Appeal No. UKEAT/0519/11/MAA
EMPLOYMENT APPEAL TRIBUNAL
FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX
At
the Tribunal
On
8 May 2012
Before
HIS
HONOUR JUDGE SEROTA QC
(SITTING ALONE)
DR
H FREEDMAN APPELLANT
CAREER
ENERGY CONSULTANCY SERVICES LTD RESPONDENT
Transcript of Proceedings
JUDGMENT
SUMMARY
TRANSFER OF UNDERTAKINGS – Transfer
CONTRACT OF EMPLOYMENT – Whether established
Employment Judge clearly wrong in failing to find that Claimant
had continuous service by reason of a TUPE transfer and that he remained an
employee of the Respondent. Case remitted to Employment Tribunal to determine
merits of claims for unfair dismissal and holiday pay, and to determine
compensation if appropriate.
HIS HONOUR JUDGE SEROTA
QC
Introduction
1.
This is an appeal from the Claimant from a decision of
Employment Judge Lewzey, who sat alone, at the London Central hearing
centre. The Reasons were sent to the parties on 21 June 2011.
Judge Lewzey determined that although the Claimant, Dr Freedman, was
an employee of the Respondent between 21 December 2009 and
25 February 2010, at the relevant date, which was
28 October 2010, he was no longer an employee. Consequently, she
held, he lacked sufficient qualifying service to enable him to bring a claim
for unfair dismissal. The Employment Tribunal lacked jurisdiction to determine
his claims, so she found, for unfair dismissal and for holiday pay.
Dr Freedman sought a review of that decision; this was refused.
HHJ Peter Clark considered the papers and on 17 October directed
that there should be a Full Hearing.
The appeal
2.
Today, Dr Freedman has appeared before me. He has provided me with
a very helpful skeleton argument and a formidable bundle of authorities, to
which I hope I will not have to refer. The Respondent, I am told, is now in
insolvent liquidation, having been compulsorily wound up, and the Official Receiver
is the liquidator. The Official Receiver has written to the Appeal Tribunal
stating that he does not intend to appear today. Dr Freedman tells me
that he wishes to pursue his appeal for two reasons: firstly, he believes that
the majority shareholder and his successor as Chief Executive, a
Mr Giesbrecht, has wrongly transferred assets from the Respondent to
another company that he owns without any compensation to the liquidator, and
that he has thereby avoided such liability as he may have to the Claimant in
respect of his claim for unfair dismissal on the assumption that the Claimant
is successful in this appeal.
Factual background
3.
I need to set out something of the factual background, which I take
largely from the decision of the Employment Tribunal. Career Energy Ltd was
incorporated by the Claimant on 13 August 2002, but it did not begin
to trade until January 2007, when the Claimant transferred a business that
he operated as a sole trader known as Career Energy. As I understand it,
Career Energy and the successor companies to which I shall refer provided a
form of educational consultancy. When Career Energy Ltd was incorporated, the
Claimant became an employee. He had entered into a shareholders’ agreement
with a Mr Hosking; the Claimant held 175 of the shares and Mr Hosking
25.
4.
I need not go into any great detail, but suffice it to say that as a
result of the economic climate the business of Career Energy Ltd found itself
short of funds, and the Claimant entered into negotiations with
Mr Giesbrecht with a view to Mr Giesbrecht in effect investing into
the business. In order to give effect to this agreement, the Respondent
company was incorporated on 29 November 2009, and shortly afterwards
Career Energy Ltd changed its name to CE 2009 Ltd. I think it was clearly
envisaged that Career Energy Ltd would have to be placed in liquidation, and in
due course it was placed into creditors’ voluntary liquidation.
5.
On 3 December 2009 Dr Freedman entered into non‑binding
heads of agreement with a company controlled by Mr Giesbrecht known as
Stockval, whereby Stockval would acquire 52 per cent of the shares in the
Respondent company, and the Respondent commenced trading on or about 11
December 2009. A week later Career Energy Ltd was placed into creditors’
voluntary liquidation, as I have mentioned.
6.
On 21 December 2009 the share purchase agreement was concluded
and the non‑binding heads of agreement, it was agreed, should become
legally binding. In essence, the liquidator of the company sold furniture and equipment
to the Respondent. The written agreement is silent on the point, but according
to the Claimant’s witness statement, which was before the Employment Judge, to
which she does not seem to make reference, he says this:
“26. Career Energy Ltd had various clients who had paid for, but
not yet concluded their programmes of support. It was agreed with the
liquidator that these clients would be transferred to [the Respondent
company]. As far as these clients were concerned there was no change in their
programme of support.
27. All consultants who worked on a freelance basis for Career
Energy Ltd were offered contracts in [the Respondent].
28. The employed staff […] (myself and the receptionist,
Riwati Davies) were employed in [the Respondent].”
7.
The Claimant then says this:
“29. With the liquidator’s consent the business was transferred
to Career Energy Consultancy Services pending negotiations to acquire the
assets and goodwill of Career Energy Ltd.”
8.
So far as I am aware, and Dr Freedman would doubtless correct me if
I am wrong, there is no written agreement – certainly, not one that I have seen
– for the transfer of the business to the Respondent, but it is quite clear on
the facts that it must have been transferred, because the benefit of the
contracts and the other assets, as well as the staff, all transferred over and
continued as they had before, save that now Mr Giesbrecht was the majority
shareholder, and I am satisfied he was entitled to control through Stockval the
board of directors and I am satisfied on the basis of the evidence of
Dr Freedman and of two emails that I have seen that effectively he became
the controller of the business, notwithstanding that Dr Freedman was, as I
shall explain shortly, the Chief Executive and a substantial, but not a
majority, shareholder.
9.
On 21 December 2009 – that is, at the date of the share
purchase agreement – the Claimant entered into a service agreement with the
Respondent, whereby he was appointed as Chief Executive; there is no issue that
he was an employee of the company at that stage. However, to put the matter
neutrally, it would seem that the business did not flourish, and there were
negotiations between the Claimant and Mr Giesbrecht whereby Mr Giesbrecht
was in effect saying to the Claimant, “Move over; I am going to take a more
visible role in the running of the business”. There is a board minute dated
25 February 2010, signed by both the Claimant and Mr Giesbrecht,
whereby it was agreed that the Claimant would cease to be the Chief Executive
and would become known as “the founder” of the company, and Mr Giesbrecht
would become the Chief Executive – the Claimant remained a director – and the
service contract was replaced by a consultancy. The Claimant thereafter – and
this was not the Claimant’s choice, although he clearly agreed to become a
consultant – received a salary plus the same commissions or what have you that
he had received before, but now on the basis that he was not an employee. He
was expected to render invoices, which he did, and so far as the Inland Revenue
were concerned he was treated – whether correctly or not is besides the point –
as being self‑employed; certainly, the Respondent company did not pay
National Insurance or PAYE.
10.
Sadly, notwithstanding the events of February 2010, the business
still did not prosper. Relations between the Claimant and Mr Giesbrecht
deteriorated, and the Claimant was dismissed on 28 August 2010. He had
resigned as a director of the original company – that is, Career Energy Ltd –
some time in January 2009. As I have said, the Respondent is currently in
liquidation.
The Employment Tribunal decision
11.
The Employment Tribunal decision, to which I now turn, sets out the law
very briefly at paragraph 12, in which Judge Lewzey quoted
section 230 of the Employment Rights Act and went on to
say:
“The question of whether an individual is an employee is a
question of fact for the Tribunal to decide. There have been a number of tests
set out over the years and the current position is a multiple test which looks
at control, organisation reality and mutuality of obligation. There are a
large number of authorities including Carmichael v National Power
[[1999] ICR 1226] and the recent case of James v Greenwich Borough Council
[[2007] ICR 577] in which Elias J, as he then was, said that one should
look at the surrounding factual matrix in making the determination.”
