Appeal No.	 EAT/390/98

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On  1 January 2000

Before
HIS HONOUR JUDGE COLIN SMITH QC
MR L D COWAN
MR S M SPRINGER MBE

(1) MR T W CATTERMOLE 
(2) MR T B HAWKINS	APPELLANTS

SECRETARY OF STATE FOR TRADE & INDUSTRY	RESPONDENTS

Transcript of Proceedings

FULL HEARING

Revised

	

	APPEARANCES

For the Appellant	MR D BARNES
SOLICITOR
MESSRS BANKES ASHTON
81 GUILDHALL STREET
BURY ST EDMUNDS
SUFFOLK
IP33 1PZ	
For the RespondentS	MISS J EADY
OF COUNSEL
MISS LINDSEY NICOLL
HEAD OF EMPLOYMENT LITIGATION TEAM
THE TREASURY SOLICITOR
ROOM 544
QUEEN ANNE’S CHAMBERS
28 THE BROADWAY
LONDON
SW1H 9JS	

	JUDGE SMITH:-

1.	This is an appeal by the Applicants before the Employment Tribunal, Mr Cattermole and Mr Hawkins, against the decision of an Employment Tribunal held at Bury-St-Edmunds, the Chairman sitting alone, on 9th  December 1997, of which Extended Reasons were sent to the parties on 2nd February 1998, whereby the Chairman held that the Applicants’ claims against the Secretary of State for Trade and Industry should be dismissed since the Chairman held that they were not employees as defined by section 230 of the 1996 Act.  

2.	As appears by necessary inference from the findings of the Employment Tribunal, both Appellants had had a very long standing relationship with the advertising business that ultimately went into liquidation right at the beginning of 1997, namely a company by then known as PCN Associates Ltd.   Thus, Mr Cattermole had been the creative director since 1975 and Mr Hawkins had been connected with the company since 1981, first as Financial Controller, then as Company Secretary, and finally, from 1993 to 1997, as Managing Director.  Both Appellants we find had entered into five year written service contracts in 1990 which had been renewed in 1995.  Those contracts are on their face, and they were, of course, before the Chairman, detailed and comprehensive service contracts, which have all the appearance of giving rise to an employer/employee relationship.   There were eight directors up to about 1992, when this was reduced to four directors by 1993.  There was then a management buy-out in December 1993, when the two Appellants became joint 50% shareholders of the company which changed its name at that time to DCN Associates Ltd.  A third director was appointed in 1994, but she left in August 1996.  

3.	We repeat that the company went into liquidation right at the beginning of 1997, with the result that claims were submitted by the Appellants to the Secretary of State for wages from the 1st January 1997 to 13th January 1997, holiday pay, salary in lieu of notice and redundancy payments totalling £6,321, in Mr Hawkins case, and £8,610.00 in Mr Cattermole’s reflecting his longer service.  

4.	They were rejected by the Department and hence the Appellants brought their claims in the Employment Tribunal.  Before coming directly to the grounds of appeal, argued before us very clearly by Mr Barnes and Miss Eady on behalf of the respective parties, we should refer to the Chairman’s decision.  The Chairman rejected the approach in Buchan v Secretary of State for Employment 1997 IRLR 80, that a majority shareholder cannot, as a matter of law, be an employee and correctly directed himself that whether or not a worker is an employee is a question of fact.  He referred to the case of Fleming v Secretary of State for Trade & Industry 1997 IRLR 682, in that regard.  The Chairman then made certain findings of fact in paragraphs 11 and 12 of the decision and concluded in paragraph 15 that the Appellants were not employees.  

5.	It is important to the decision of this appeal, in our judgment, that, since the Chairman gave his decision, the Court of Appeal in the case of Bottrill v Secretary of State 1999 IRLR 326, has given some very helpful guidance with regard to the nature and its scope of the factual enquiry which the Tribunal of fact, namely, the Employment Tribunal, should undertake in the particular circumstances of each case, when deciding the vexed question as to whether a controlling shareholder is also an employee.  The Chairman did not have the benefit of this important guidance.  In our judgment, it is clear from the judgement of Lord Woolf, the Master of the Rolls in the case of Bottrill that the Employment Tribunal should usually consider at the outset whether there is a genuine contract between the company and the shareholder, the applicant, how it came into existence and what each party actually did pursuant to the contract.  Those all being very relevant considerations.   

6.	 The Court of Appeal next advise that the Employment Tribunal should normally ask itself, on the assumption that it finds that the contract is not a sham, whether the contract actually gave rise to an employer/employee relationship in the particular case before the Tribunal.  It should consider, in so deciding, said the Court of Appeal the factors usually regarded as relevant to such an inquiry as are set out helpfully in Chitty on Contracts at paragraph 37-008 (27 Edition) of the 1994 Edition.  These matters, as they are set out in Chitty, should be deemed to be incorporated in this judgment.  The Court of Appeal then go on to state that the question of the degree of control exercised by the company over the shareholder employee is always important and, amongst other matters helpfully referred to by the Court of Appeal in Bottrill, that consideration should be given to the conduct of the parties pursuant to the terms of the contract, which is likely to be a relevant factor.  

In Bottrill, the Court of Appeal concludes as follows:-
“It is for the Employment Tribunal as an Industrial jury to take all relevant factors into account in reaching its conclusion and give such weight to them as it considers appropriate”.

10.	In the light of that decision and despite the persuasive advocacy of Miss Eady, we have concluded that measured against the guidance laid down by the Court of Appeal in Bottrill, the benefit of which we repeat the Chairman did not have, the Chairman’s approach unfortunately fell into error.  Whilst the Chairman does mention certain relevant factors, we find his decision to be silent as to any evaluation of other potentially significant factors.   Thus, in particular, no mention or evaluation is made of the service contracts or of the history relating thereto.  No mention is made as to whether these were genuine contracts and further as to whether or not they actually gave rise to an employer/employee relationship by application of the important factors referred to in Chitty on Contracts.

11.	In our judgment, the omission of any consideration of these important factors has had the result that the Chairman has erred in law by failing to take into account a significant number of relevant factors before reaching his conclusions.  We do not suggest that a failure to mention one relevant factor, for example, would suffice to vitiate a decision on fact, but, in our judgement, in this particular case, on the particular evidence here, it was necessary for the Chairman to give consideration to the contractual factors and the actual conduct of the parties pursuant to those contracts as highlighted by the Court of Appeal in Bottrill.  

12.	These Appellants had had a very long connection with the business and apparently held comprehensive and seemingly genuine service contracts for many years during much of which time there had been directors in place other than the Appellants.  We are conscious of the fact that, in Bottrill, the Court of Appeal did not at all intend to lay down rigid guidelines for the Employment Tribunal, but in our judgement the factors identified by the Court of Appeal in Bottrill, and in particular the first two lines of enquiry which the Court of Appeal suggest are likely to merit consideration, namely first whether there were genuine contracts, how they came into an existence, and what each party did pursuant to them, and, secondly, whether such contracts, in fact, gave rise to an employer/employee relationship, were crucial inquiries in this particular case on the undisputed evidence called before the Employment Tribunal.   

13.	In our judgment, the question as to the impact of those factors, had they been given full and proper weight in this particular case, and whether they would have been outweighed by the findings by the Chairman in paragraphs 11 and 12 of his decision, must be quite uncertain, and that has the result that the approach of the Chairman, with respect to him, was unfortunately unbalanced.  As a result of significant factors not being weighed and evaluated disproportionate weight may have been given to those factors which he did take into account.  The ultimate decision is often finely balanced and thus failure to take relevant factors into account may cause an injustice to be done.  

14.	We have carefully considered, in the light of our judgement, whether, especially in the light of the long delay experienced by the Appellants, we can substitute our own finding for that of the Employment Tribunal on the issue, but we have unanimously concluded that the only way justice can properly be done between the parties, is by our remitting this matter to a freshly constituted Employment Tribunal consisting of a Chairman and two lay members for reconsideration after a fresh hearing before them, in the light of this judgement and the decision of the Court of Appeal in Bottrill.  Accordingly, for those reasons this Appeal is allowed on that basis.