Appeal No.	 EAT/390/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On  1 July 1999

Before
HIS HONOUR JUDGE PETER CLARK
MR D A C LAMBERT
MRS J M MATTHIAS

MR T W CATTERMOLE & MR HAWKINS	APPELLANTS

THE SECRETARY OF STATE FOR TRADE AND INDUSTRY	RESPONDENT

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING – EX PARTE

Revised

	APPEARANCES

For the Appellants	NO APPEARANCE BY OR ON BEHALF OF THE APPELLANTS	

	JUDGE PETER CLARK:	

1.	The issue in this case is whether on the liquidation of DCN Associates Ltd [“Associates”] the two appellants, Mr Hawkins and Mr Cattermole, were employees of that company within the meaning of s. 230(1) of the Employment Rights Act 1996 for the purpose of recovering outstanding wages, holiday pay, pay in lieu of notice and a redundancy payment from the fund administered by the Secretary of State.

2.	A Chairman of Employment Tribunals, Mr C R Ash, sitting alone at Bury St Edmunds on 9th December 1997 held that they were not by a decision with extended reasons promulgated on 2nd February 1998.

3.	The Chairman accepted that the history of the company and its predecessors was as set out in the particulars of complaint set out in paragraph 11 of Mr Hawkins’ form IT1.

4.	The business, started in 1972, was originally DCN Advertising and Publishing Services Ltd [“APS”]. Mr Hawkins joined the company in 1981. Until 1984 he was the financial controller. From 1984 to 1987 he was company secretary.

5.	Mr Cattermole joined APS in September 1975. He was the creative director.

6.	Following a change in ownership of the business Associates was born. In 1990 both appellants, as directors of Associates, entered into five-year service contracts.

7.	In December 1993 the two appellants effected a management buy out of the business. Each held 50% of the shares in the company.

8.	In November 1994 Susan Smith was appointed to the board of directors.

9.	In October 1995 the directors entered into new service contracts. Susan Smith left the company in August 1996 and on 13th January 1997 Associates went into liquidation.

10.	Before the Employment Tribunal the respondent Secretary of State relied on the EAT decision in Buchan v Secretary of State for Employment [1997] IRLR 80 for the proposition that as 50% shareholders the appellants could not be employees.

11.	The appellants relied on the approach of the Privy Council in Lee v Lees Air Farming Ltd [1961] AC 12.

12.	In directing himself as to the law the Chairman appears to have steered a middle course. He rejected the apparently rigid rule in Buchan that a majority shareholder cannot be an employee, preferring the observations of the Court of Session in Fleming v Secretary of State for Trade and Industry [1997] IRLR 682. However, he apparently expressly followed the reasoning of the EAT in Buchan (paragraph 9-12) which distinguished the case of Lee.

13.	Since the decision in this case the Court of Appeal has roundly rejected the approach of the EAT in Buchan in Secretary of State for Trade and Industry v Bottrill [1999] IRLR 326.

14.	At this preliminary hearing stage it is not entirely clear to us how the Chairman directed himself in law, and on this ground we think the appeal is arguable.

15.	There is a further point. Although on one view it appears that the Chairman correctly directed himself that the question as to whether the appellants were employees was a matter of fact, it is not clear how he addressed that question. Paragraph 11 of the reasons deals briefly with certain factors, but potentially significantly does not mention the service contracts entered into between the appellants and the company. Were they a sham or were they genuine contracts? What were the terms? Whatever the label that was attached did the contracts give rise to the relationship of employer/employee? These are questions which arise for consideration. See Lord Woolf MR in Bottrill, paragraphs 28-29.

16.	In these circumstances also we think that the case should proceed to a full hearing on ground 6(1) of the Notice of Appeal. Ground 6(2) is not pursued and is dismissed.

17.	For the purpose of the full appeal hearing we give the following directions. The case will be listed for three hours, Category C. There will be exchange of skeleton arguments between the parties not less than 14 days before the date fixed for the full appeal hearing. Copies of those skeleton arguments to be lodged at the same time with the EAT. There are no further directions.