltd. The Chairman made the following findings of fact. In 1997 T19 Design Ltd was formed by a Mr Bevan Templeton-Smith and was involved in operations involving the internet. Mr Mann, the Claimant, had no involvement in setting up the company but he joined it in 2001. At that stage there was a staff of some 10 all of whom had shares issued to them as an incentive. The Claimant believed at that stage that he had 10 shares issued to him. His wife, when he joined in 2001, was a director together with a Mr Templeton Smith, a Mr Whittington, who was a chartered secretary and also the company secretary. When he joined the Claimant became operations director and signed terms and conditions of employment which were documented at 4(a) in the bundle. That document contained provisions as to remuneration, hours of work, sickness and holiday entitlement, disciplinary and grievance procedures all of which are normally found in a contract of employment. He also signed a confidentiality agreement and it is common ground that the Claimant paid tax under PAYE and paid national insurance contributions.
2. In October 2003 on the advice of his accountant the Claimant brought additional shares. There is some confusion as to exactly how many additional shares the Claimant acquired on the findings of the Tribunal. The documentation the Chairman found indicated that at the date the company went into liquidation the Claimant owned 55% of the issued share capital and his wife owned the balance. There were no other share holdings and the figures at the last annual return, which was filed on 31 January 2005, indicate the Claimant owned 65 shares; his wife's share holding was 50.
3. The Claimant said that he took holidays and was entitled to various benefits under the terms and conditions. If he failed to take his full holiday entitlement one year then he would carry it forward. He did not take a holiday while he was drawing statutory sick pay. He also guaranteed a bank loan of £25,000 and the Claimant and his wife invested between £75,000 to £100,000 in acquiring certain assets for the company. The Tribunal noted that at the time when T19 Design Ltd ceased trading the Claimant and his wife were the only share holders and he was the sole director. The only matter which is seriously disputed, said the Chairman, is the question of fact as to the extent Claimant's shareholding. On this basis the narrative account contained in the decision should be regarded as the Tribunal's findings of fact. At paragraph 10 the Chairman concluded:-

"I find having heard the evidence, and considered the document that his holding was 65 shares and his wife's holding of 50 shares. He was the majority shareholder. I remind myself that no single factor is determinative of the question of whether or not Mr Mann was an employee. It is a question of taking a step back and looking at the broad picture. From the information from me, particularly the allocation of shares and the substantial investment of family money in T19 Design Ltd, I conclude that at the date that T19 Design Limited ceased trading and subsequently went into liquidation Mr Mann was not an employee."

4. The Employment Tribunal would not have had the advocacy of the very high order that I have been fortunate in having. There is a raft of decisions on this matter and none was cited in the decision. I have considered the most recent decision, that handed down on 25 October 2006 Mr Gladwell v Secretary of State for Trade Industry a decision by Elias P. In that decision the President of this Tribunal, apart from considering issues of jurisdiction, remitted the case because the Tribunal had not followed the guidance laid down on Secretary of State for Trade and Industry v Bottrill [1999] IRLR 326.
5. I am not for a moment purporting to add to the authorities to deal with this issue. The case of GLADWELL succinctly summarises the relevant authority. I am merely saying that I see no answer to the arguments put forward in his able skeleton argument by Mr Oliver. It is, of course, dangerous for appellate courts to start the process of unravelling a first instance decision and to seek to subvert the fact finding role of the initial Tribunal. But with the greatest respect for the spirited argument by counsel for the Respondents, I can see no answer to this part of the Appellant's case:-

a) "The Tribunal made a finding that C entered into a contract of employment with the Company in October 2001. Having done so it was then required to consider whether such a contract was genuine and not a sham. There is nothing evident in the Tribunal's extended reasons to suggest that the contract was a sham. The contract was entered into when C first joined the Company in October 2001. The Tribunal further found facts which broadly indicate that the contract operated in accordance with its terms, for example, C took holiday, he was paid statutory sick pay, he paid tax on a PAYE basis and paid national insurance contributions. However, in the absence an express finding on the status of the contract and given the findings of the fact which were actually made, it is submitted that the Tribunal found that the contract was genuine or put at its lowest did not find that the contract was a sham. Alternatively, if there was no finding on the genuineness of the contract the Tribunal fell into error by failing to make such a finding.

b) There is no indication from the extended reasons that having made those findings referred to above that the Tribunal proceeded to the next step, namely to consider whether the contract actually gave rise to an employer/employee relationship. It was open to the Tribunal to consider, in deciding whether or not there was an employer/employee relationship, the degree of control exercised by C over the Company. There is no indication from the extended reasons that it carried out such an exercise. There is no reference in the extended reasons to the matters which the Tribunal should have taken into account in deciding whether C actually exercised control. For example, there are no findings as to whether C was only answerable to himself and incapable of being dismissed or whether he was capable of voting on a matter in which he had an interest. It does not appear that the articles of association of the Company were before the Tribunal. There were no witness statements provided in the proceedings and we are instructed by C that questions were not put to him by the Tribunal Chairman or the Respondent's about exercising control."

6. The skeleton then goes on to criticise the Tribunal for its failure to set out in any detail the reasons for its decision that the Claimant was not an employee. It is difficult to see how the Tribunal, on its findings, could have come to any other view that there was a contract of employment entered into when the Claimant was not a majority shareholder. All employees were shareholders. It has been argued vigorously by the Respondent that the task of the Employment Tribunal was to determine the status of the Claimant at the time of the liquidation and that it was not concerned with the historical exercise of looking back and deciding what was the initial statement of the Claimant. I cannot accept that submission, albeit it was made in a robust and delightfully clear way by Mr Kellar. At the end of the day the Claimant's position at the point of the company going to liquidation cannot be determined without at least considering whether or not he had ever been an employee and if so, the extent to which that contract of employment, if it existed, had been discharged.
7. I hope I shall not be criticised for dealing with the authorities with brevity. This Tribunal fails to grapple with the issue of what the Claimant's contractual status was and the extend to which it changed. Although the decision said no one factor was determinant there is no consideration of the change in status of the Claimant.
8. It is of course right that it is not for an appellate Tribunal, in cases such as this, to rearrange the priorities and weight that an Employment Tribunal has given. If authority is needed for that rather trite proposition it is supplied by Interlink Express Parcels Ltd v Wild and Others (EAT/0242/03/TM) but the Employment Tribunal was required to consider to address the issues to whether the Claimant was ever an employee and why had the acquisition of substantial shareholding and becoming a director deprived him of his status as an employee.
9. The reality is that the decision is fundamentally flawed. It does not set out a clear path so anyone can chart the route to its final decision. I hasten to add I am not seeking to pre-empt the decision of a further Tribunal which has to consider the matter. That Tribunal must be free to make whatever findings it considers appropriate as to whether the Claimant was initially an employee and if so whether that status changed having regard to the test enunciated in Bottrill. The appeal is allowed and the case is remitted to another Tribunal so the case can be fully considered. I grant the Appellant's application that the case be heard in the Bedford Employment Tribunal.