THE INDUSTRIAL TRIBUNALS

CASE REF:	4643/09

CLAIMANT:			Thomas Rea

RESPONDENTS		1.	Boucher Electrical Ltd (in liquidation)
2.	Department for Employment & Learning
Redundancy Payments Branch

DECISION
The decision of the tribunal is that the claimant was an employee within the meaning of Article 3 of the Employment Rights (Northern Ireland) Order 1996.  Consequently, he is entitled to a payment from the National Insurance Fund in respect of a redundancy payment calculated on the basis of the information set out at Paragraph 9(ii)(a) below.

The claimant is entitled to the further sum of £660 in respect of holiday pay.

Constitution of Tribunal:
Chairman (sitting alone):		Mr D Buchanan

Appearances:
The claimant, Mr Rea, appeared in person.
A letter was received from the liquidators of the first-named respondent stating that they did not intend to be present at the hearing.
The second-named claimant, DEL, was represented by Mr P McAteer, Barrister-at-Law, instructed by The Departmental Solicitor’s Office.

1.	(i)	By a claim form presented on 27 March 2009 the claimant made claims for a redundancy payment and holiday pay against the first-named respondent.  As that company was in liquidation, the second-named respondent, the Department for Employment & Learning (DEL), was joined as a party to the proceedings by Order of the Tribunal dated 6 July 2009.	
			
	(ii)	The claimant had been both a director and shareholder of the first-named respondent, a limited company, which had undergone a creditors’ voluntary winding-up on 8 January 2009.	
			
	(iii)	DEL rejected the claimant’s claim by letter of 12 March 2009 because it did not accept that the claimant had also been an employee of the first-named respondent, and hence eligible for an ‘employee’s payment’ under Article 201 of the Employment Rights (Northern Ireland) Order 1996.  DEL‘s view was that the company was the claimant’s business which he effectively ran as such on his own account.	
			
	(iv)	The issue for determination was therefore:-	

			“Whether the claimant had been an employee.”

		DEL accepted that in the event of such a finding, it was obliged to make payment to him.

In order to decide this matter I heard evidence from the claimant, Mr Rea.  I found him to be an honest witness.  I also had regard to the documentary evidence placed before me.

I find the facts set out in the following paragraphs.	
			
2.	(i)	From 1986 – 1992 the claimant carried on business in partnership with a Mr Close.  In 1992, Mr Close left to pursue other employment, and the claimant and a Mr Mawhinney formed Boucher Electrical Ltd, a limited liability company, on 11 December 1992.	
			
	(ii)	The claimant and Mr Mawhinney were the sole directors and shareholders.  Each held 33.3% of the shares, the other 33.3% being retained by Mr Close.	
			
	(iii)	Directors’ meetings were not held on any formal basis, but ad hoc, as required.	
			
3.	(i)	The claimant was paid a weekly wage throughout the life of the company.  At the time of its liquidation this amounted to £800 per week.

He was a Schedule E taxpayer, paying National Insurance contributions, and he principally relies on this as evidence of his employee status.

A similar arrangement was in place for Mr Mawhinney until his death on 17 August 2006.  After that, the claimant continued as a sole director of the company.	
			
	(ii)	Apart from the claimant and Mr Mawhinney there were about eight other persons employed by the company (there is no issue about their status as ‘true’ employees).  They, of course, were paid a wage, but they were also eligible for overtime payments.  The claimant, however, did not receive overtime payments, though like the employees, he had a 40 hour week.	
			
	(iii)	Although it is the claimant’s case that he too was an employee, the company’s accounts over the years consistently draw a distinction between ‘Wages and Salaries’ on the one hand and ‘Directors’ Remuneration’ on the other hand.

However, the company paid no dividends and, apart from the ‘Directors’ Remuneration’ referred to in the accounts, there is no evidence of any payments to the claimant specifically in his capacity as a director.	
			
	(iv)	About 10 years ago, Mr Rea put around £20,000 of his own money into the company, and five years ago he re-mortgaged his home and put in £29,000 by way of a loan.  About £4,000 - £4,500 of this latter sum had been repaid at the time the company went into liquidation.	
			
	(v)	The company had no other loans, and therefore the claimant did not provide guarantees for any such loan.	
			
4.	(i)	The claimant did not have a written contract of employment with the company, nor does he have any statement of the terms and conditions of his employment.	
			
	(ii)	There was an employee handbook.  Those employees of the company whose status is not in doubt were given statements of terms and conditions of employment.  These were reasonably comprehensive in their terms and covered such matters as job title, place of work, pay, hours of work, holidays, sick pay, disciplinary matters, grievance procedure, notice provision, and the absence of a pension scheme.	
			
	(iii)	The claimant accepted in cross-examination that in this respect he was not considered as an employee of the company.	
			
5.	(i)	In relation to holidays, employees were entitled to a paid holiday entitlement of 29 days during each complete leave year.	
			
	(ii)	The claimant stated that he took two weeks in the summer and two weeks at Christmas.  In practice, he did not take all these holidays, and tended to take time off only when the business was closed in any event.  There is no evidence that, at any stage, he took holidays in excess of his entitlement.	
			
6.	(i)	As the claimant held a 33.3% shareholding, he could in theory have been removed from office, dismissed, or otherwise disciplined, but in practice this was not likely to happen, particularly in the latter part of the company’s existence following the death of Mr Mawhinney.	
			
