THE INDUSTRIAL TRIBUNALS

CASE REF:	549/13

CLAIMANT:			Lawrence James Dunlop

RESPONDENT:		Department for Employment and Learning

DECISION 
The decision of the tribunal is that claimant was not an employee within the meaning of Article 3 of The Employment Rights (Northern Ireland) Order 1996.  Consequently, he is not entitled to any payment from the National Insurance Fund in respect of a redundancy payment, holiday pay, notice pay or unpaid wages.  

Constitution of Tribunal:
Chairman (sitting alone):		Mr B Greene
	
Appearances:
Mr Roger Dunlop, appeared on behalf of the claimant.

Mr Joseph Kennedy, of counsel, instructed by the Departmental Solicitors Office appeared for the respondent.  

Sources of Evidence

1.	The tribunal heard evidence from the claimant and from Mr Neil Cruikshanks on behalf of the respondent.  The tribunal also received six bundles of documents amounting to 548 pages, a number of brochures from the former business in which the claimant was involved and a written submission from each party.  

The claim and the defence

2.	The claimant claimed a redundancy payment of £12,900.00; arrears of pay of £3,200.00; holiday pay of £312.80 and notice pay of £4,800.00.  The respondent denies the claimant’s claims in their entirety.  It asserts that the claimant is not entitled to any of the claims made because he was not an employee, for the 
purposes of The Employment Rights (Northern Ireland) Order 1996, and, even if he were an employee of the former company Adamsez (Northern Ireland) Limited, that he did not have two years continuous employment to ground a redundancy payment claim by reason of breaks in his employment history; and, even if the claimant were an employee with the requisite period of continuous employment to ground a claim for a redundancy payment, that a transfer of undertaking had occurred from the former company, Adamsez (Northern Ireland) Limited to Adamsez (UK) Limited and therefore any entitlements that the claimant had transferred to Adamsez (UK) Limited. 

The Issues

3.	The issue for determination was;-

	Whether the claimant was an employee for the purposes of The Employment Rights (Northern Ireland) Order 1996.  

Findings of Fact

4.	(1)	In 1987 the claimant formed a company Adamsez (NI) Ltd to manufacture baths.  The claimant started working for the company from 1 October 1987.

	(2)	The claimant started off as a designer and a trouble-shooter for the 
new company and he had four or five employees.  His date of birth is 
30 October 1928.

	(3)	Initially the claimant and his wife owned the shares in the company and the claimant was manager.

(4)	The company grew, employing 30 to 40 people.

	(5) 	In the 1990s a board of directors was created within the company and a number of other people joined as directors including Robin Henry, David Larmour and the claimant.  Other family members also became directors.  The claimant was never paid a dividend by the company nor did he take drawings from the company.

(6)	With the arrival of the new directors from outside and from the family the claimant’s shareholding decreased to 14%.  

(7)	The claimant received payment under the PAYE scheme.  He also received benefits in kind which included payment of his telephone bills, car expenses and electricity bills amounting, at the time, to £17,000 per annum approximately.  He considered himself to be an employee working a 40 hour week and having a fixed salary.  The salary itself and any increases were approved by the board and he had to apply to the board for authorisation for his holidays.  He regularly worked in excess of 40 hours to finish a job that needed to be done.  He was expected to do that and never received any overtime payments.  Nor did he receive time off in lieu.  The sickness scheme, of which the claimant benefited, was that if he were off work sick he would receive full pay for one month and then half pay thereafter.  However the claimant was not off very often in the course of his employment but he did receive full payment for time off when he was sick.  

(8)	As far as the claimant is concerned his employment was never interrupted from 1992 until 2012 when the company became insolvent.  

(9)	The claimant’s monthly salary was prepared by Mr Robert Irwin, who looked after those matters.  He received a payslip and paid tax and national insurance as though he were an employee.  The claimant never had any breaks in his employment.  

(10)	The claimant’s son Roger became the managing director of the company and his daughter Heather Crawford also worked for the company.    

(11)	All the persons who worked on the factory floor had written contracts of employment as had some people in administration/management.  The claimant, Roger Dunlop and Heather Crawford, all directors, did not have written contracts of employment.  The claimant had a verbal contract.

(12)	It is common case that the claimant did not receive his monthly salary in 2011 for the months April, May, July, August and September.  Similarly it is common case that the claimant did not receive his monthly salary for January, February and March of 2010.  The claimant hoped to receive unpaid monies but he never made such a claim.  Nor did Adamsez (NI) Ltd treat the claimant’s unpaid wages as a debt owed by the company to him.
  
(13)	The tribunal accepts that the claimant did not receive his monthly salary for January and February 2012 although wages slips were produced to the tribunal which suggested that at the very least the calculation had been done of the claimant’s earnings.  The claimant explained that the payments were not made because at this stage the company was in its death throes and the bank had prohibited payment.  The tribunal accepts this explanation.  

(14)	The respondent alleges that in earlier years, looking at a report on the claimant’s national insurance contributions, there is a suggestion that the claimant may not have received wages during earlier years at certain times by reason of a zero record of national insurance contributions either because he was not an employee of the company or was not working for them.  The claimant disputes this and suggests that the records are at fault.  In the absence of any witness from the National Insurance authorities to explain their documents and to deal with the issue as to whether the documents might be in error the tribunal accepts the claimant’s explanation and does not make a finding of fact that the company did not make payment in these earlier years on his behalf.  The tribunal is also mindful that for the years 1989-2000 the HMRC records currently held may be incomplete as is suggested in the correspondence.

(15)	The claimant was one of four family directors and the only shareholder of Adamsez (UK) Limited from 3 November 2012, the date of incorporation.  

(16)	The claimant denies there was a transfer of undertaking from Adamsez (NI) Ltd to Adamsez (UK) Ltd and makes a claim for a redundancy payment, arrears of wages, holiday pay and notice pay in the amounts set out at paragraph 2 above.

The Law

5.	(1)	An employee is an individual who has entered into or works under or has worked under a contract of employment.  A contract of employment means a contract of service or apprenticeship whether express or implied and (if it is expressed) whether oral or in writing.  (Article 3(1) and (2) The Employment Rights (Northern Ireland) Order 1996).  

	(2)	A worker means an individual who has entered into or works under or worked under a contract of employment or any other contract whether express or implied and (if it is expressed) whether oral or in writing whereby the individual undertakes to do or perform personally any work or service for another party to the contract whose status is not by virtue of the contract a client or customer of any profession or business undertaking carried on by the individual (Article 3(3) The Employment Rights (Northern Ireland) Order 1996).  

	(3)	An employee is entitled to a notice payment equivalent to one week’s pay for each year of continuous service to a maximum of 12 weeks where the continuous period of employment is 12 years or more (Article 118 The Employment Rights (Northern Ireland) Order 1996).

	(4)	A worker shall not suffer any deduction from his wages unless such deduction is authorised by virtue of a statutory provision or a relevant provision of the worker’s contract and the worker has previously signified in writing his agreement or consent to the making of the deduction (Article 45(1) The Employment Rights (Northern Ireland) Order 1996).

	(5)	Wages includes any bonus or holiday pay referable to the worker’s employment whether payable under his contract or otherwise (Article 59(1) The Employment Rights (Northern Ireland) Order 1996).  

	(6)	An employee is entitled to a redundancy payment from his employer if he is dismissed by reason of redundancy (Article 170 The Employment Rights (Northern Ireland) Order 1996).  

	(7)	An employee may make a claim to the Department for Employment and Learning for a payment out of the Northern Ireland National Insurance Fund where the employee is entitled to a redundancy payment and the employer is insolvent (Article 201 The Employment Rights (Northern Ireland) Order 1996).

	(8)	The Department for Employment and Learning shall pay to a claimant such amount in accordance with the calculation set out within the Order of a redundancy payment where it is satisfied that the requirements of Article 201(2) The Employment Rights (Northern Ireland) Order 1996 have been satisfied.  (The Employment Rights (Northern Ireland) Order 1996 Article 202).  

	(9)	Where the employer has become insolvent, the employee’s employment has been terminated and the employee is entitled to be paid the whole or any part of a sum recoverable under The Employment Rights (Northern Ireland) Order 1996 the Department for Employment and Learning shall pay to an employee arrears of pay, holiday pay or notice pay to which he is entitled subject to the restrictions within the 1996 Order (Articles 227, 228 and 229 The Employment Rights (Northern Ireland) Order 1996).  

	(10)	In Clarke v Clarke Construction Initiatives Ltd [2008] IRLR 364, EAT Elias P gave the following guidance to tribunals when deciding whether the contract of employment of a majority shareholder should be given effect.

		(1)	The onus is on the party denying a contract, where an individual has paid an employee’s tax and national insurance, prima facie he is entitled to an employee’s rights.

		(2)	The mere fact of majority shareholding (or de facto control) does not in itself prevent a contract arising.

		(3)	Similarly, entrepreneur status does not in itself prevent a contract arising.  

		(4)	If the parties conduct themselves according to the contract (eg as to hours and holidays), that is a strong pointer towards employment.

		(5)	Conversely, if their conduct is inconsistent with (or not governed by) the contract, that is a strong pointer against employment.

		(6)	The assertion that there is a genuine contract will be undermined if there is nothing in writing.

		(7)	The taking of loans from the company (or them guaranteeing of its debts) are not intrinsically inconsistent with employment.

		(8)	Although majority shareholding and or control will always be relevant and may be decisive, that fact alone should not justify a finding of no employment.  (Harvey on Industrial Relations and Employment Law A1 [125]).

	(11)	The Court of Appeal in Secretary of State for Business Enterprise and Regulatory Reform v Neufeld [2009] IRLR 475, CA approved Elias P’s guidance in the Clarke decision subject to two qualifications;-

		(1)	guideline (1) should not be read as constituting a formal reversal of the burden of proof on to the party denying employment status; it may still be necessary for the putative employee to do more than produce documentation to satisfy the tribunal;

		(2)	guideline (6) may be expressed too negatively – lack of writing may be an important consideration but if the parties’ conduct tends to show a true contract of employment ‘we would not wish tribunals to seize too readily on the absence of a written agreement to justify a rejection of the claim’.  (Harvey on Industrial Relations and Employment Law A1[125]).  

	(12)	A person who qualifies for the national minimum wage shall be remunerated by his employer in respect of his work in any pay reference period at a rate which is not less than the national minimum wage (Section 1(1) National Minimum Wages Act 1998).

	(13)	The reference period is one month (Regulation 10 of the National Minimum Wage Regulations 1999).

	(14)	A transfer of undertaking occurs where there is a transfer of an undertaking, business or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity (Regulation 3(1)(a) Transfer of Undertakings (Protection of Employment) Regulations 2006).  

	(15)	An economic entity means an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary (Regulation 3(2) the Transfer of Undertakings (Protection of Employment) Regulations 2006).  

	(16)	Regulation 4 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 provides that when a transfer occurs the transferor’s rights, powers, duties and liabilities under a contract (or in connection with a contract) of employment transfer to a transferee.  

	(17)	Such a transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor and assigned to the organised grouping of resources or employees that is subject to the relevant transfer, which would otherwise be terminated by the transfer, but any such contract shall have effect after the transfer as if originally made between the person so employed and the transferee (Regulation 4(1) the Transfer of Undertakings (Protection of Employment) Regulations 2006). 

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

6.	(1)	The claimant gave his evidence to the tribunal in a frank and straightforward fashion.  It is undoubtedly true that he has made a significant contribution to the economy in Northern Ireland and given work to many persons over the years.

	(2)	There is a number of aspects of his working situation which are consistent with him being an employee, eg he received payment under the PAYE scheme; he normally worked a 40 hour week; he received a fixed salary; he had to apply to the board for holidays; he was part of the company sickness scheme; and he had to seek leave and approval for his holidays.  However these matters do not lead inexorably to the conclusion that the claimant was an employee of the company.  

	(3)	However there are two of the working arrangements of the claimant which   are not consistent with him having the status of employee for the purposes of The Employment Rights (Northern Ireland) Order 1996.  

These are the following:-

(1)	In 2011 the claimant did not receive any monthly salary for April, May, July, August and September.  In 2010 he did not receive a monthly salary for January, February and March.
  
Although the claimant did not receive salary for January and February 2012 that is, perhaps, explicable by reason of the company being in its death throes with no money available to pay him.  The tribunal does not attach any weight to this non-payment of salary.  

(2)	There was not any claim made by the claimant for these monies as being owed to him nor was there any acceptance by the company that it owed a debt to the claimant.  The claimant merely hoped that he would be paid those monies in better times.  

(4)	It seems to the tribunal that the non-payment of a monthly salary to an employee on 8 occasions in two years and the company’s failure to address this non-payment are not what obtains in an employer/employee relationship.  

(5)	The absence of a written contract, which is one of the factors that the Clarke decision suggests should be taken into account in making an assessment of the employee status, becomes more significant in that it suggests that the relationship between the claimant and the company was not governed by contract but by some other factor such as a family relationship.  This points strongly against employment.

(6)	The non-payment of a monthly salary at times also shows that the parties did not conduct themselves in accordance with the verbal contract between them which is one of the matters that the Clarke decision says is a strong pointer against employment.

(7)	Accordingly the tribunal is not persuaded that the claimant was an employee of Adamsez (Northern Ireland) Ltd.  

(8)	The tribunal does not regard the alleged non-payment of the minimum wage as being indicative one way or the other of employee status as it is sadly not unusual for employers not to pay the minimum wage without intending to avoid creating an employer/employee relationship.

(9)	As the claimant is not an employee for the purposes of The Employment Rights (Northern Ireland) Order 1996 there is no entitlement to any of the payments that the claimant seeks from the respondent.

(10)	By reason of the tribunal’s finding that the claimant is not an employee it is unnecessary to consider whether there was a transfer of undertaking or not.

(11)	Accordingly the claimant’s claim is dismissed in its entirety.

Chairman:

Date and place of hearing:  6, 7, 11, 12 and 25 November 2013, Belfast.	

Date decision recorded in register and issued to parties: