Secretary of State for Business Enterprise & Regulatory Reform v Neufeld and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer |
| Judgment Date | 02 April 2009 |
| Neutral Citation | [2009] EWCA Civ 280 |
| Docket Number | Case Nos: 2008/1008 UKEAT/0177/07/JOJ UKEATPTA/0042/08/LA |
| Court | Court of Appeal (Civil Division) |
| Date | 02 April 2009 |
[2009] EWCA Civ 280
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
His Honour Judge McMullen QC
Mr Justice Bean
Before : Lord Justice Rix Lord Justice Toulson
Lord Justice Rimer
Case Nos: 2008/1008
2008/2756
UKEAT/0177/07/JOJ
UKEATPTA/0042/08/LA
Mr Adam Tolley (instructed by Simon Barnett, for the Treasury Solicitor) for the Appellant
Mr Clive H. Jones (instructed on a pro bono basis by Verisona) for the First Respondent, Richard Neufeld
The Second Respondent, Keith Howe, did not appear and was not represented
Hearing date: 3 December 2008
Lord Justice Rimer :
Introduction
This is the judgment of the court to which all members have contributed. Two appeals are before us. Both are from the Employment Appeal Tribunal and both raise similar questions. The appellant in both is the Secretary of State for Business, Enterprise and Regulatory Reform, who was represented by Mr Adam Tolley.
The respondent to the first appeal is Mr Richard Neufeld, who was represented by Mr Clive Jones. Permission for that appeal was given by Maurice Kay LJ, whose view was that there was “an element of uncertainty bordering on disarray in the recent EAT decisions and in their relationship with [the decision of the Court of Appeal in Secretary of State for Trade and Industry v. Bottrill [1999] ICR 592]. The issue clearly requires clarification by the Court of Appeal.” The judgment of the Employment Appeal Tribunal under appeal in Mr Neufeld's case was given by His Honour Judge McMullen QC, sitting alone. He reversed the decision of an employment judge who had found in favour of the Secretary of State.
The respondent to the second appeal is Mr Keith Howe, who has not been represented before us. In his case there was no substantive hearing before the Employment Appeal Tribunal. What happened there was that, at the Secretary of State's request, Bean J simply dismissed the Secretary of State's appeal against the decision of the employment judge in favour of Mr Howe and gave permission to appeal to this court. That was done so that the appeal could catch up with the appeal in Mr Neufeld's case and be heard at the same time.
Both cases arose out of the insolvency of companies in whose businesses Mr Neufeld and Mr Howe were respectively engaged. The only issue in the cases was whether each had been an “employee” of the failed company. If they had, they enjoyed the protection given by section 182 of the Employment Rights Act 1996 (“the ERA”) to employees whose employer has become insolvent. Section 182, in Part XII (“Insolvency of Employers”), provides:
“ 182. Employee's rights on insolvency of employer
If, on an application made to him in writing by an employee, the Secretary of State is satisfied that –
(a) the employee's employer has become insolvent,
(b) the employee's employment has terminated, and
(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,
the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.”
It is unnecessary to cite the other provisions of Part XII. Section 183 describes when an employer has become relevantly insolvent. Section 184 describes the debts to which Part XII applies: they include arrears of pay for up to eight weeks, notice pay to which the employee was entitled, unpaid holiday pay for up to six weeks during a defined 12-month period and any basic award for compensation for unfair dismissal. Section 186 imposes a limit on the total amount per week payable to an employee. Section 188 entitles a claimant who has applied for a payment from the Secretary of State, and who is not paid what he claims he should have been, to make a complaint to an employment tribunal. That is what happened in both cases.
The Part XII rights apply only to someone who was an “employee” of the insolvent employer; and the question whether he was has to be answered as at the date when the company became insolvent (see the decision of the Employment Appeal Tribunal in Rajah v. Secretary of State for Employment, unreported, 7 July 1995, EAT/125/95, Mummery J, the President, presiding). Section 230 of the ERA contains the relevant definitions:
“ 230. Employees, workers etc
(1) In this Act 'employee' means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.
(2) In this Act 'contract of employment' means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing. …
(4) In this Act 'employer', in relation to an employee or worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed.
(5) In this Act 'employment' –
(a) in relation to an employee, means (except for the purposes of section 171) employment under a contract of employment, and
(b) in relation to a worker, means employment under his contract;
and 'employment' shall be construed accordingly.”
The special feature of each case under appeal is that the claimant was the controlling shareholder and a director of the company. The narrow questions raised by the appeals are whether the decisions of the employment judges were correct. More broadly, the Secretary of State asks the court to clarify the approach to be adopted by employment tribunals when faced with cases involving such a feature: indeed, Mr Tolley made it clear at the outset of his argument that that is the real purpose of these appeals. Consistently with that stance, the Secretary of State has in both cases undertaken not to seek costs from either respondent should he succeed in either appeal. The matter is of considerable importance to him. We were told that in 2008 there were some 12,000 claims by directors on the National Insurance Fund, of which some 600 had gone or were expected to go to employment tribunals. We were not told, because the information was not readily available, how many of these were by directors who were also controlling shareholders, but no doubt the number is considerable. The Secretary of State's position is that, such is the conflicting guidance in the authorities as to how to resolve the type of question that has arisen in the cases under appeal, it is essential that this court should now give clear guidance on the subject.
In this judgment we will: (i) explain the facts found by, and conclusion of, the employment judge in Mr Neufeld's case and then summarise the decision of the appeal tribunal; (ii) explain the facts found by, and conclusion of, the employment judge in Mr Howe's case (there is no judgment of the appeal tribunal in his case); (iii) review the authorities; (iv) summarise what we regard as the principles applicable to cases such as these; and (v) give our decision on each appeal.
Mr Neufeld's case
A. The decision of the employment judge
Mr Neufeld's claim under section 188 of the ERA was decided by an employment judge (Mr J.R. Hardwick, sitting alone) by a judgment promulgated on 1 February 2007. The respondents were: (i) A & N Communications in Print Ltd (“A & N”), the putative employer, which was in insolvent liquidation; and (ii) the Secretary of State for Trade and Industry. Only the Secretary of State actively opposed the claim, which was for a redundancy payment, notice pay and holiday pay amounting to about £10,000. The single issue before the judge was whether Mr Neufeld was an employee of A & N in October 2005 when it became insolvent. His conclusion was that Mr Neufeld was not such an employee and so the claim was dismissed.
The judge found the following facts. Mr Neufeld commenced employment with Newfeld Press Limited (“NPL”) in 1982. He was a member of its sales team. It was common ground by the time the case came before the appeal tribunal that Mr Neufeld was an employee of NPL under a service contract, although the employment judge did not say so expressly. In 1988 Mr Neufeld became a shareholder in and director of NPL. In July 2001 NPL's undertaking was transferred to A & N. The consequence of that was that the employment contracts of NPL's employees became treated as if made with A & N. If Mr Neufeld was still an employee of NPL, he too became an employee of A & N.
The judge found that Mr Neufeld held 90% of A & N's issued shares and was a director. He had two co-directors, Mr Munns and Mr Faulkner, who each had 5% shareholdings. On an unspecified date, which we infer to have been in about July 2001, the three directors agreed that Mr Neufeld would be A & N's managing director and would also be employed as part of the sales team managed by Mr Faulkner, the sales director. Mr Neufeld's evidence was that he worked an average of 60 hours a week carrying out sales, management duties and helping with production and that he was a successful sales person who achieved the highest volume of business.
The judge said in paragraph 3.3:
“There were about 18 employees in the business of [A & N] and all the manual employees had written contracts of employment. The three directors did not have contracts of employment.”
We read that as saying that there were 18 employees in addition to the three directors. The second sentence was unfortunately expressed. The sole...
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