THE INDUSTRIAL TRIBUNALS

CASE REF:	22/05

CLAIMANT:			Julie Tosh

RESPONDENT:		Sharman Enterprises Ltd

DECISION
The majority decision of the tribunal is that the claimant was unfairly/constructively dismissed. 

Constitution of Tribunal:
Chairman:		Ms Elliott
Members:		Ms McCauley
Mr MacAuley

Appearances:
The claimant was represented by Mr T Campbell, Solicitor of Campbell Stafford, Solicitors. 
The respondent did not appear and was not represented.

1.	Sources of Evidence

	The tribunal heard evidence from the claimant.  Constable Mark Morrison, PSNI, and Mr Damien Young also gave evidence.  The respondent did not appear but had lodged a response and a bundle of documents had been lodged by the respondent’s representative who withdrew from the proceedings at the outset of the hearing.  The claimant had also lodged a bundle of documentation. 

2.	The Claim and the Defence

	The claimant claimed that she had been unfairly dismissed by the respondent.  It was the claimant’s case that she had been constructively dismissed.  

	The respondent contended that the claimant had not been dismissed but that she had resigned.  The respondent denied that the claimant had been constructively dismissed.

3.	The Issue

(a)	The issue to be determined by the tribunal is whether the claimant was unfairly/constructively dismissed or whether she had resigned. 

(b)	The claimant’s claim form stated that the respondent was involved in illegal business acts and money laundering.  This assertion raised issues in respect of the legality of the contract and whether either the claimant or respondent could pursue an illegal contract and seek to rely on it.  The tribunal considered this issue before proceeding to consider the claim of unfair/constructive dismissal. 

4.	Legality of the Contract

	The Law

	The legal position in respect of the possible illegality of a contract is that where a contract is ex facie lawful and one party alone is guilty of some illegal purposes, the other being innocent of same, then the innocent party should be able to enforce the contract despite the element of illegality even though the contract is unenforceable at the suit of the guilty party.  The test is whether the innocent party honestly did not know of the illegality.  A party does not have a guilty mind because he ought to have known, Newlands –v- Simons and Willer (Hairdressers) Ltd [1981] IRLR 359.  The tribunal will consider the evidence subjectively before reaching a decision in respect of whether a party can rely on the contract and enforce his statutory rights.  

	Evidence in respect of the legality of the contract

	The claimant gave evidence that she did not at any stage receive a pay slip during the course of her employment.  The claimant stated that she had previously worked in the hotel industry and had been paid in cash at that time after deductions had been made.  The claimant received £300 per week in cash and gave evidence that she assumed that the tax and national insurance had been paid by the respondent.  The claimant stated that she would pay the staff and herself in cash out of her budget.  The claimant would then advise an accountancy firm in Belfast, Carbane Associates, of the amount so that they could calculate the tax and national insurance to be paid each quarter.  Carbane would then request a cheque for that amount be forwarded to them.  The respondent’s response stated that the claimant was responsible for dealing with all PAYE matters and any irregularities would have been the responsibility of, and caused by the claimant.

The tribunal finds as fact that the claimant did not have sole responsibility for the PAYE system.

	The claimant gave evidence that she was planning to change her mortgage provider.  On 25 March 2004 the claimant made an online application to Egg Bank and thereafter requested a P60 as proof of her earnings as she had no documentation.  The claimant gave evidence that there was a delay in this document being provided after she approached Jane Culbertson, a Director of the respondent company.  The claimant stated in her claim form that the loan was refused, however documentation was produced suggesting the application was in fact withdrawn on 26 April 2004.  The claimant stated that she was concerned that the delay would result in refusal which would affect her credit rating.  The claimant was subsequently provided with a P60 for the tax year 2003-2004 which reflected gross earnings of £20,000.  The claimant’s evidence was that this reassured her.  

	The respondent’s response states that the claimant’s agreed wage was £168 per week gross at the commencement of her employment and she was not at any point offered a pay rise.  This amount is considerably less than the combined amount that the claimant had been earning in her previous two part time jobs.  The tribunal finds as fact that the claimant agreed to work for the respondent for the sum of £300 net per week.  The claimant gave evidence that after careful consideration she went to work for the respondent due to her partner’s reduced income and she would be unlikely to have given up her jobs to earn less money.   

	The tribunal heard evidence from Damien Young who was employed by the respondent company.  Mr Damien Young is the son of Frank Young, one of the Directors, and gave evidence that his signature had been forged on documentation purporting to appoint him as a Director.  Damien Young gave evidence that he had contacted the Inland Revenue in or about late August or early September 2004 to advise of his concerns in respect of the respondent company.  Damien Young’s concerns were that the appropriate payments of tax and national insurance had not been made in respect of employees’ earnings.  Damien Young gave evidence that he advised the claimant briefly of his concerns and suggested that she should check out the situation.  Damien Young stated that he felt he had a duty to inform the claimant to permit her to check her own position in respect of tax and national insurance contributions.   

	The claimant’s concerns were heightened after the visit from Damien Young to her home in November 2004.  The claimant had already experienced difficulty in obtaining proof of earnings which she needed to claim a rates rebate in that month.  The claimant then proceeded to make her own inquiries by checking the Companies Registry Records which reflected that the respondent company had recorded a loss of £35,000.  The claimant was aware that the Directors of the respondent company had a good lifestyle and thought that this did not add up.  The claimant wrote her letter of resignation dated 25 November 2004 and ended her employment on 3 December 2004.  On that date the claimant telephoned the Inland Revenue National Insurance Contributions Office to inquire what figures had been returned in respect of her earnings.  The claimant was advised by letter dated 6 December 2004 of the earnings declared which reflected the lower amount of £168 gross per week.  The claimant subsequently contacted the Inland Revenue to advise them of her concerns.

	The tribunal finds that the claimant did not know of the illegality and was entitled to assume that her employer had made the proper deductions and returns to the Inland Revenue.  The receipt of a P60 reflecting the correct amount of earnings for the tax year 2003-2004 reassured the claimant in this respect.  

	The Directors of the respondent company, Jane Culbertson and Frank Young, subsequently complained to the PSNI that the claimant had obtained the P60 for mortgage purposes only.  These allegations were made in April 2006 and were supported by staff in Carbane Associates.

	The claimant called the police officer to introduce this evidence, the respondent did not attend the hearing to make this case.  The tribunal reached the conclusion that the claimant did not know of the illegality.  The tribunal therefore proceeded to consider the claimant’s claim of unfair dismissal.

5.	Unfair/Constructive Dismissal

	Findings of Fact

	Background

	The respondent company sells DVDs, videos and magazines of a pornographic nature.  The company was run by Jane Culbertson and her partner Frank Young, both of whom were based at the premises at Ballybogey in County Antrim.  The claimant commenced working for the respondent on 1 August 2002 as an office manager with responsibility for a budget to pay invoices.  The respondent operated a number of shops.  The materials which were sold on these premises and through the mail order business were stored and delivered from a converted barn at Ballybogey.  The administration of the business was also at Ballybogey which is where the claimant worked.  The claimant stated that she gave careful thought before accepting the job in light of the nature of the respondent’s business.  The claimant resigned by letter dated 25 November 2004 giving one week’s notice with effect from 3 December 2004.   The claimant had been on sick leave from 28 June 2004.  The letter of resignation made no mention of the claimant’s reasons for leaving her employment and simply addressed her entitlement to holiday pay.  The claimant’s claim form was dated 16 December 2004 and was lodged on 17 December 2004.

	The claimant gave evidence in respect of the difficulties she experienced during her employment.  The claimant stated that shortly after commencing her employment she was told that she would have to assist with the mail order side of the business.  The claimant stated that she had been assured by Jane Culbertson that she would not be involved with the material that the respondent sold.  The claimant was not provided with a job description or written contract.  The claimant had to assist with packing these items which she felt did not fall within the remit of her job.  The claimant continued to work for the respondent thereafter but requested a written contract.  The claimant was instructed to contact the Labour Relations Agency to obtain a set of standard terms and conditions and liaise with a solicitor in respect of same.  This matter was never progressed due to the objections of Miss Culbertson who stopped any progress after another employee claimed that she had been unfairly dismissed.

	The claimant complained of being unable to contribute at meetings.  The claimant gave evidence that Miss Culbertson would have created difficulties for her by criticising her continually and instructing her to clean the toilets.  The claimant stated that she would find herself as a buffer between Miss Culbertson and Frank Young in respect of business matters resulting in hostility from Miss Culbertson.  As a result of these matters the claimant went on sick leave from 28 June 2004 until her employment ended.

	The claimant gave evidence that she was gravely concerned by the visit from Damien Young and became fearful that she would be “dragged into something” for simply doing her job handling money.  The claimant made her own inquiries with the Companies Registry and considered her position.  The claimant stated that she realised that she could not return to her job and therefore resigned in light of the financial irregularities as set out at 4 herein.