12.
Dr Freedman argued that his employment had been continuous, going
right back to the days of when he carried on business as a sole trader through
Career Energy Ltd and into Career Energy Consultancy Services Ltd, the current
Respondent, and that consequently he had sufficiency of continuous employment
to find the jurisdiction of the Tribunal and that, contrary to the finding of
the Employment Judge, notwithstanding that he purported to be self‑employed
in the consultancy agreement, the reality was that he remained an employee. I
pause to note at this stage that the label that the parties choose to put on
their agreement is a factor to be considered but far from determinative.
13.
The Employment Judge drew attention to Regulations 2 and 3 of the Transfer
of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and
clearly had in mind that there has to be:
“A transfer of undertaking, business, or part of an undertaking
or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its
identity.”
14.
The Employment Judge firstly considered whether Dr Freedman was an
employee. As I have already said, she concluded that at the material time he
was not. She says, “On 21 December 2009 there was a share purchase of 52%
of the shares in the Respondent by Stockval […]”, and she refers to the
shareholders’ agreement: “It was an agreement to purchase shares. It was not
on its terms an agreement to purchase the business”.
15.
Pausing there for one moment, there is clear evidence that the
Employment Judge has failed to note in the witness statement of
Dr Freedman that the business was transferred; he says so in terms with
the consent of the liquidator. It follows therefore that the decision of the
Employment Judge cannot stand, and that there was in this case clearly a TUPE transfer.
I note that the Official Receiver has not disputed that.
16.
The question then arises as to whether the Employment Judge was correct
in determining that as a result of the board minute and the Claimant becoming a
consultant his contract of service was brought to an end. What she says is
this:
“16. […] In doing this I have to look at the surrounding
evidence. Dr Freedman ceased to be the Chief Executive from that date,
although he was still a 48% shareholder. After that date invoices were
rendered in the name of H Freedman Ltd, which was a company that was
registered for VAT. The only provision in the agreement set out at page 119
and in the surrounding circumstances was for the payment of a fixed monthly fee
plus commission on a basis which, because I do not have the email, I cannot
expand on here.
17. Dr Freedman argues he was controlled. He refers to a
number of emails. […]”
17.
This was rejected by the Employment Judge: “There is no evidence that
any control was exercised […]”. One pauses for one moment to ask, what exactly
was Dr Freedman doing? He was doing exactly the same as he had before he
became a consultant, and he continued to work as before. The only difference
appears to have been that the manner in which he was paid changed; he submitted
invoices and was responsible for his own National Insurance and PAYE, and the
Respondent ceased to be. The only change was that from then on it was quite
clear that Mr Giesbrecht was taking a more assertive and active part in
the business and was able to exercise control to the extent that he could alter
the responsibilities of Dr Freedman, and indeed to dismiss him. It seems to me
that the only conclusion to which the Employment Judge could properly have
come, applying the test that she herself set out, was that he continued to be
an employee, regardless of the label that he and Mr Giesbrecht had chosen
to place on his employment (and I use that term in a neutral sense). It
follows, in those circumstances, that the Employment Tribunal was wrong to
conclude it had no jurisdiction. It seems to me that the questions that were
before the Employment Tribunal should have been answered in the following way:
(1) the Claimant was an employee at the material time, and (2) he had
sufficient continuity of service by reason of a TUPE transfer.
Conclusion
18.
It follows, therefore, that the Employment Tribunal had jurisdiction to
entertain his claim for unfair dismissal and also for holiday pay, and that it
was wrong to decline jurisdiction. In the circumstances, the case will have to
be remitted to a different Employment Tribunal to decide whether on the factual
merits the Claimant was unfairly dismissed and whether he is entitled to his
holiday pay, and, if so, to determine the appropriate compensation. In light
of the fact that the Official Receiver clearly has no interest in pursuing the
proceedings, I assume that the hearing in the Employment Tribunal will be
relatively brief and it may be possible to dispose of it by agreement with the
Official Receiver.