	(ii)	As far as the claimant was concerned, he was not subject to control or direction by any other person in the manner in which he performed his work.	
			
7.	(i)	In the recent case of Secretary of State for Business, Enterprise and Regulatory Reform  v  Neufeld and Another [2009] IRLR 475, the Court of Appeal in England and Wales has given fresh guidance on determining whether a controlling shareholder and director of a limited company is also an employee of the company.  This guidance has recently been reiterated in Ashby  v  Monterry Designs Ltd [UKEAT/0226/08/CEA, 18 December 2009.  The Court of Appeal made it clear that someone who is the ‘owner’ of a company can also be an employee.

Rimer LJ stated, at p488:-	

“{T]here is no reason in principle why someone who is a shareholder and director of a company cannot also be an employee of the company under a contract of employment.  There is also no reason in principle why someone whose shareholding in the company gives him control of it – even total control – cannot be an employee.  In short, a person whose economic interest in the company and its business means that he is in practice properly to be regarded as their ‘owner’ can also be an employee of the company.”

	(ii)	Whether such a shareholder/director is an employee is a question of fact.  The tribunal will have to be satisfied that his putative contract with the company is a genuine one and not a sham, and that it amounts to a contract of employment rather than a contract for services.	
			
	(iii)	The fact that a person’s control over the company is such that he can effectively prevent his own dismissal does not preclude employee status.  The fact that someone has share capital invested in the company, or that he may have made loans to it or given guarantees in respect of loans from others will not normally be relevant to the issue of whether or not he is an employee.	
			
	(iv)	One must also look at what a claimant did under his purported contract of employment with the company, and ask whether or not this demonstrates that there was an actual contract.	
			
	(v)	In the earlier case of Clark  v  Clark Construction Initiatives Ltd [2008] IRLR 364 which was largely approved in Neufeld., Elias J at p 373 suggested that the assertion that there is a genuine contract of employment will be undermined if its terms have not been identified or reduced into writing.

However, in Neufeld, at p 490 (Paragraph 89), Rimer LJ stated:-	

“We consider that Elias J’s sixth factor may perhaps have put a little too high the potentially negative effect of the terms of the contract not having been reduced into writing.  This will obviously be an important consideration but if the parties’ conduct under the claimant contract points convincingly to the conclusion that there was a contract of employment, we would not wish tribunals to seize too readily on the absence of a written agreement as justifying the rejection of the claim.  He went on to point out that ‘[i]n both cases under appeal there was no written service agreement, but the employment judges appear to have had no doubt that the parties conduct proved a genuine employment relationship’.”

8.	(i)	I now attempt to apply the law to the facts of this case in the light of the decisions in Neufeld and Clarke.  I find, and I proceed on the basis that there is no evidence before me to suggest that the arrangements the claimant had with the company were a sham, or put in place to receive statutory payments from DEL.  Nor was the company itself a sham.  

I consider the fact that Mr Rea paid tax and national insurance as an employee to be prima facie evidence that he is entitled to an employee’s rights.  I accept that this will not always be the case (see, for example, the case of Wilson  v  Trenton Service Station Ltd [EAT/100/87] which was cited to me by the respondent’s counsel).  However, in this case Mr Rea appears to have been paid as an employee throughout the company’s existence.  I attach little significance to the fact that his pay was separately referred to as ‘directors’ remuneration’ in the company’s annual reports.

Unlike those employees whose status is not in doubt, he did not have a contract of employment or a written memorandum setting out his terms and conditions as an employee.  Again, I have considered this factor and attach no great significance to it in the context of this case.

We are dealing here with a small company and the reality is that the internal affairs of such an organisation are likely to be conducted with some degree of informality.  In the Neufeld case, the tribunal, at first instance, found that whereas the 18 ‘true’ employees of the company had written contracts of employment, Mr Neufeld and the other directors did not have such contracts.	
			
	(ii)	I am further satisfied that the evidence, taken as a whole, points to the claimant conducting himself as an employee of the company.	
			
	(iii)	I disregard the fact that Mr Rea put his own money into the company, the fact that his work was not supervised by anyone else, and the improbability of him being dismissed.	
			
	(iv)	I also disregard the fact that the company had been a partnership before incorporation, particularly as there was a change in personnel before and after incorporation.	
			
9.	(i)	The respondent, DEL, cannot be criticised for their refusal to make payment to the claimant.  Its officials have the unenviable task of applying an extremely difficult and complex area of law, and I, too, have not found this matter easy to decide.

However, having considered and balanced all the facts of this case, I am satisfied that Mr Rea was an employee of the company.	
			
	(ii)	I therefore make an award as follows:-	

(a)	Mr Rea is entitled to a payment from the National Insurance Fund in respect of a redundancy payment.  He worked for the company for 16 years and is aged 49.  The multiplier is therefore 20 x £350 (the statutory cap), making a total of £7,000.

(b)	He is further entitled to the sum of £660 in respect of holiday pay.

10.	This is a relevant decision for the purposes of the Industrial Tribunals (Interest) Order (Northern Ireland) 1990.

Chairman:

Date and place of hearing:	1 December 2009, Belfast

Date decision recorded in register and issued to parties: