United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR C GILCHRIST (Representative)
For the Respondent	MR A M COCKBURN (Solicitor) Instructed by Messrs Maxwell MacLaurin Solicitors 53 Bothwell Street Glasgow G2 6TS


 


SUMMARY

Unpaid wages and PILON. Whether due to director of insolvent company by new company via TUPE. Bias.


 


THE HONOURABLE LADY SMITH

INTRODUCTION

1. This is an appeal from the judgment of an Employment Tribunal sitting at Glasgow, Chairman Mr W A Muir, registered on 6 September 2007, finding the respondents to have been in breach of contract in respect of payments of salary, pension contributions and pay in lieu of notice and ordering that they pay to the claimant a total sum in respect of those three elements of £5,500.
2. I propose to continue referring to parties as claimant and respondents.
3. The claimant was represented by Mr A M Cockburn, solicitor, before the Tribunal and before me. The respondents were represented by Mr C Gilchrist, director of the respondents, before the Tribunal and before me.

Robert Gilchrist & Son Limited ("RGS")

4. The respondents are a company which is in the joinery business. The claimant worked for the respondents until a date in or about April 2007. Prior to that, the claimant was a director and company secretary of RGS. He was responsible for its financial affairs. The company ran into financial difficulties by about July 2005. At that time the claimant was being paid £3,040 per month by RGS, £540 of which was paid directly into a pension plan with Standard Life. RGS went into liquidation in December 2006.
5. The Tribunal proceeded on the basis that the claimant was an employee of RGS before becoming an employee of the respondents but there were no documents before it to demonstrate whether or not that was the position or whether the claimant was not an employee of RGS but merely an officeholder; the director of a company is not necessarily an employee of it (see, for instance, the detailed discussions by the Court of Appeal as to what facts and circumstances may or may not show that an employment relationship exists between a company and its directors in Secretary of State for Business Enterprise and Regulatory Reform v Neufeld & Howe [2009] EWCA Civ 280, shortly to be considered on appeal by the UK Supreme Court). Whilst it is evident that the respondents regarded him as an employee of theirs, that is not determinative of the issue of whether or not he was an employee of RGS and, in particular, whether he was an employee under a contract of employment for the purposes of the Transfer of Undertakings (Protection of Employment) Regulations 2006; if he was not then his claim against the respondents was irrelevant and bound to fail. The Tribunal does not, however, appear to have given any consideration to this important issue.
6. There were two other directors of RGS namely Colin Gilchrist (who represented the respondents before the Tribunal) and his father, Alfred Gilchrist.

Agreement between the Claimant and RGS

7. The Tribunal found that, given the financial difficulties, the claimant accepted that payment of monies (including pension contribution) due to him for the month of December 2005 should be deferred. The respondents sought to argue that he had waived it but that argument was rejected by the Tribunal. The claimant did receive monthly payments thereafter (after a reduced rate was agreed) but no contributions were made to his pension for the next two months. The claimant was asked to produce a proposal which he did. He met with both Alfred and Colin Gilchrist on 15 February. It was agreed that he would, thereafter, work fewer hours (20 hours per week) for £24,000 per year. That agreement was reached after they had considered a document which he had prepared It included the following:

"Proposals / guarantees

Right to redundancy payment based on salary for 2005 to be maintained until 31/12/2000.

Pay in lieu of notice if implemented to be based on salary for 2005 and to be maintained until 31/12/07.

Basic salary to be £24,000 per annum for 20 hour week which includes for company car being purchased and running costs paid by JMD.

Petrol allowance to be agreed to cover modest use of car.

Hourly rate for extra hours as required - £20 per hour.

Holiday entitlement remains the same (…).

5 days (36 hours) due before 31/3/06.

Personal Health Insurance to be discussed.

Money due to JMD

January salary.

Three months pension payments have been stopped – will company contributions restart and if so when.

Petty cash payments."

8. It is notable that the document does not show any sum as due in respect of December 2005. That does not, however, appear to have been taken into account by the Tribunal nor does the claimant appear to have explained why, if it was his position at that stage that only his January salary was outstanding, it later became his position that he was still due to be paid his salary for December 2005.
9. The document was subsequently signed by both Colin and Alfred Gilchrist with the date 17 February 2006 appended and the note "Read and Understood" written on it.
10. Alfred Gilchrist wrote to the claimant following the meeting of 15 February by letter which stated:

"…we agreed that I should write and confirm what was agreed with you."

There then follows a list of matters agreed namely: a reduction in hours to 20 hours per week and in salary to £24,000 per annum (all to be reviewed after 6 months) additional hours to be paid at £20 per hour, the claimant to purchase his car from the company, the claimant's reduced week not to affect his redundancy entitlement and no issue with holidays, petrol or sundry expenses incurred by reason of his job. There was though, a problem with health insurance and pension, the cost of which, as the letter explains, the company could not, at that point, meet. There is no mention in the letter of pay in lieu of notice. Mr Gilchrist added:

"I feel it is proper for Colin and I to sign your recent note and proposals as having been read, understood and agreed as a correct statement."

Hence the signatures and notation on the claimant's document to which I have already referred. If, however, the letter and the note referred to are read together, it is certainly arguable that it does not amount to evidence of any agreement about pay in lieu of notice; the letter specifies the extent of the heads of agreement and the note gives detail to each of those heads. This is discussed further below.

11. The penultimate paragraph of the letter was in the following terms:

"Payments to directors and creditors alike will always depend on income and cannot be guaranteed. However Colin is determined to try and retrieve the position and save the business from closing down."

12. With reference to that letter, the Tribunal states, at paragraph 2(c):

"Notwithstanding the fact that this letter does not specifically address the proposal – "pay in lieu of notice if implemented to be based on salary for 2005 and to be maintained until 31/12/07 mentioned in C17, Mr Alfred Gilchrist and Mr Colin Gilchrist agreed to this proposal. In effect the old company agreed to pay the claimant in lieu of notice at the salary rate for 2005 in the event that his employment terminated prior to 31 December 2007."

13. As I have indicated, the Tribunal gave no consideration to the question of what contract, if any, existed between the claimant and RGS (other than that which was agreed in February 2006 which clearly does not vest in the claimant any right to "pay in lieu of notice") and so gives no consideration to whether the claimant did have a contract of employment with RGS and if so what, if anything, was provided in any contract between the claimant and RGS regarding notice and pay in lieu of notice. The matter is taken up again by the Tribunal at paragraph 4(d) where it states:

"… Turning now to the notice claim, it is undoubtedly the case that there is no specific mention by Mr Alfred Gilchrist in his letter to the claimant … that this is agreed. The claimant asserted that it was agreed and when Mr Alfred Gilchrist was cross examined by Mr Cockburn he was specifically asked whether the old company was agreeing to pay the claimant pay in lieu of notice at the higher rate in the event that his employment terminated by 31 December 2007. Mr Gilchrist replied in the affirmative… The Chairman concluded that the fact that Mr Gilchrist had omitted to touch on this particular proposal in this letter to the claimant did not signify that there was no agreement."

14. According to the explanation given to me by Mr Cockburn, what Mr Alfred Gilchrist conceded was that it was possible to read the provision about "pay in lieu of notice" in the document prepared by the claimant for the meeting of 15 February 2006 as in fact referring to "any notice pay" which is not what the Tribunal appears to have taken from it; the Tribunal's comments appear to refer to pay in lieu of notice, not "notice pay" (which Mr Cockburn accepted was a different creature). The Tribunal evidently regarded Mr Gilchrist's answer on this matter as critical to the case. However, whatever Mr Gilchrist conceded in the course of the hearing before the Tribunal, the subjective views of one director of a company which was party to a contract with another director, as at August 2007, cannot be regarded as determinative of the issue as to what, if anything, was agreed between the parties in February 2006. The nature and extent of any agreement is a matter that required to be assessed objectively. The issue was not that of what Mr Alfred Gilchrist intended but of what could be concluded from all the evidence about what parties agreed. Reading the letter of 17 February 2006 objectively, it seems plain that only the matters specifically listed are the subject of agreement, particularly since (a) the notation on the claimant's document is not "agreed" but "Read & Understood" and (b) the claimant's document covers options other than the one which parties ultimately focussed on, including a lower salary going forward but with continuation of the provision of a company car, redundancy, and constructive dismissal (none of which were, plainly, agreed to) i.e. the fact that the clause about pay in lieu of notice was included in the claimant's document does not mean that it was agreed to. There is then the separate question of how, in any event, it could be possible to make sense of the reference to "Pay in lieu of notice if implemented" without knowing whether the claimant had a service contract, whether that contract contained a provision that pay in lieu of notice would be due, if so, who could implement it and, in what circumstances?
15. On the interpretation exercise alone, I am satisfied that the Tribunal was not entitled to find that the claimant and RGS reached any agreement in February 2006 about pay in lieu of notice or notice pay.
16. There is then the separate question of the import of the penultimate paragraph of Mr Alfred Gilchrist's letter. It was plain from the submissions made by Colin Gilchrist to me that he had been endeavouring to submit that it meant that the entire agreement was conditional on RGS being able to afford to pay the sums referred to and Mr Cockburn did not take issue with that having been the respondents' position. The Tribunal has not addressed the matter. It does comment that Mr Gilchrist failed to understand the difference between ability to pay and liability to pay and it may that that is the Tribunal's answer to the issue raised; on one view the fact that creditors and directors are referred to in conjunction with each other could be seen as indicating that the paragraph is no more than a warning that RGS may not be able to pay its debts. The Tribunal makes no mention of that paragraph of the letter, though, and it is unfortunate that one is left with the impression that it was not considered.
17. The claimant carried on with his responsibilities for the company's financial affairs after February 2006 although on the basis of the new 20 hour week that had been agreed. The Tribunal again fails to address the question of whether, in those circumstances, the claimant was working as an employee of RGS or solely as an officeholder.

The Liquidation of RGS

18. On 18 December 2006, RGS went into liquidation. The Tribunal makes no findings as to whether the liquidation was a voluntary one or a winding up under the supervision of the court. The Tribunal does not address the question of whether, if the claimant was an employee of RGS (in addition to being an officeholder) that liquidation had the effect, in law, of terminating his contract of employment as it could have done, depending on the type of liquidation and the terms of any contract under which he provided services to RGS. Importantly and significantly the Tribunal does no more than note that Mr Cockburn advised that the claimant had received a redundancy payment. It has no regard to the fact that, according to "Answers to request for additional information" provided by Mr Cockburn on behalf of the claimant to the Tribunal in the course of the present proceedings a redundancy payment of £9,300 was received by the claimant from "the Redundancy Payments Office, Edinburgh" (i.e. in respect of an insolvent employer) in the context of it being part of the claimant's claim against RGS (not a redundancy payment in respect of his employment with the respondents). The respondents are still trading, there is no indication of there being any outstanding Tribunal award of a redundancy payment due to the claimant by the respondents and so the redundancy payment referred to cannot be in respect of the claimant's employment with them. The only apparent explanation for it having been paid by the Redundancy Payments Office is that it is a payment out of the National Insurance Fund that can arise where an employee's contract of employment is terminated by reason of redundancy due to the employer's insolvency, in this case, RGS. Thus, on the material that the Tribunal had before it, even if it was correct to have regarded the claimant as an employee of RGS, the circumstances of its insolvency appear to have been such as to have brought any contract of employment that the claimant had with it to an end, entitling him to a redundancy payment. The termination of his contract of employment cannot, in those circumstances, have been by reason of a relevant transfer for the purposes of TUPE. Mr Gilchrist sought to found on the fact that the claimant had received a redundancy payment but the Tribunal rejected his submission on the basis that it was a statutory right whereas the payments sought by the claimant in the present claim were contractual ones. That does not address the point which arose which, put colloquially, was that the claimant could not have it both ways; he could not claim that he was redundant by reason of RGS's insolvency and therefore entitled to receive (and retain) a substantial redundancy payment and at the same time claim that his contract of employment had not been brought to an end by RGS's insolvency (in which case he would have had no right to a redundancy payment) but was subsequently transferred to the respondents.
19. After RGS went into liquidation, according to the findings of the Tribunal "the business of the old company which went into liquidation on 18 December 2006 was transferred to the respondents". The Tribunal state that that transfer was "By virtue of the TUPE Regulations." Mr Cockburn's submission on that matter was:

"The effect of the TUPE Regulations is that all rights and liabilities under the claimant's contract with the old company extant immediately prior to transfer moved to the transferee – the respondents."

20. No thought appears, however, to have been given by Mr Cockburn or the Tribunal to the question of how, given that the claimant was redundant by virtue of RGS' insolvency, there could be any subsisting contract of employment available for transfer. Mr Gilchrist's attempts to rely on the fact of the claimant's redundancy appear to have been swept aside. The TUPE Regulations are not referred to or considered in the Tribunal's reasoning. If they had been, once the insolvency related redundancy payment was taken into account, the Tribunal could not properly have done other than find that there was no subsisting contract which could have been the subject of a TUPE transfer.

The Claimant and the Respondents in 2007

21. Matters became difficult financially again though and, as was recorded in a letter from the respondents to the claimant dated 31 January 2007, Colin Gilchrist and the claimant met on 30 January 2007 and discussed the position "going forward"; in the course of that discussion, the claimant requested an offer to terminate his employment. In his letter Mr Gilchrist gave the claimant two options:

"1. You become redundant at today's date and start to work your notice …

2. You finish work today, in which case I would pay you the global sum of £10,000…"

22. The claimant carried on working. However, as recorded in the Minutes of a Meeting between the claimant and Colin Gilchrist which took place on 6 February 2007, difficulties ensued on account of information that the latter had received to the effect that the claimant was spreading rumours to the effect that the respondents would be going out of business. Also, allegations had been made about the claimant's behaviour. The Minute ends with the following:

"CG stated that under the circumstances he thought that JD should take 'Garden Leave' until further notice."

23. The Tribunal makes no reference to the letter of 31 January or to the meeting and Minute of 6 February. It simply finds, at paragraph 2(d) that the claimant:

"… did not work his notice period."

but there is no explanation of how that finding is arrived at. It does seem, however, that an explanation was called for given the terms of that letter and the minute of the meeting which together appeared to indicate that the claimant was not entitled to pay in lieu of notice but, rather, to continuing salary at the agreed reduced rate during the 13 week notice period, part of which he worked in the respondents' premises and part of which he spent on "garden leave". The Tribunal also accepted that the claimant did receive salary during the notice period; the award made relates only to the "shortfall" between the 2005 rate of £3,000 per month and the sum of £2,000 per month which was paid to him over the course of the notice period. Thus although the Tribunal refer to the claim being about pay in lieu of notice (paragraphs 2(c) and 4(d)), it did not in fact approach matters on the basis that the claimant's claim was a claim for pay in lieu of notice at all. Rather, it has awarded a sum which was actually in respect of a claim for unpaid wages.

24. There remained the separate and unanswered question of what, if anything, was provided for in the claimant's contract of employment regarding notice and pay in lieu of notice, in any event. As is commonly recognised, the term "pay in lieu of notice" can be used to cover a number of quite different contractual arrangements, some of which may provide for such payments being wholly at the behest of the employer with the employee not being entitled to insist on payment in lieu of notice at all.

THE APPEAL

25. Given the particular circumstances in which this appeal arises, it is necessary to set out the grounds contained in the notice of appeal in full:

"6. The grounds upon which this appeal is brought are that the employment tribunal erred in law in that:

(a) The Tribunal erred in law by reaching a decision as to compensation which was perverse, as described in the following paragraphs.

(b) There is no evidence to support the Chairman's decision that the Respondent did not work his notice. This decision is perverse.

(c) The Chairman remarked at the outset of the Hearing that the Appellant was impeded by lack of legal representation. In so remarking the Appellant believes that this view affected the determination of the matter and consequently, that it was denied the right to a fair trial in accordance with Schedule 1 Part 1 Article 5(1) of the Human Rights Act 1998. The Appellant objected to the remark, questioning how the trial could be fair under that circumstance.

(d) The Appellant was denied a fair opportunity to lead evidence as to whether the Respondent did in fact work his notice period. The Chairman repeatedly interrupted the Appellant whilst he was trying to make clear the sequence of events. (1).   That the claimant had been made redundant, taking the form of notice on 31^st January 2007 and (2).  Followed by the claimant being served a notice (one week later) placing him on garden leave, and that (3).  The Appellant had taken legal advice to take this course of action, (see attached documents.) In so doing the Chairman denied the Appellant the right to a fair trial in accordance with Schedule 1 Part 1 Article 6(1) of the Human Rights Act 1998.

(e) As, the Appellant was not given an opportunity to lead evidence as to whether the Respondent worked his notice, it is contended that no Tribunal properly directing itself as to the facts could have made the determination that the Respondent did not work his notice. The Appellant believes that the Tribunal's alleged failure to consider this aspect is borne out of Appellant being denied the right to a fair trial in accordance with Schedule 1 Part 1 Article 6(1) of the Human Rights Act 1998 because the Appellant was not given a full opportunity to present its case.

(f) The Appellant requested that the chairman minute the comments he had made when he informed the Appellant that he would be impeded by his lack of legal representation and to minute the objection raised by the Appellant to the remark at the time. The chairman refused to do so.

(g) In all of the foregoing circumstances the conclusion that the Appellant breached the Respondent's contract and that the Appellant was ordered to pay the Respondent the sum of £5500.00 could not have been drawn by a reasonable tribunal. In fact there is no evidence at all to support the Chairman's decision that the respondent did not work his notice."

26. The claimant has provided an affidavit in support of what is outlined in the notice of appeal. The Employment Tribunal Chairman was asked for his response and has responded by letter at p.63 of the bundle. He advises that he does not have his notes of the hearing which is most unfortunate. The hearing took place some fifteen months prior to the request for a response to the claimant's notice of appeal and I would have hoped that they would have still been available to the Chairman. His response is, accordingly, limited.
29. Mr Muir advises that:

"I accept that I did say to him that his lack of legal representation put him at something of a disadvantage. I might have used the word 'impede' but my purpose was to convey the message to him that I recognised that it was not a level playing field and that I would take account of his comparative lack of skill when compared to that of Mr Cockburn. It is my practice to make this clear to an unrepresented party where the other party is legally represented. I accept that I probably did say to Mr Gilchrist that in my experience it is the employee who is unrepresented due to cost considerations and that the employer is represented. I was trying to point out to him that this in my experience at least was a departure from the norm."

30. Otherwise, Mr Muir has no recollection of the specific events referred to by the claimant. He adds, however, that he recalls Mr Gilchrist adopting a somewhat "bullish" position, that he was completely confident that the claimant's case was without merit and that when evidence emerged which did not suit him he reacted in a somewhat dismissive manner, such as when his father gave the answer to questioning about the February 2006 agreement to which I have referred above. Mr Muir states that the claimant's assertion that the answer had been unfairly elicited was "one which was completely wrong and was, to my mind improper even allowing for his lack of representation skill". Unfortunately, no doubt due to the absence of his notes, Mr Muir has not advised what exactly was asked and answered at that point in Mr Alfred Gilchrist's evidence.
31. Finally, Mr Muir states that he recalls Mr Gilchrist asking him to record that he had said that he was impeded by lack of representation and explains that he told him he would not do so "because I did not consider this to be in any way material to my decision".
32. In the course of the hearing before me, Mr Gilchrist explained that he found the Chairman's comments that his ability to put forward his case would be impeded by his lack of knowledge to be intimidating and to indicate that he was disadvantaged before the case had even started. He felt that the comment that it was all too often that employees were unable to afford legal representation and that the employer had the upper hand as a result to be to the same effect namely that he was disadvantaged. He found Mr Muir's interruptions difficult. He felt it prevented him getting across his point about the claimant being put on garden leave. He was upset by Mr Muir being evidently delighted at his father's answers. He felt that Mr Muir should have recorded his comments in his judgment when he was asked to do so.
33. It remained Mr Gilchrist's position that the claimant was not due any further payments from the respondents. There was no agreement about pay in lieu of notice nor to the effect that the other payments were due. The claimant had worked his notice, partly at the respondents' premises and partly on "garden leave" and had been paid regularly in the usual way. He also made reference to the claimant having been made redundant and queried whether TUPE could have applied to him. Having reflected on Mr Gilchrist's submissions it is evident that whilst he is not legally qualified, his instincts as to what was of particular relevance to his case were absolutely right. Equally, it is evident that he felt constrained in pressing them because of the effect on him of the Chairman's comments and interruptions which is singularly unfortunate.
34. For the claimant Mr Cockburn submitted that the Chairman's comments could be seen as an attempt to encourage Mr Gilchrist to instruct legal representation. He explained the essence of his case about pay in lieu of notice was as I have already explained although he also seemed to accept that the Tribunal's judgment did not read as though Mr Muir had understood it so to be and ultimately, the impression was that Mr Cockburn accepted that there were difficulties inherent in his argument about this part of the claim both as regards the issue of whether there was ever any agreement about the matter and, if there was, how it could be said that the agreement was not about pay in lieu of notice but about "notice pay" despite the clear words used by the claimant in his document. He also accepted that there were other difficulties with the judgment such as the failure to deal with Mr Gilchrist's submission regarding the penultimate paragraph of his father's letter. If it could not be said that there was an agreement about pay in lieu of notice then the claim for salary and pension would still subsist. He invited me to adjudicate on the matter rather than remit the case.

Further Discussion and Decision

35. Firstly, the test for bias is now well established and can be summarised as being that it involves asking whether the fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased (Porter v Magill [2002] WLR 37). "Bias" is used in the sense that the required appearance of impartiality and independence has not been maintained as it must be if parties are to be afforded a fair trial.
36. In this case I have given careful consideration to the wording that the Chairman accepts having used and posed the above question. I am satisfied that the test is met. Matters were compounded by the Chairman's refusal to accede to Mr Gilchrist's request for him to record what he said in his written reasons. I have had regard to Mr Muir's explanation that he was intending to convey to Mr Gilchrist that he recognised that it was not a level playing field and that he would take account of his lack of skill but I do not see that any such message could be seen as being conveyed by that wording. The fair minded and informed observer would, I consider, have formed the view from the words used by the Chairman as referred to in the Notice of Appeal and by Mr Gilchrist before me and accepted by the Chairman as having been used by him, that there was a real possibility that the Chairman had already determined that the case for the respondents would not be presented in such a way as to enable it to succeed. I should stress that I do not suggest that that observer would have concluded that that was definitely the case. Nor do I suggest that that was what the Chairman actually intended. Those considerations are, however, beside the point. The test for bias may be met even where the tribunal in question has had the best of intentions. It is all a question of objective perceptions.
37. I then turn to the question of whether the way forward is to determine the case on the available material or to remit it to a fresh tribunal to start again. In the course of discussions with Mr Cockburn in the course of his submissions, I was not certain that a remit could be avoided. However, having reflected and having given careful consideration to the matter I cannot see that a remit would be justified. My principal reason, as will be evident from the above, is that it seems to me that there is an unanswerable point namely that whilst the claimant's claim is dependent on him having had a contract of employment with RGS that transferred under TUPE to the respondents, it cannot be concluded on the basis of the relevant facts that there was a TUPE transfer of any contract of employment between the claimant and RGS. Rather, the claimant's contractual relationship with RGS came to an end by way of redundancy dismissal. I should add that although this point appears from the documents that the claimant put before the Tribunal, I am conscious of the fact that I did not expressly put the proposition that the redundancy payment negated any case that the claimant had a subsisting contract of employment which transferred to the respondents by way of TUPE to Mr Cockburn, when he was addressing me. It was, however, touched on by Mr Gilchrist by way of his reference to the significance of the claimant having received a redundancy payment and Mr Cockburn had ample opportunity to respond to Mr Gilchrist but did not make submissions on that point. If, however, it is considered that the interests of justice require the matter to be re-explored in further submissions, it is of course open to the claimant to seek a review under rule 33 of the EAT Rules.
38. There is, separately, no arguable case regarding the pay in lieu of notice claim and so far as the claim for salary and pension is concerned, that would be dependent on the claimant establishing, for TUPE purposes that he was a relevant employee under a relevant contract of employment, and that he could explain why the December 2005 salary was not included in his list of sums due in the document he so carefully prepared for the meeting of 15 February 2006 (to meet the respondents' case of waiver). The overwhelming problem is, though, as I have already indicated, the claimant's redundancy from RGS.

Disposal

39. In the circumstances I will pronounce an order upholding the appeal and dismissing the claim.