	The tribunal finds as fact that the claimant experienced difficulties in her working environment involving a variation in her terms and conditions for example in relation to annual leave.  The claimant was criticised in respect of her work unreasonably.  The claimant decided to resign in light of the respondent’s failure to pay the appropriate tax and national insurance contributions as required by law.  The tribunal having heard evidence from the claimant finds as fact that the claimant is entitled to 16½ days holiday pay.

6.	The Law

	Article 126(1) of the Employment Rights (Northern Ireland) Order 1996 (“the 1996 Order”) states that “an employee has the right not to be unfairly dismissed by his employer”.

	Where, as in this case, the employer (the respondent) denies that the employee has been dismissed, the claimant in seeking to establish a case of unfair dismissal on the grounds of constructive dismissal has resort to Article 127 of the 1996 Order.  Article 127 provides that “an employee is dismissed by his employer if … and only if … the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct”.    

	The tribunal then turned to the issue of constructive dismissal and considered whether the claimant had been dismissed by the respondent as described by Article 127(c) of the Employment Rights (Northern Ireland) Order 1996.  The principles of law relating to constructive dismissal are set out in the leading case of Western Excavating ECC –v- Sharp [1978] IRLR 27.  An employee is entitled to treat the contract of employment as terminated where the employer has breached an expressed or implied term of the contract to such an extent that there is evidence that the employer has committed a fundamental breach of contract.  Four conditions must be met:

	(a)	There must be an actual or anticipatory breach of contract by the employer. 

(b)	That breach must be sufficiently important to justify the employee resigning or, it must be in the last of a series of incidents which justify his leaving.

(c)	He must leave in response to the breach and not for some other unconnected reason.

(d)	He must not delay too long in terminating the contact in response to the employer’s breach, otherwise he will be deemed to have waived the breach and agreed to vary the terms.

	Such conduct by the employer broadly speaking must be conduct which shows a clear intention not to be bound by the terms of the contract of employment, and can include behaviour which effectively destroys the relationship of mutual trust and confidence which both parties are entitled to expect from each other.

	The case of Mahmud -v- Bank of Credit and Commerce International [1997] IRLR 462 provides authority for the proposition that an employer shall not without reasonable and proper cause conduct itself in a manner calculated likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.

7.	Application of the Law and Findings of Fact to the Issues

(a)	The respondent routinely varied the claimant’s agreed terms and conditions of employment in breach of verbal assurances.  The claimant was routinely criticised in the workplace in front of other employees for no apparent reason.  Whilst on sick leave as a result of stress the claimant became aware of serious financial irregularities in the respondent’s business in that the appropriate tax and national insurance contributions had not been paid as the claimant was entitled to expect.

(b)	The tribunal is satisfied that the respondent breached the implied term of trust and confidence in the claimant’s contract of employment.  The tribunal finds that the respondent conducted itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.  The respondent’s conduct formed a chain of events.  The financial irregularities triggered the claimant’s resignation and were in effect the last straw.

(c)	The tribunal finds that the claimant resigned in response to the breach of contract by the respondent.

(d)	the tribunal is further satisfied that the claimant did not delay too long before she resigned as she had been on sick leave.  The claimant resigned shortly after she became aware of the financial matters.

	(e)	 The claimant has been constructively dismissed.  

(f)	In all the circumstances the respondent has acted unreasonably and thereby the constructive dismissal of the claimant has become an unfair dismissal.

	(g)	the claimant seeks compensation by way of remedy.

	(h)	the claimant’s compensation is as follows:-

			Basic Award

			£270 x 2 =						£   540

			Compensatory Award

			Loss of Earnings

			03/12/04 – 13/01/07		£300 x 110 =		£33,000

			Holiday pay						£      990

							Total			£33,990

			Less earnings to date

			05/12/04 – 15/03/05				£     434.70

			15/03/05 – 10/01/07				£23,502.05
									£23,936.75

			Immediate loss 				£10,053.25

			Future loss					£     814.32

			Total loss related earnings 		£11,407.57

			Loss of statutory rights			£       250.00

			Total Award					£11,657.57

		The respondent acted unreasonably in the manner in which the case was pleaded.  The tribunal assesses costs in the sum of £600 + VAT for the claimant’s solicitor and £728.50 + VAT in respect of counsel.

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

Chairman:

Date and place of hearing:	15-17 January 2007 and 19 April 2007, Belfast	

Date decision recorded in register and issued to parties: