Mr Mark Jackman and Mr Bregary Bahamondes v Mr Chris Singam and Carneval Cottons Ltd: 2200604/2019 and 2200605/2019
EMPLOYMENT TRIBUNALS
Case No 2200604/2019, 2200605/2019
Between
Mr Mark Jackman and Mr Bregary BahamondesClaimant(1) Mr. Chris Singam (2) Carnevalcottons LtdRespondent
Before
Employment Judge GoodmanIn person for claimantDate 5 February 2020
JUDGMENT
[1]The claims against the first respondent are dismissed because he was not their employer.[2]The second respondent is liable to the claimants for unpaid notice and holiday pay.[3]The first claimant is owed £2,680 holiday pay and £1,300 notice.[4]The second claimant is owed £1,900 holiday pau and £475 notice.
REASONS
[1]The claimants were formerly employed, as chef and sous chef respectively, at a restaurant in Notting Hill called Cottons. On 27 December 2018 they arrived for work to find the premises closed and the restaurant and their employment at an end. They have brought claims for unpaid holiday and notice pay.[2]There is an issue as to the identity of their employer. They sued the first respondent, the man who hired them, managed them, and brought part of their wages round in cash. He responded to the claim that in fact they had been employed not by him but by the second respondent, a limited company of which he was sole director and sole shareholder.[3]At a preliminary hearing on 20 November 2019, E. J. Baty added the company as a respondent. The company was served on 2 January 2020. The company has not however responded to the claim, because it had been dissolved in April 2019. On 21 January 2019, three weeks after the closure of the restaurant, Mr Singam had applied for strike off under section 1003 of the Companies Act 2006.
Evidence
[4]Today I heard evidence from the two claimants and from the first respondent. There was a small hearing bundle with some emails and texts, some payslips, and a contract for the first claimant. The second claimant handed in his contract and all his payslips.
Findings of Fact
[5]The first claimant, Mr. Jackman, was offered employment on 30 January 2018, to start on 28 February. The offer came from Mr. Singam’s email address at Camdenmanagement.co.uk, and he signed it as “Director, carnevalcottons Limited”. He was to be paid £28,000 per annum plus “a guaranteed return on the service charge of £9,000 per annum net”. He was to have 28 days paid holiday. There was to be 2 weeks notice either side during a probationary period, and the contract is silent as to notice thereafter.[6]The second claimant, Mr Bahamondes, was introduced to Mr Singam by Mr Jackman, and taken on as sous chef, starting 15 March 2018. He was not provided with a written contract until December 2018, though he had been asking for one for some time as he wanted to move house. It is signed by Mr Singam on 15 March 2018. It provides 28 days holiday and 2 weeks notice. The salary is given as £ 15,600 per annum (said to be net) for a 50 hour week.[7]When Mr Bahamondes read this, he could see that he was being paid at £6 per hour, less than national minimum wage, then £7.83. He therefore wrote to give 2 weeks’ notice of termination, ending 31 December 2019.[8]Neither claimant took any holiday in 2018, with the exception of 25 and 26 December, when the restaurant was closed. Mr Bahamondes had asked for holiday earlier, but had been asked to put it off to January.[9]The first respondent by his solicitor wrote to the claimants on 5 December agreeing their claims as follows: Mr Jackson: 22 days holiday pay, £2,680 2 weeks notice £ 1,300 Mr Bahamondes: 20 days holiday pay £ 1,900 1 week’s notice £ 475. These amounts were not disputed.[10]Mr Singam was frank in his witness statement that the restaurant was not as profitable as he had hoped. The quarterly rent was not paid in September or December 2018. By December significant amounts were also owed to the local authority for business rates, to suppliers, and to HMRC for VAT and PAYE deductions.[11]In the letter he sent to the employees on 27 Decmber 2018 he said: Regrettably the landlord has closed down the venue on account of non-payment of rent and other breaches. If it was not the landlord, then either the utility companies, the business rates department of RBKC or HMRC would have closed the business down at some point imminently… The wages from last week will be paid as usual. However, any other payments that are due will be met with all liabilities when the income of the business has been ascertained and then distributed. In the interim, the business is closed and the property will be returned to landlords. We wish you all the best in the future and hope that we can put this behind and move forward”.[12]The restaurant’s landlord was Hargrave Management Ltd, of which Mr Singam is the sole director. He said it was owned by Four Wave International, a company registered in Guernsey and incorporated in the BVI. There was no further letter to any staff about distribution of the company’s income.[13]Mr Singam also explained that he had a number of restaurant businesses. Each was a separate company. As for Camden Management Company(UK) Ltd, that was “a company that solely deals with property management on behalf of various overseas landlords and landlords based in UK. It has no employees except myself”.[14]Immediately after being dismissed Mr Jackman asked Mr Singam to provide form RP 50, which is a standard form used in the Irish Republic a redundancy payment. (He may have There was no reply to this or to further requests for payment.[15]On 21 January 2019, as noted, Mr Singam applied the company to be dissolved. He told the tribunal that HMRC had now been paid, but not the other creditors. The claimants do not read the London Gazette and did not know this. On 21 February they went to ACAS for early conciliation of claims and were issued with certificates. The same day both presented claims to the employment tribunal.[16]Because of administrative error (the numbers were not in the usual place on the form) it was believed the forms were defective for not giving the EC number. They should have been rejected, which would have allowed the claimants to state the numbers, but for some reason were not, and only picked up in September 2019 when the claims were sent to the first respondent.[17]In his response to the claims, to which he attached a witness statement, Mr Singam said he was not the employer: “it would be against precedent and indeed going behind the veil of incorporation to pursue the director of the company. The claim should have been brought against the company alone albeit it is accepted that there are circumstances that allow the tribunal to pursue this course of action”.[18]At the conclusion of the evidence, Ms O’Connell was asked if she wished to make any further submission on the evil of incorporation, but she did not. The claimants are litigants in person without advice and did not make submissions. They viewed Mr Singam as the employer. Relevant Law and Discussion[19]The employment tribunal has jurisdiction to make awards for unpaid holiday pay, unpaid notice under section 23 of the Employment Rights Act 1996, wages being defined in section 27 as sums payable in connection with his employment. The sums due in this case are agreed. The real issue is who should pay them.[20]This involves assessing who was the employer. On the papers, they were employed by the second respondent. This is the company which made the offer to the first claimant and provided a contract to the second claimant. The company’s name appears on the P45 form to HMRC, stating statutory deductions made from their wages. It is the company named on their weekly pay slips. The company was formed in October 2017, before either claimant was employed. The company’s business, as notified to Companies House, was “licensed restaurants”, and the claimants were employed to prepare and serve food, and clean the kitchens, in a restaurant. Mr Singam, occupation caterer, was the sole director of the company. It is difficult to see how his activities in making offers of employment or directing the work were made in a personal capacity, rather than on behalf of the company.[21]Part XII of the 1996 Act provides that holiday pay and notice pay can be paid to employees of an insolvent employee from the National Insurance Fund. Where an employer is a company, insolvency means that a winding up order has been made, or a resolution for voluntary winding up, or it is administration, or a receiver has been appointed, or it is in liquidation - section 183 (1) (B), and section 183 (3) and (4A). Employees of insolvent companies usually apply for payment certified by the liquidator. Section 188(1) provides that disputes about payment under the insolvency provisions may be decided by an employment tribunal.[22]The difficulty for the claimants is that the second respondent was not wound up, voluntarily or by order of the court, nor was a liquidator or administrator appointed. They may be refused payment by the National Insurance fund and left without a remedy against the second respondent. They can, as creditors of the company, apply to restore the company to the register at Companies House so as to have it wound up and a liquidator appointed, so they can then be paid by the National Insurance Fund. There is useful guidance about this on the web – see www.gov.uk/guidance/company-restoration-guide, but it involves paying a fee for restoration to the register, and another to have the company wound up, and is probably beyond their resources.[23]As the first respondent has asserted the veil of incorporation against the claim against him, the tribunal considers whether this is a case where one of the exceptions he alludes to is found. The basic doctrine is set out in Saloman v Saloman and Co Ltd (1897) AC22. The debts of a company belong to it alone, not an individual, unless fraud was involved, in that the company was set up to avoid an existing obligation.[24]The volume of case law on whether the veil of incorporation could be lifted was reviewed by in Petrodel Resources Ltd v Prest (2013) UKSC 34, where Lord Sumption concluded: “the corporate veil may be pierced only to prevent the abuse of corporate legal personality. It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller’s because it is the company’s”, and Lord Neuberger confirmed the doctrine should only be invoked where: “a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control”.[25]There is a statutory exception, under sections 213 and 214 of the Insolvency Act 1986, whereby the liquidator can apply for a court order against a person involved in running a company when aware that the company could not pay its debts if it continued to trade. This might be what happened here, but the employmemt tribunal is not the court, and there is no liquidator.[26]Under the Companies Act 2006, a director of the company may apply for voluntary striking off, which is what Mr Singam did in January 2006, but section 1004 provides that an application for voluntary striking off: “must not be made if, at any time in the previous 3 months, the company has… (b) traded or otherwise carried on business”. By section 1004(6) it is an offence to make an application in contravention of this section.[27]On the claimants’ evidence, the restaurant was still trading on 24 December 2018, so it seems Mr Singam should not have applied for striking off when he did.[28]This apparently wrongful application for striking off does not however come within the Petrodel analysis of reasons justifying piercing the veil of incorporation, which could give the tribunal power to order the first claimant to pay the notice and holiday pay now. The debt to the employees was not incurred by Mr Singam, but by the employer company. The remedy is to have the company restored to the register, and then wound up, with Mr Singam being pursued by the liquidator if necessary.[29]It is disappointing that the remedy Parliament made available to employees of insolvent companies - payments from a public fund - may not be available to them because the sole director of the insolvent employer caused it to be dissolved before it could be put into liquidation.[30]The claimants may wish to apply to the national insurance fund in any case.[31]If payment is then refused because the company is not insolvent as defined by section 188, the process to reverse this is available to them - see 25 above. Perhaps the claimants can be assisted by the Citizen’s Advice Bureau, FRU or a Law Centre to take the necessary steps.[32]It is a pity that the simple procedures of the employment tribunal and the national insurance fund appear to have been circumvented by the first respondent’s action. It may be that faced with the prospect of being involved in further proceedings to restore the company and then have it wound up, Mr Singam might think it simpler to avoid this by paying the claimants himself.