THE INDUSTRIAL TRIBUNALS

CASE REF:	1090/12

CLAIMANT:			Paul Cameron

RESPONDENT:		Department for Employment & Learning 

DECISION
The decision of the tribunal is that the claimant is entitled to payment of a redundancy payment totalling £5,200.00 and to notice pay totalling £4,800.00; calculated as set out in this decision, totalling £10,000.00.

Constitution of Tribunal:
Vice President (sitting alone):		Mr N Kelly

Appearances:
The claimant appeared in person and was not represented.
The respondent was represented by Ms R Best, Barrister-at-Law, instructed by The Departmental Solicitor’s Office.

Background

1.	The claimant had worked for Glover Site Investigations Ltd (‘GSI’) from 1999 to 2012 when GSI was liquidated.

2.	In an RPI application for a payment from the National Insurance Fund, received by the respondent on 13 January 2012, the claimant applied for a payment in respect of a statutory redundancy payment and in respect of a payment in lieu of notice.  That application was refused by the respondent on the ground that the claimant, in the opinion of the respondent, had not been an employee of GSI.  

3.	On 14 June 2012, the claimant applied to this tribunal for a decision under Article 205 of the Employment Rights (Northern Ireland) Order 1996 (‘the 1996 Order’).  

4.	The claim was initially heard by a different Chairman on 28 August 2012 and a decision issued on 1 November 2012 awarding to the claimant a payment of statutory redundancy pay and a payment in respect of notice, amounting together to £9,800.00.  

5.	The respondent applied to that Chairman for a review of the decision.  At the same time the respondent lodged an appeal against that decision in the Court of Appeal.  

6.	Before the decision on review was completed, that Chairman stood down in the matter because of an apparent (rather than a real) conflict of interest.

7.	Under Rule 36(1) of the Schedule to the Industrial Tribunals (Constitution and Rules of Procedure) Regulations (Northern Ireland) 2005, I heard the application for a review.  In the circumstances, where I had heard none of the evidence, I was not in a position to determine the matter, and the only course open to me was to grant the application for review.  On 19 April 2013, I rescinded the decision of 1 November 2012 in the interests of justice.  Shortly thereafter, the respondent withdrew the appeal to the Court of Appeal.  

8.	The original claim to this tribunal was listed again for a full hearing on 17 May 2013.  

9.	The claimant gave evidence on his own behalf and called Mr ‘X’ and Mr Phillip Rainey.  The respondent did not call any witnesses but cross-examined the claimant and each of his two witnesses.

10.	This is the reserved decision following that hearing.  

Relevant law

11.	The issue for the tribunal to determine is, at first glance, a simple one; had the claimant, at the time of the termination of his engagement with GSI, and during that engagement, been an employee of GSI as defined by the 1996 Order?  In other words, had the claimant been a worker engaged on a contract of service by GSI?

12.	This apparently simple question has provoked repeated difficulty in the case of company directors and has generated a great deal of case law.  The position remains that person who is a director of a limited company can also be an employee of that company.  The two roles can exist side-by-side; there can be both a contract of service and, at the same time, an appointment as a director for the purposes of companies legislation.  The existence of a genuine contract of service must be determined by an examination of all the relevant circumstances.  

13.	In Secretary of State for Trade & Industry  v  Bottrill [1999] EWCA Civ 781, the Court of Appeal (GB) considered a similar claim to the National Insurance Fund by a controlling shareholder.  For the purposes of the present claim, it is important to note that it has never been alleged that the claimant was at any time a controlling shareholder of GSI.  The evidence before me was that his shareholding was 20% of the total.  

14.	In any event, the Court in Bottrill stated:-

“We recognise the attractions of having in relation to the ERA a simple and clear test which will determine whether a shareholder or a director is an employee for the purposes of the Act or not.  However the Act does not provide such a test and it was far from obvious what Parliament would have intended the test to be.  We do not find any justification for departing from the well-established position in the law of employment generally.  That is whether or not an employer or employee relationship exists can only be determined by having regard to all the relevant facts.  If an individual has a controlling shareholding, that is certainly a fact which is likely to be significant in all situations and in some cases it may prove to be decisive.  However it is only one of the factors which are relevant and certainly is not to be taken as determinative without considering all the relevant circumstances.”

15.	The Court went onto consider earlier authorities in relation to the scope for abuse of the statutory provisions in relation to the National Insurance Fund.  It stated:-

“We would reaffirm the views which they express as to the use of devices to seek remedies against the Secretary of State in inappropriate circumstances.  However, those cases apart, it is right to note that, in a case such as this where National Insurance Contributions had been paid, to deprive an individual of his claims under the ERA would be to deprive unjustly that individual of the benefits to which he could properly expect to be entitled after he and his ‘employer’ had made appropriate contributions.”

16.	The Court went on to state in response to a request for guidance:-

“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 relative 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 various factors usually regarded as relevant (see, for example, Chitty on Contracts 27th Edition 1994 Paragraph 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 determination 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.	In Clark  v  Clark Construction Initiatives Ltd & Another [2008] UKEAT/0225/07/292, the Employment Appeal Tribunal considered a different set of circumstances giving rise to the same issue.  To the extent that it is relevant to the present claim, the issue was whether a claimant had established the period of continuous service necessary as an employee to claim unfair dismissal where he had, during part of that period, been a controlling shareholder of the company.  

18.	In that case the EAT focused on whether or not a controlling shareholder could also be an employee and in what circumstances.  It referred to the Privy Council decision in Lee  v  Lee’s Air Farming [1961] AC 12 and held that case demonstrated that even someone who has total control of the operation of a company because he had been in that case the governing director as well as being effectively the sole shareholder could enter into a binding and effective contract of employment with the company.  

19.	The EAT then went on to hold at Paragraph 98:-

“How should a tribunal approach the task of determining whether the contract of employment should be given effect or not?  We would suggest that a consideration of the following factors, whilst not exhaustive, may be of assistance:-

(1)	Where there is a contract ostensibly in place, the onus is on the parties seeking to deny its effect to satisfy the court that it is not what it appears to be.  This is particularly so when the individual has paid tax and national insurance as an employee; he has on the face of it earned the right to take advantage of the benefits which employees may derive from such payments.

(2)	The mere fact that the individual has a controlling shareholding does not of itself prevent a contract of employment arising.  Nor does the fact that he is in practice able to exercise real or sole control over what the company does (Lee).

(3)	Similarly, the fact that he is an entrepreneur, or has built the company up, or will profit from its success, will not be factors militating against a finding that there is a contract in place.  Indeed, any controlling shareholder will inevitably benefit from the company’s success as will many employees with share option schemes (Arascene).  

(4)	If the conduct of the parties is in accordance with the contract that would be a strong pointer towards the contract being valid and binding.  For example, this would be so if the individual works the hours stipulated or does not take more than the stipulated holidays.  

(5)	Conversely, if the conduct of the parties is either inconsistent with the contract (in the sense described in Paragraph 96) or in certain key areas where one might expect it to be governed by the contract is in fact not so governed, that would be a factor, and potentially a very important one, militating against a finding that a controlling shareholder is in reality an employee.  

(6)	In that context, the assertion that there is a genuine contract will be undermined if the terms have not been identified or reduced into writing (Fleming).  This will be powerful evidence that the contract was not really intended to regulate the relationship in any way.

(7)	The fact that the individual takes loans from the company or guarantees its debts could exceptionally have some relevance in analysing the true nature of the relationship, but in most cases such factors are unlikely to carry any weight.  There is nothing intrinsically inconsistent in a person who is an employee doing these things.  Indeed, in many small companies it will be necessary for the controlling shareholder personally to give bank guarantees precisely because the company assets are small and no funding would be forthcoming without them.  It would wholly undermine the Lee approach if this were to be sufficient to deny the controlling shareholder the right to enter into a contract of employment.

(8)	Although the Courts have said that the fact of there being a controlling shareholding is always relevant and may be decisive, that does not mean that the fact alone will ever justify a tribunal in finding that there was no contract in place.  That would be to apply the Buchan test which has been decisively rejected.  The fact that there is a controlling shareholding is what may raise doubts as to whether the individual is truly an employee but of itself that fact alone does not resolve these doubts one way or another.”

20.	In the case of Secretary of State for Business, Enterprise and Regulatory Reform  v  Richard Neufeld and Keith Howe [2009] EWCA Civ 280 the Supreme Court considered yet another case where, unlike the present case, the applicant who sought a payment from the National Insurance Fund was a majority shareholder; in that case Mr Neufeld held 90% of the shares.  

	The Court reviewed and emphasised the existing case law to confirm that a controlling shareholder could still be an employee and could still be party to a genuine contract of service.  It turned its mind to the situation where such a contract could be a ‘sham’.  It stated at Paragraph 36:-

“As to the circumstances in which the contract might be regarded as a sham, the classic case will be that described by Diplock LJ in Snook  v  London and West Riding Investments [1967] 2 QB 786, at 802 –

	‘As regards the contention of the plaintiff that the transactions … were a 'sham,' it is, I think, necessary to consider what, if any, legal concept is involved in the use of the popular and pejorative word.  I apprehend that if it has any meaning in law, it means acts done or documents executed by parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.  …  But one thing, I think, is clear in legal principle, morality and the authorities … that for acts or documents to be a 'sham' with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create legal rights and obligations which they give the appearance of creating.  No unexpressed intentions of a 'shammer' affect the rights of a party whom he deceived’.”

21.	In a different context, the Supreme Court considered the situation of car valets working for an auctioneering company who were described by contract as          sub-contractors and who claimed that they were in fact workers entitled to the minimum wage.  In Autoclenz Ltd  v  Belcher [2011] UKSC 41, the Court looked, in that particular context, at the same issue as arises in connection with contracts of employment which are alleged to be a ‘sham’ for the purposes of claims on the National Insurance Fund.  

	The Supreme Court approved the following statement from Aikens LJ:-

“I respectfully agree with the view, emphasised by both Smith and Sedley LJJ, that the circumstances in which contracts relating to workers service are concluded are often very different from those in which commercial contracts between parties with equal bargaining power are agreed.  I accept that, frequently, organisations which are offering work or requiring services to be provided by individuals are in a position to dictate the written terms which the other party has to accept.  In practice, in this area of law, it may be more common for a court or tribunal to have to investigate allegations that the written contract does not represent the actual terms agreed and the court or tribunal must be realistic and worldly wise when it does so.”

22.	The Supreme Court went to state at Paragraph 35:-

“So the relative bargaining power of the parties must be taken into account in deciding whether the terms of any written agreement in truth represent what was agreed and the true agreement will often have to be gleaned from all the circumstances of the case, of which the written agreement is only a part.  This may be described as a purposive approach to the problem.  If so, I am content with that description.”

23.	I am unable to find any direct assistance from the Autoclenz decision.  It related to a situation where a contract was effectively re-opened to find its true meaning and effect where it had been settled in its written form between parties of unequal bargaining power.  That does not appear to be the situation alleged in the present case.  

Findings of fact 

24.	On 20 July 1999, the claimant was offered the post as Director of Finance in GSI.  He accepted that post on the same date.  The claimant produced a copy of the letter of offer and of his acceptance and I heard no evidence to challenge the authenticity of these documents.  I therefore accept the claimant’s oral evidence, supported by documentary evidence, that his engagement and in fact his employment by GSI commenced as a result of that offer and acceptance and that it had begun on 23 August 1999.  

25.	The claimant called Mr Phillip Rainey who had joined GSI in 2002 as Chief Executive Officer and who had a 9% shareholding.  He had been, like the claimant, a minority shareholder.  The respondent had initially refused his claim to the National Insurance Fund when GSI was liquidated.  On the later receipt of his terms and conditions of service, the respondent agreed that those terms and conditions of service were genuine and his claim on the Fund was paid without any determination by the tribunal.  The difference between Mr Rainey’s case and the case of the claimant, in the view of the respondent, was that his full terms and conditions of service had been in place from the start of his employment in 2002 and, to some extent, the difference between a 9% shareholding and a 20% shareholding.  The respondent also sought to rely on the fact that the claimant and the controlling shareholder were brothers.

26.	Mr Rainey gave evidence that very few employees at GSI at that stage in 2002 would have had written terms and conditions of service.  That evidence from Mr Rainey was not rebutted or seriously challenged by the respondent.  I accept it as accurate.

27.	The claimant, Mr ‘X’ and Mr Rainey all gave sworn evidence that Mr ‘X’ had been appointed to his position as a manager with Human Resources responsibilities following the scrutiny of GSI by Invest NI.  It had been the conclusion of Invest NI that GSI had in place inadequate HR records and that such a manager should be appointed with responsibility for updating and maintaining HR documentation.  Again that evidence was not initially rebutted or seriously challenged by the respondent.  I had to specifically request that the respondent clarified whether it wished to challenge the accuracy of this evidence.  It did not wish to do so.

28.	Crucially, the respondent had earlier expressed doubts about the date of Mr ‘X’s appointment to GSI.  This had led them to doubt the authenticity of the claimant’s written terms and conditions of service which were issued and signed retrospectively on 26 April 2007.  The document containing those terms and conditions of service specifically stated that it was retrospective in effect and that the claimant’s employment had begun on 23 August 1999.  Mr ‘X’ gave evidence that he had in fact worked for GSI from 20 March 2007, a date preceding the preparation of the terms and conditions of service document.  That document had been prepared by Mr ‘X’ from a template.  Mr ‘X’ accepted that he had stated in his RPI form, in which he had claimed a redundancy payment from the National Insurance Fund, that he had started work for GSI on 2 July 2007.  However his evidence and the evidence of Mr Rainey and indeed that of the claimant was clear on this point.  Mr ‘X’ had finally left military service on 1 July 2007 following the closure or the amalgamation of a regiment.  In the latter part of his military service, pending his discharge date, he had little official duties and had worked full-time for GSI.  He was concerned about causing complications between the two different tax offices involved, ie the tax office responsible for his military employment and the different tax office responsible for his employment with GSI.  On that basis and in an attempt to clarify matters he had asked GSI to ensure that employment officially started on 2 July 2007 after his final military discharge on 1 July 2007.  No financial advantage accrued to him as a result of this arrangement.  That evidence was supported by Mr ‘X’s first salary in July 2007 which included a back payment to 20 March 2007.  Again this evidence was not rebutted and was not effectively challenged by the respondent.  I accept that the evidence on oath was correct and that Mr ‘X’ was in post at the time on which the claimant’s terms and conditions of service document had been prepared, issued to him and signed by him on 26 April 2007.  The terms and conditions of service document was openly retrospective and there is nothing in any of this which leads me to regard it as a ‘sham’ or part of a ‘sham’.

29.	The terms and conditions of service document stated that the ‘starting salary’ was £30,000 per annum.  To my mind, fixing a salary ‘per annum’ is simply stating the full-time annual salary for a post.  The evidence of the claimant was that he initially worked part-time for what was then a small firm.  That was reflected in a salary less than £30,000.00 per annum.  Having observed the claimant give evidence and responding under cross-examination, I conclude that this was in fact the case.  I do not regard it as in any way sinister that the terms and conditions of service document did not specifically mention, in 2007, a period of part-time employment which had earlier lasted up to approximately 2004.  There is no doubt that the document could have done so and perhaps, in the pursuit of perfection, should actually have done so.  However it did not do so and specified only the starting salary on an annual or full-time basis.  This document was prepared at a time when GSI was not in financial trouble and it is difficult to see how the respondent attached any malign intention to this minor and unimportant omission.  

30.	The respondent further challenged the difference in the annual/full-time salary of £30,000 per annum and the claimant’s salary at much later dates up until the liquidation of GSI.  In cross-examination, the respondent placed emphasis on the fact that the retrospective terms and conditions of service document completed in 2007, and indeed the initial offer and acceptance in 1999, did not specifically provide for regular or cost of living increases.  The emphasis placed on the lack of such provisions simply disregards reality in this respect.  Many employment contracts in the private sector do not contain such a provision.  Cost of living increases or regular increases are as a result of subsequent, and often oral, negotiation.  The absence of such a specific provision in 1999, or indeed retrospectively in 2007, does not mean that the salary was fixed and frozen for all time in 1999.  The claimant gave evidence, which was again not rebutted, that he had taken a car allowance rather than a company car and that his pay during the latter years of employment included a car allowance of approximately £7,500.00.  If that is to be taken into account and deducted from the given gross salary, the difference between the starting and the final salary amounted, on the unchallenged evidence of the claimant, to a compound annual increase of some 6% per annum.  Such an increase, while it could be regarded as marginally generous, does not appear to be remarkable and does not appear to be capable of supporting or contributing to a proposition that the contract was a ‘sham’ or that it did not reflect reality.  

31.	The claimant was challenged, in particular, about his salary for 2008/09.  That showed a figure of over £69,000.00.  It was reduced in the next and subsequent years to approximately £59,000.00.  Leaving aside the issue of car allowances, that leaves a sum of approximately £10,000.00.  The claimant stated in evidence that that could only have been as a result of a bonus in accordance with his contract being paid in 2008/09.  Bonuses had not been paid thereafter as the company got into trouble.  The respondent’s position was that this evidence contradicted what the claimant had said in his RPI form on 11 January 2012:-

“Bonus was paid dependent on company profitability, no bonus has been paid for four years … .”

32.	The claimant, when challenged in cross-examination, stated that this discrepancy was a simple mistake on his part.  He had said ‘four’ when he should have said ‘three’ years.  First of all, I should say that the claimant had in his RPI form made it plain that bonuses had been paid to him but had not been paid recently.  It was not the case, as the respondent appeared to suggest, that bonuses were first mentioned in the course of this tribunal hearing.  Again, having carefully observed the claimant giving evidence I am satisfied that this discrepancy was a simple mistake on his part when completing a form looking back over a period of years of employment.  

33.	In completing the RP1 form, the claimant did not mention two separate company directorships that he held in two GB companies taken over by GSI.  However, it is plain that these companies were under the control of GSI and he was the Director of Finance of GSI.  It does not seem to me that someone in the claimant’s position would have regarded those directorships; where he was working on behalf of GSI, as ‘other business activities’, or indeed ‘other’ directorships.  It seems to me that the claimant honestly attempted to complete the form and that, given the nature of the directorships, it is difficult to see any underhand motive on the claimant’s part.

34.	The claimant took his holidays in the same manner as other employees.  He was paid monthly in the same manner as other employees with income tax and National Insurance deductions being made in exactly the same way.  He had a shareholding of 20%.  His brother, David Cameron, was a majority shareholder.  

Decision

35.	One of the purposes of paying National Insurance Contributions over a lengthy period of employment is to secure the right to claim a payment of statutory redundancy pay and notice pay (subject to statutory limits) if an employer becomes insolvent.  It is no small thing to interfere with a statutory right which has been accumulated and acquired and paid for over many years.  

36.	The claimant had a written contract of employment comprising the offer and acceptance and the, openly, retrospective document setting out terms and conditions of service in 2007.  The claimant had been paid as an employee and was subject to both income tax and National Insurance as a monthly paid employee.  He was at all relevant times a minority shareholder.  It is perfectly plain that being a shareholder and, after a period of two years as the Director of Finance, becoming a Company Director for the purposes of companies legislation does not, of itself, exclude the existence of a contract of service establishing the status of employee.  There was therefore the clear and ostensible position of employment.  If the respondent was not satisfied that the ostensible position reflected the reality of the situation, the onus of establishing that argument fell to it.  

37.	The queries and objectives raised by the respondent were, on its argument, to be taken together by the tribunal to reach the view that the claimant had not been an employee of GSI.  However it is plain that those queries and objections either fell away under questioning or cross-examination or were simply open to reasonable explanation.  

38.	The fact that the initial appointment was as ‘Director of Finance’ was not in any sense sufficient to ground or to assist a suspicion of misconduct.  The use of the term ‘Director’ as a job description is widespread and, for example, counsel for the respondent would have received her instructions from the ‘Director of Legal Services’.  He certainly holds no role under companies legislation.  

39.	The documentation relating to the contract, ie the offer and acceptance in 1999 and the retrospective terms and conditions of service in 2007, were clearly genuine.  The respondent was simply wrong to latch onto an apparent difficulty in relation to the starting date of Mr ‘X’ and from that to conclude that the documentation had been false.  

40.	There does not appear to be any rational difference between the position of Mr Rainey who had a 9% shareholding and written terms and conditions of service and the claimant who had a 20% shareholding and also written terms and conditions of service.  The fact that he had a familial relationship with the controlling shareholder is neither here nor there.  The reality is that small family firms exist, particularly in Northern Ireland.  It is perfectly possible for one family member to employ another, or for a controlling shareholder to be a relative of an employee.  

41.	The evidence that terms and conditions of service were far from universal in GSI in or about 2002 and that this had resulted in a recommendation from Invest NI and the ultimate appointment of Mr ‘X’ is clear and accepted.

42.	The fact that the terms and conditions of service or indeed the initial offer of employment did not specifically mention the period of part-time employment from 1994 to 2004 in a small business is not, to my mind, of any particular significance.  It is certainly not sufficient, on its own or in conjunction with other factors, to justify the respondent or the tribunal determining that the claimant had not been an employee.  

43.	The difference in annual salary over the period from 1999 to 2011 does not seem, to me, to be significant and certainly does not appear to me to justify, either on its own or in conjunction with other factors, a conclusion that the contract was a ‘sham’ or that it did not reflect the reality of the situation.  

44.	Clearly the claimant was at fault in stating that bonuses had not been paid for four years when in fact it appears that they had not been paid for three years.  He was also technically wrong in not disclosing subsidiary directorships in companies taken over by GSI.  However these are not matters which override the rest of the evidence I have heard; that evidence simply points towards a standard employment relationship, albeit a relationship in which the claimant was employed by a limited company in which his brother was a controlling shareholder.  

45.	In short, this is a situation where the overwhelming evidence points to the existence of a contract of service and that the reality was, over the relevant period, one of the employment of the claimant by GSI.  The respondent has failed to put forward sufficient evidence, or anything approaching sufficient evidence, to discharge its onus of proof.

46.	The claimant was born on 16 August 1968.  The claimant had 12 complete years of employment.  He commenced employment on 23 August 1999 and was terminated on or about 11 January 2012.  He was 43 years of age at the date of termination.  Twelve years of service and an age of 43 years produces a multiplier of 13.

	The redundancy pay is:-

		13 x £400.00 (the statutory maximum weekly pay)		£  5,200.00

	The notice pay is:-

		12 x £400.00								£  4,800.00

		Total									£10,000.00

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

Vice President:

Date and place of hearing:	17 May 2013, Belfast

Date decision recorded in register and issued to parties: