THE INDUSTRIAL TRIBUNALS
CASE REF: 9204/03
CLAIMANT: Daniel McAteer
RESPONDENT: Alta Data Systems (N.I.) Limited
DECISION ON A PRE HEARING REVIEW
The decision of the tribunal is that the tribunal has jurisdiction to entertain the applicant's complaint of unfair dismissal, as he is an employee, as defined in Article 3 of the Employment Rights (Northern Ireland ) Order 1996 ("the Order").
Constitution of Tribunal:
Chairman: Mr Cross (sitting alone)
Appearances:
The claimant represented himself,
The respondent was represented by Mr A Colmer, Barrister at Law, instructed by Tughans Solicitors.
Evidence
- The tribunal heard evidence from the applicant and from Professor McBride and Mr McLaughlin on behalf of the respondent.
The issues
- The issue to be decided is whether the applicant, who was a director of the respondent company, was also an employee of the company, or whether his status was that of someone providing services to the company as an independent contractor.
The tribunal's findings of fact
- The applicant who is a chartered accountant in partnership in the firm of Duddy McAteer became a director in the respondent company in July 2000. His fellow directors were Professor McBride and Mr McLaughlin. The respondent company had an issued share capital of one hundred thousand shares, of which the claimant, who was one of nine shareholders, held ten thousand shares.
- During the early years of the respondent company and in the applicant's case up to when he left the company, there were no written contracts between the respondent and its three directors. The tribunal find that oral agreements were formed, under which it was agreed that each director would be remunerated at the rate of £60,000 per annum, paid on the basis of the number of days work each man contributed. This was known as "full time equivalent". The applicant undertook to do one day a week for the respondent, thus he was paid one fifth of the sum of £60,000, namely £1,000 per month. It was further agreed that as the respondent was only starting up, that the directors would not at first draw down this remuneration but would record it and pay it out when business picked up sufficiently to allow for such payments.
- The two directors, Mr McLaughlin and the applicant, who also had their own professional businesses, also agreed that when their firms billed the respondent for work, which either firm carried out for the respondent, that that element of the bill that referred to work done by the director would go towards the yearly amount paid to each director. Thus in any year those directors would have accumulated a total sum of £60,000, part of which might be billed work for one of the firms and the remainder would be directors' drawings. The total would not exceed £60,000 in any one year and this was described as"a cap". If in any year the director's firm did no professional work for the respondent then the director concerned would draw only the full time equivalent of the £60,000 himself. Professor McBride had no other interest in business and so could draw all his money as drawings.
- The drawings which were paid to the directors themselves, as opposed to their firms, were subject to PAYE tax and National Insurance deductions and the appropriate forms were from time to time provided to the directors and the tax authorities. The directors were all named as employees in the P35 return made to the Inland Revenue at the end of each financial year.
- The applicant attended at the respondent's office on Thursday of each week unless he was attending to the respondent's business elsewhere. He attended board meetings with his fellow directors and attended to other matters that fell into his area of responsibility, speaking to appropriate members of the staff and dealing with paper work. The claimant would also, from time to time, attend to the business of the respondent from his own office in Derry.
- The claimant's area of responsibility as finance director was defined as including the following:
The financial aspects of project appraisal
Defining the financial needs of the company
Obtaining finance
Structuring the company
Management accounting
Tax coordination
Legal relations
Negotiation of deals
Coordination of accounting function
The applicant did not do all the accounting work himself, but after the ground work had been done by either his firm, or another external accountant, he would advise his fellow directors on the implications of the figures. The applicant was responsible for the financial information being available for the director's meetings and on occasions he was subject to criticism when information was not provided in time.
- The tribunal went through the detail of various grant applications and applications for special tax status for start up companies in the IT field. It saw that the applicant was involved at meetings and negotiations and advising his fellow directors concerning these applications. Likewise he was involved in the respondent's trade negotiations at his appropriate level, dealing with the company's solicitors and financiers and acting as part of the negotiation team. Often, at the same time, the respondent's accountant's firm would also be involved in the due diligence exercise.
- The applicant took a full part in the business of director's meetings and like his fellow directors was allotted certain tasks, which it was his duty to perform. He then reported back to subsequent meetings as to his progress. At his level as a board member he was not supervised in his work, but he was expected to progress it as a member of the management team.
- The payments made to the directors were paid on a monthly basis, subject to the holding back of payments at the start of trading. If a director was ill or on holiday the payments were made in the normal way and no deductions were suffered by the absent director. From time to time the sums carried forward of unpaid drawings were recorded in the company minutes of the respondent.
The Law
- The test to be applied to an individual to determine as to whether or not he is an employee, which would include an employee for the purposes of the Order, or an independent contractor providing services, have been set out in a number of cases following the guidelines laid down by MacKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance (1968) 2QB 497. These guidelines provide that an employee can, in the words of the learned judge, be identified in the following manner:-
"(1) The servant agrees that, in consideration of a wage or a remuneration, he
will provide his own work and skill in the performance of some service for his
master.
(2) He agrees expressly or impliedly, that in the performance of that service he
will be subject to the other's control to a sufficient degree to make that other
master.
(3) The other provisions of the contract are consistent with it being a contract of
service."
The first two numbered paragraphs of this definition are referred to as (1) "the mutuality of obligation" and (2) "control by the employer".
- The tribunal was guided by a recent case from the Scottish EAT, Levy McCallum Limited v Brian David Middleton, (transcript of 9 August 2005). This case concerned an employee, who agreed with his employer, to change his status to that of a person providing services. In fact he continued doing very much the same work as he had done previously as an employee and the EAT held that the tribunal had been correct to look at the facts of the contract between the parties and not be guided by the name that the parties gave to the relationship.
- This tribunal has followed the guidelines laid down in the Ready Mixed Concrete case as expanded upon by the Levy McCallum case. It also found help in the Northern Court of Appeal case of McGurk V Department of Social Development 2006 NICA 21 March 2006, where Lord Chief Justice Kerr sets out the tests to be applied, albeit in a different type of employment relationship to the company/director relationship in this case.
Decision of the tribunal
- The tribunal holds that the applicant is an employee of the respondent company as well as a director. The situation is in some ways complicated by the fact that the applicant had three separate relationships with the respondent. He was a director and thus an officer of the company, which, if he had no other involvement in week by week work for the company, would not of itself have entitled him to be called an employee. His firm provided services to the respondent by way of accountancy work and due diligence work in banking and trading situations. If that was the applicant's only work for the respondent, then again, he would have been, not an employee, but an independent contractor. It was the claimant's third connection with the respondent that made him an employee. Namely as the person who, whilst a director, performed the various functions set out in paragraph 8 above.
- Taking first the mutuality of obligation test. In this case the applicant had salary credited to his name, even though he, like his fellow directors agreed not to draw it down until the company was in a better financial position. Importantly this salary when drawn was subject to PAYE and National Insurance deductions. Such was not the case in the McGurk v DSD case referred to above, which despite that difference was still decided in favour of Mr McGurk being an employee. In exchange for his salary the applicant made himself available for one fifth of a week to work for the respondent taking on the duties set out in paragraph 8 above.
- The tribunal considered the control that was exercised by the respondent over the applicant. In cases such as this, where the employee is a skilled and senior person the courts have recognised that a different approach is required. In the English Court of Appeal case of Lane v Shire Roofing Co (Oxford) Ltd 1995 IRLR 493, Henry LJ stated with reference to the control test;
"But it is recognised that the control test may not be decisive for instance in the case of skilled employees, with discretion to decide how their work should be done. In such cases the question is broadened to whose business was it? Was the workman carrying out his own business, or was he carrying on that of his employers?"
This tribunal holds that the applicant was carrying out the business of his employer, the respondent on the Thursdays when he was working at the respondent's premises, and on other occasions. He did however also work for the respondent as a provider of services through his accountancy firm, but this was separate work and the respondent company recognised that and had allowed for this in the cap arrangement which it applied to the payments to be made to the claimant.
- So far as other employment matters were concerned the applicant had no written contract of employment. The other directors had no written contracts until Professor McBride got one himself in April 2003. The tribunal holds that nothing turns on that as the contract of employment between the parties was an oral contract. The applicant told the other directors that he would look into the most tax advantageous way of drawing their salary from the respondent. The directors with professional firms providing services could avail of the better tax regime of paying themselves through their firms providing services to the respondent. However the balance of the drawings were paid under the PAYE system. So far as sickness and holidays were concerned, the directors all continued to draw, or be credited with in the early days, their appropriate monthly sums, whether or not they were available for work during the entire month.
- For these reasons the tribunal holds that the claimant was an employee of the respondent.
Chairman:
Date and place of hearing: 8-11 January 2007, Belfast
Date decision recorded in register and issued to parties:
