Appeal No. EAT/627/92

	EMPLOYMENT APPEAL TRIBUNAL
	58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

		At the Tribunal
		On 21 February 1994

	Before

	HIS HONOUR JUDGE B HARGROVE OBE QC

	MR T S BATHO

	MR G H WRIGHT MBE

MR R NEWSOME	APPELLANT

SHEPSHED ALBION 91 FOOTBALL CLUB	RESPONDENTS

	Transcript of Proceedings

	JUDGMENT

Revised

	APPEARANCES

For the Appellant	MR M WYATT
(OF COUNSEL)
Messrs Bird Wilford and
Sale
20 Church Gate
Loughborough
Leics LE11 1UD

For the Respondents	NO APPEARANCE BY OR
REPRESENTATION ON
BEHALF OF THE
RESPONDENTS

	JUDGE HARGROVE OBE QC:  Originally an Industrial Tribunal heard this case and decided that the Applicant was unfairly dismissed and the question of compensation was adjourned until a later date.  Putting the matter short, the Tribunal concluded that there had been an arrangement whereby the Appellant's wages were split nominally between himself and his wife although at the material time the wife was performing no services to the employers.  The Tribunal then concluded that the payments constituted device to deceive the Revenue, that it was a fraud upon the Revenue and that because the contract was illegally operated, that they had no jurisdiction.

	The situation is slightly different from that which one would anticipate where there is this type of split payment.  When the payment was made it is the Tribunal's finding that there were a number of occasions upon which he queried the way in which this was being done.  He was reassured by the officer in charge of wages that the Chairman had sanctioned this method and that it was perfectly correct.  He also appears to have contacted in May 1991, the Inland Revenue to ascertain whether all was in order and it appears that as a result of the information he gave certain investigations were made into the conduct of this football club, possibly because the Inland Revenue from past experience, had some doubts about the methods of payment of wages of football clubs.

	The Appellants say at the outset that the Tribunal has set out the correct proposition of law, namely that which appears at paragraph 9 of their decision where they state the matter in these words:

"Applying those principles, therefore we have asked the first question whether or not the applicant in this case was knowingly a party to a deception either on the Revenue and/or on the Department of Social Security in respect of National Insurance contributions...  We should also say that the Applicant himself was uneasy and aware of the wrongness of what he was doing because on his own admission he queried it on a number of occasions and said that he wanted it done correctly.  "
	The Appellants here say with some force, that really if that sort of matter is to be taken against a man it is difficult to know what a man can do in these circumstances.

	The major point is that what the Tribunal decided here was that the knowledge that something was amiss made the employee a party to deception.  The evidence would appear to be to the contrary for not only is there that passage but there is also a further passage which occurs in paragraph 5 where this expression is used:

"Every time he [the Appellant] did so, the clerk insisted that the method was correct and that it was quite in order for the company to do it like that."

	In our view applying the correct principle of law ought to have led the Tribunal to reach the conclusion that although there might be knowledge on the part of the employee, an unease on his part about the method of payment, in these circumstances to regard him as a party cannot be justified.  That is sufficient to deal with the major part of this appeal but a second matter is also taken.  Upon the basis of Hewcastle Catering Ltd v Ahmed & Alkamah [1991] IRLR 473, which in effect had to consider a situation where the facts are not entirely dissimilar to the present set of facts.  There, waiters had been involved by the employers in a fraud upon the customs and excise in relation to the payment of value added tax.  The waiters, on being approached by the customs officers had given statements.  They had appeared in a subsequent prosecution of two members of the employer company.  They had been dismissed.  The point was raised that as they were participating in an illegal contract there was no jurisdiction in the Tribunal to hear their claim.  The headnote really summarises the findings in the case:

"Taking that approach in the present case, any Industrial Tribunal considering the facts would be bound to conclude that public policy did not preclude the respondents' claims.  If the public in its conscience weighed the effect of the respondents' conduct with that of the appellants', who not only perpetrated the fraud but involved their employees in it and then sacked them for telling the truth to Customs officers, there could be no doubt what the result would be.  Moreover, to deny an employee in the circumstances of this case the statutory right to claim compensation for unfair dismissal could well discourage disclosure of a fraud and might encourage an employer to dismiss an employee for assisting Customs officers in their enquiries."

It seems to us therefore that the Hewcastle case requires in this type of situation a Tribunal to balance the position of the employer and the employee in relation to any illegality alleged in the contract of employment.  

	When one does that in this case the position becomes startlingly clear.  First, owing to the fact that the Appellant was a married man and the married man's allowance exceeded his total income during the relevant period the revenue lost nothing.  There was in fact no fraud on the revenue in the sense that there was economic loss to the revenue.  Secondly, if one turns to the question of the national insurance contributions, the result of failure to pay contributions is in a different class from the position in relation to tax.  Two effects occur which are severely detrimental to the employee.  First his contribution record becomes defective and secondly his failure to pay contributions disqualifies him from unemployment benefit.  It is a fair comment that those are not purely academic arguments because in this particular case both the disadvantages have come home to roost so far as the Appellant is concerned.  The employer in relation to tax any way is under a duty to make the deductions and in relation to the failure to deduct national insurance contributions, he gains an advantage and suffers no detriment.

	The approach of the Tribunal is set forth in two passages in paragraphs 9 and 10.  They say:

"...Taking these factors into account, we think that we are entitled to draw the inference that the applicant knew that his arrangement of splitting his pay was done principally for his benefit in order to save either a few pennies or possibly a few pounds."

Looked at sensibly, that decision cannot stand.

	The second passage appearing in paragraph 10:

"...Bearing in mind that the applicant was a beneficiary of the system and that if he had really objected, the arrangements could have been changed without it adversely affecting his employment, we do not think that there is anything in the facts as thy have emerged in evidence to justify us departing from the usual principle..."

	Again, what more can it be that an employee is expected to do.  He has objected, he has gone to the Revenue.  All that remains for him then is to resign his post, make himself unemployed with all the consequences which result from that, hoping that he will get some redress either from an Industrial Tribunal or elsewhere, for being forced into unemployment.

	I have been particularly assisted by the Industrial Members of this tribunal.  There is a matter of industrial commonsense; that is not an approach which faces reality.  In our view therefore on both grounds the Appellant succeeds.  The result of the success of this appeal is that the matter will be sent back to the same tribunal with a direction to consider the question of compensation.