Mr R Maurya v Sahaj Software Solutions UK Ltd: 2201603/2024
JUDGMENT
[1]Sahaj AI India and Sahaj Pvt were not, as at 31 July 2022, associated employers within the meaning of s 218(6) ERA 1996.[2]The Claimant did not have 2 years continuous employment as required by s108 ERA 1996.[3]The Claimant cannot bring a complaint of unfair dismissal. His complaint of unfair dismissal is dismissed.REASONS
Preliminary – the Issues in the Claim and Response[1]By a claim form presented on 8 February 2024, the Claimant brought complaints of unfair dismissal, unlawful deductions from wages and failure to pay notice pay and holiday pay, against the Respondent, his former employer. 1 of 10[2]The Respondent defended the claim. In its Grounds of Resistance, it said that the employment tribunal did not have jurisdiction to consider the Claimant’s complaint of unfair dismissal because the Claimant did not have two years’ continuous employment required under s108 Employment Rights Act 1996 (“ERA 1996”).[3]The Respondent admitted and averred that the the Claimant was employed by Sahaj AI Software Pvt Limited (“Sahaj AI”), an Indian company, in India, from 1 August 2022 until 13 November 2022, and that the Claimant’s employment transferred to the Respondent on 14 November 2022. It admitted and averred that Sahaj AI and the Respondent are associated employers under s231 ERA 1996, on the basis that they are both 100% owned by Sahaj Software Inc. It said that, as a result the Claimant’s period of continuous employment for the purposes of s218(6) ERA 1996 - and for his claim - began on 1 August 2022 and ended on 31 October 2023.[4]It denied that Sahaj Software Solutions Pvt Limited (“Sahaj Pvt”), an Indian company, by which the Claimant was employed in India from 16 April 2014 to 31 July 2022, and Sahaj AI, are associated employers for the purposes of s231 ERA 1996.[5]By letter of 9 April 2024, the Respondent applied for the claim to be dismissed under (then) r27 ET Rules of Procedure 2013 because the Tribunal had no jurisdiction to consider it.[6]On 10 April 2024, the Claimant replied, saying that Sahaj Software Inc and Sahaj Software Solutions Pvt Limited (“Sahaj Pvt”) are associated employers under s231 Employment Rights Act on the basis that the 4 Directors common to both companies (Messrs Akash Agrawal, Sunder Malyandi, Rohit Bansal and Nitin Dhall (“the Directors”)) act jointly and in concert and should collectively constitute a third person who in practice (directly or indirectly) has control over both companies under s231 ERA1996.[7]The Claimant agreed, however, that the issue should be determined at a Preliminary Hearing. There was a refinement of that contention today – that the directors are shareholders and that they have .[8]This hearing was therefore listed to determine whether Sahaj Software Inc and Sahaj Software Solutions Pvt Limited (“Sahaj Pvt”) were associated employers under s231 Employment Rights Act 1996, and, therefore, whether the Claimant had the 2 years’ service required to bring an unfair dismissal claim to the Tribunal.[9]I asked the parties to set out the issues which arose for me to decide. They did so as follows: 1. The ultimate issue for determination is whether Sahaj AI Software Pvt Limited and Sahaj Software Solutions Pvt Limited are associated employers within the meaning of section 231(b) of the ERA. 2. The Claimant says that they are because:a. Akash Agrawal, Sunder Malyani, Nitin Dhall and Rohit Bansal together own a majority of Sahaj Software Solutions Pvt Limited’s share capital. 2 of 10b. Akash Agrawal, Sunder Malyani, Nitin Dhall and Rohit Bansal together own all of the share capital in Sahaj Software Inc, which in turn owns all of the shares in Sahaj AI Software Pvt Limited. 3. The shareholdings are not in dispute. The issue for the Tribunal is whether by virtue of those shareholdings Akash Agrawal, Sunder Malyani, Nitin Dhall and Rohit Bansal are to be treated as a “third person [which] (directly or indirectly) has control” over both Sahaj Software Solutions Pvt and Sahaj AI Software Pvt Limited within the meaning of section 231(b) of the ERA. 4. The following broad issues arise (although the Tribunal may not need to resolve each of them): a. As a matter of legal principle, is it possible for multiple minority shareholders to be treated as a third person with control of a company within the meaning of section 231(b) of the ERA? If so, in what circumstances? b. What is meant by “control” in section 231(b) of the ERA and what facts are relevant to determining said “control”?c. Did Akash Agrawal, Sunder Malyani, Nitin Dhall and Rohit Bansal act in concert to jointly “control” (within the meaning of section 231(b) of the ERA) Sahaj Software Solutions Pvt and (through Sahaj Software Inc) Sahaj AI Software Pvt Limited?d. As seen in the witness statements, the majority of the factual disputes between the parties concern the extent to which Sahaj AI Software Pvt Limited was a continuation of the same business undertaken by Sahaj Software Solutions Pvt Limited. The extent to which the Tribunal needs to resolve those disputes to determine the above issues will be addressed in submissions.[10]I heard evidence from the Claimant and from Akash Agrawal, founder of a global software engineering and technology services business which operates under a brand name called ‘Sahaj Software.[11]Both parties made written and oral submissions. I reserved my decision.Findings of Fact
[12]The Claimant was employed by Sahaj Software Solutions Pvt Limited (“Sahaj Pvt”), a company incorporated and domiciled in India, from 16 April 2014 to 31 July 2022.[13]He was employed by a different company in the same corporate group, Sahaj AI Software Pvt Limited (“Sahaj AI India”), from 1 August 2022 to 14 November 2022.[14]He was then employed by the Respondent (“Sahaj AI UK”) from1 August 2022 and ended on 31 October 2023 3 of 10[15]The Respondent accepts that the Claimant’s employment with Sahaj AI India counts towards his qualifying service, because both the Respondent and Sahaj AI India are subsidiaries of the same American company, Sahaj Software Inc (“Sahaj AI US”). Both Sahaj AI India and the Respondent are controlled by Sahaj AI US, and are associated employers for the purpose of sections 218(6) and 231 ERA. The Claimant’s combined service with those two companies was from 1 August 2022 to 31 October 2023.[16]The shares in Sahaj Pvt are owned, in essentially equal shares, by Rohit Bansal, Sunder Malyandi, Nitin Dhall and Akash Agrawal. Those men are not related to each other by family. They are business associates, who have worked successfully together for many years.[17]Balachander Swaminathan owned shares in Sahaj Pvt at its inception. It was not clear, on the evidence, whether he was still a shareholder in Sahaj Pvt in 2022.[18]The shares in Sahaj AI India are owned predominantly by Sahaj AI US, with Rohit Bansal and Sunder Malyandi also having very small shareholdings. The shares in Sahaj AI UK are owned entirely by Sahaj AI US.[19]Rohit Bansal, Sunder Malyandi, Nitin Dhall and Akash Agrawal are equal shareholders in Sahaj AI US. They control the majority of the shares in that company.[20]There is no written requirement or agreement, whether in the articles of association of those companies, or elsewhere, that the shareholders of the companies will vote in concert on matters.[21]The Respondent produced the shareholder agreement in relation to Sahaj AI US, pp121 - 128. There is no shareholder agreement in place for Sahaj Pvt. The Respondent produced the Articles of Association of Sahaj Pvt , pp 69 – 83. Those documents do not contain any provision restraining the shareholders from exercising their votes as they see fit.[22]As a matter of formal construction of those documents, therefore, the shareholders are free to exercise their votes at general meetings as they choose.[23]The notes of AGM/EGM, pp 229 - 231 and 233 – 234, and of Board Meetings, pp235 - 247 of Sahaj Pvt or Sahaj AI India do not show any areas of disagreement amongst the attendees.[24]However, the directors of Sahaj AI India did have discussions and disagreed on strategic and financial issues in the company, p223 – 226, including whether to expand into the Singapore and a senior employee’s compensation package.[25]The Claimant was employed as a “Solutions Consultant” at Sahaj Pvt, p158-166.[26]The US entity “Sahaj Software Inc” was formed in 27 October 2020, p113. Sahaj AI India was incorporated in India on 10 December 2020. The shareholders intended to brand it as an IT company building software using AI and Machine Learning techniques.[27]As Sahaj Pvt’s existing contracts came to an end, the employees working on them took up employment with Sahaj AI India. Sahaj Pvt’s clients signed new contracts with Sahaj AI India. Sahaj Pvt is no longer active.[28]When the Claimant left Sahaj Pvt on 31 July 2022 and was employed by Sahaj AI India from 1 August 2022, he was employed in the same role - “Solutions Consultant” – at the same 4 of 10 salary and with the same employee number, by Sahaj AI India. He did not have to provide his personal details such as address, next of kin, or bank details, again.[29]The same finance team was used for all entities within the Sahaj group. The expenses process was the same. The Claimant carried on using the same company credit card that he had been issued with before.[30]The objects of Shahaj Pvt, set out in its Memorandum of Association were, “To carry on the business of technical solutions, software development, product development, product customization and support, consultancy, engineering, training, project engagement services, planning and management services, web hosting, portal development, E-commerce, Mcommerce, Information Technology enabled services, support and professional services to any person or entity either in India or anywhere in the world.” Sahaj AI India’s objects were the same, p148.[31]Both Sahaj Pvt and Sahaj AI operated from the same addresses, p167. The 2 companies used the same Sahaj logo..[32]However, Sahaj Pvt and Sahaj AI India are registered as different companies in India. Each has its own Permanent Account Number (PAN), Tax-deduction Account Number (TAN) and Import Export Code (IEC).[33]In the Claimant’s contract of employment with Sahaj AI India, clause 3.2 provided, “Only for the purpose of Gratuity payments, Employee’s prior service with Sahaj Software Solutions Pvt. Ltd., if any, will be considered part of Employee’s service with the Company.” P173.[34]The employee information system at Sahaj AI India recorded that the Claimant’s employment start date was 16 April 2014, p217.Relevant Law
[35]By s218(6) ERA: “… (6) If an employee of an employer is taken into the employment of another employer who, at the time when the employee enters the second employer's employment, is an associated employer of the first employer—(a) the employee's period of employment at that time counts as a period of employment with the second employer, and(b) the change of employer does not break the continuity of the period of employment.”[36]Accordingly, where here two employers are associated employers, as defined in ERA 1996 s 231, the transfer of an employee from one to the other does not break continuity, and employment with the first counts against the second.[37]Associated employers are defined in s231 ERA 1996:[38]“ 231 Associated employers For the purposes of this Act any two employers shall be treated as associated if— (a) one is a company of which the other (directly or indirectly) has control, or (b) both are companies of which a third person (directly or indirectly) has control; 5 of 10 and “associated employer” shall be construed accordingly.”[39]The authorities relating to the interpretation of associated employer in s231 were summarised by HHJ Eady QC in Mr U and Mrs F Schwarzenbach trading as Thames-Side Court Estate v Mr D Jones UKEAT/0100/15/BM. Paragraphs [14]-[26] of the Judgment address issues which arise in addressing the issue of control. At [14] Eady P said that “control” is the crucial factor in the definition in s231.[40]It has been held (see Secretary of State for Employment v Newbold [1981] IRLR 305 EAT, Umar v Pliastar Ltd [1981] ICR 727 EAT and Washington Arts Association Ltd v Forster [1983] ICR 346 EAT) that this means legal control, in the sense of a majority shareholding in the company. Control in this context means constitutional control of the limited company concerned; that is, through voting power in the general meetings of the company. De facto control - looking at how the company is, in fact, run - is not sufficient.[41]In Secretary of State for Employment v Chapman and Payne [1989] ICR 771 CA, a limited exception to the test of control by reference to shareholder voting power, was suggested by Balcombe LJ, “For my part I would accept that normally voting control is the issue which has to be decided … However, since it is not necessary for the purposes of this case, I would not wish not to go as far as Mr Griffiths, for the Secretary of State, invites us to do, and to say that in no circumstances can any other matters be relevant. Suffice it to say that whereas undoubtedly voting control is the usual and normal test, exceptionally there may be (and I go no further than this) other circumstances to be taken into account.”[42]Chapman did not decide exactly what that exception might be, but Staughton LJ, who observed: “… So it must be left to another case, where on the facts it is shown that one person can direct the voting of another by force of personality, or for economic reasons, or by some other such means, without any legal right to do so.” (Pages 778H-779A)[43]The Tribunal may infer legal control from de facto control, especially if the employer elects not to clarify in whom legal control of a company rests: Schwarzenbach per Eady J at [46]- [50] and S D (Aberdeen) Ltd v Wright UKEAT/0003/18/JW (“Wright”) per Lady Wise at [19].[44]However, in both those cases, the EAT restated that legal control is the test to be applied, in Schwarzenbach Eady J described legal control as “the proper question” at [49]; and in S D (Aberdeen) Ltd v Wright Lady said, at [19] “while voting control rather than mere de facto control is required for the purpose of section 231…”.[45]There is authority for the proposition that control by a person might include control by a group of persons provided they act as one. In Zarb v British & Brazilian Produce [1978] IRLR 78 the EAT considered a case in which two family members together held more than 50% of the shares in two companies. The EAT decided that it could be possible, if the same shareholders held a majority of shares in both companies, and acted in concert to do so, for them to be a treated as a person controlling both companies for the purposes of s231 ERA. Phillips J said, at [10], “it seems to us that the expression ‘has control’… is dealing essentially with practical rather than theoretical matters, and that the words are satisfied, if it is shown that in fact one person 6 of 10 has control, or that a group of persons acting together, if that be the case, have control; in other words, that it involves an examination of what happens, and, in this present case, in particular, what has happened in practice in that respect. It will be necessary for the Industrial Tribunal to look at all the circumstance which the parties may be able to put before them as to the way in which the control of these two companies has in practice been exercised….”.[46]However, in South West Launderettes Ltd v Laidler [1986] IRLR 68, EAT: affd. [1986] IRLR 305, [1986] ICR 445, CA, where the majority shareholder in the employing company was also the owner of 50 per cent of the shares, with his wife holding the other 50 per cent, in other companies, the Court of Appeal upheld the EAT’s decision that these were not 'associated employers' since a 50/50 shareholding without anything in the Articles and without a collateral agreement to confer control of votes at a general meeting, created a situation where neither husband or wife could be said to be in control of the second company. The EAT rejected the test propounded by Phillips J in Zarb that where ownership of a company is divided 50/50, control depends on an analysis of how the decision-making power has in practice been exercised in each particular case. The CA agreed. Mustill LJ said, ''Plainly, the register of shares cannot be conclusive on the matter, for the person registered as the owner of the majority might be a nominee or trustee, or might be a party to a contract which conferred the right to determine the way in which the voting rights were exercised. Whether anything short of a legally binding agreement to this effect would ever justify the conclusion that the control resided in someone other than the registered owner is, to my mind, debatable.''[47]The EAT, in Harford v Swiftrim Ltd [1987] IRLR 360, reverted to the approach in Zarb. Harford was a case in which there were five common shareholders in two separate companies, with no individual shareholder owning more than 26.88% of the shares in either company, the EAT held that in the provision that two companies are associated if they are both controlled directly or indirectly by a “third person”, “person” can mean “persons”, so that two companies controlled by the same individual shareholders who are all minority shareholders can be described as “associated employers”.[48]The EAT in Harford further held, “Although whether two companies are in fact controlled by the same person depends upon what happens in practice in shareholders’ meetings, in the absence of any evidence to the contrary, where there are the same shareholders with identical or substantially identical shareholdings in two companies, a clear inference of association can properly be drawn; if the company wishes to rebut that inference it can do so by providing evidence of the voting figures. It is the company that has all the information and all the documents to show that such has been the voting pattern that they are not associated.[49]However, in Strudwick v Iszatt Bros Ltd [1988] IRLR 457, [1988] ICR 796, the EAT said that Laidler was binding on it – “This case is binding upon us and for the reasons we have set out above, we respectfully agree with it. It is not therefore open to us to follow Harford. If necessary we would accept and adopt the view of Mustill L.J. that a true understanding of [s231 ERA] does not admit the concept of plural control.”[50]Wood J also commented that insofar as the decision in Zarb suggested that practical control rather than voting control was the relevant test, 'it has been superseded by a number of subsequent authorities'. 7 of 10[51]In Tice v Cartwright [1999] ICR 769, the EAT upheld a finding that a company owned equally by two brothers and a partnership of the two brothers were associated employers as the brothers acted in concert. Purposive Construction[52]Macer v Abafast Ltd [1990] ICR 234 stated at p242: “Thus, in approaching the proper construction to be given to the words of the 1978 Act (The Employment Protection (Consolidation) Act 1978 in which the wording of s218(6) and s231 ERA originated.) a court should lean in favour of that interpretation which best gives effect to the preservation of continuity of service and hence the preservation of rights of the employee, and to obviate and discourage a tactical manoeuvre which seeks to avoid the clear intention of Parliament”.[53]It was not in dispute that, in order to establish sufficient qualifying service to bring a claim of unfair dismissal, the Claimant needed to show that Sahaj AI India and Sahaj Pvt were, as at 31 July 2022, associated employers within the meaning of s 218(6) ERA.[54]The resolution of that dispute, in this case, turned on whether Sahaj AI India and Sahaj Pvt were controlled by the same third person, within the meaning of s231(b) ERA. Unlike Sahaj AI India (and the Respondent), Sahaj Pvt is not owned or controlled by Sahaj AI US.[55]The Claimant contended that Akash Agrawal, Sunder Malyandi, Nitin Dhall, and Rohit Bansal, the shareholders, are properly to be characterised as controlling Sahaj AI India and Sahaj Pvt for the purpose of s231(b) ERA.[56]Neither the shareholder agreement in relation to Sahaj AI US, nor the Articles of Association of Sahaj Pvt contain any provision restraining the shareholders from exercising their votes as they see fit. As a matter of formal construction of those documents, therefore, the shareholders are free to exercise their votes at general meetings as they choose.[57]As a matter of construction, one company does not have control, whether directly or indirectly, of the other. As a matter of construction, a third person does not have direct or indirect control of both companies.[58]The Claimant contended that the group of individuals who were common shareholders at the material time to both Sahaj Pvt and Sahaj Inc (Messrs Nitin Dhall, Sunder Malyandi, Rohit Bansal and Akash Agrawal) should be viewed as being one person, having control over both companies. He relied on Harford v Swiftrim in contending that there is insufficient evidence to show that the voting patterns of the two companies were not associated, or that the companies under the Sahaj Inc umbrella were set up in a way to be a distinct entity from Sahaj Pvt. “Where the shareholders are the same in each company and they hold identical or near identical shareholdings, common sense indicates an association” , Harford page 443. He contended that this is a situation in which de facto control should be looked at and that the evidence points towards Sahaj Pvt and Sahaj AI being associated. He also contended that s231 ERA should be interpreted in line with its purpose, to preserve continuity of employment and to avoid situations arising where company structure can be manipulated to avoid an employer’s legal obligations.[59]On my findings of fact, the notes of AGM/EGMs, pp 229 - 231 and 233 – 234, and of Board Meetings, pp235 - 247 of Sahaj Pvt or Sahaj AI India, do not show any areas of disagreement amongst the attendees. 8 of 10[60]However, I have also found as a fact, that the directors of Sahaj AI India did have discussions and disagreed on strategic and financial issues in the company, p223 – 226, including whether to expand into the Singapore and a senior employee’s compensation package.[61]On the facts, the shareholders are four separate and unrelated individuals. Together they owned a majority, though not all, of the shares in Sahaj Pvt. Together they owned all of the shares in Sahaj AI US, which owned almost all of the shares in Sahaj AI India.[62]Each individual shareholder in Sahaj Pvt was a minority shareholder, without control.[63]I consider that I am bound by in Strudwick v Iszatt Bros Ltd [1988] IRLR 457, [1988] ICR 796, where the EAT said that Laidler was binding on it – “This case is binding upon us and for the reasons we have set out above, we respectfully agree with it. It is not therefore open to us to follow Harford. If necessary we would accept and adopt the view of Mustill L.J. that a true understanding of [s231 ERA] does not admit the concept of plural control.”[64]That being the case, a number of minority shareholders, as in this case, cannot have control of two companies, so that they are associated under s231 ERA 1996.[65]However, even if Harford v Swiftrim Ltd [1987] IRLR 360, and Zarb Zarb v British & Brazilian Produce [1978] IRLR 78 are correct, and two companies are associated if they are both controlled directly or indirectly by a “third person” - which can mean “persons” - so that two companies controlled by the same individual minority shareholders can be described as “associated employers”, I consider that the shareholders must still act ‘in concert’ in order to be found to have control of the relevant companies under s231 ERA - see Tice v Cartwright [1999] ICR 769 and Zarb.[66]On the facts, I did not find that Messrs Nitin Dhall, Sunder Malyandi, Rohit Bansal and Akash Agrawal acted in concert in relation to the companies. I accepted that it may be difficult for an employee to produce evidence of an association. However, there was simply no evidence that, for example, one of the shareholders directed the voting of another by force of personality, or for economic reasons, or by some other such means, without any legal right to do so, or that they “acted as one”, as in Zarb. They may, in fact, have ultimately voted in the same way in meetings, but that was very far from establishing that they ‘acted as one’.[67]I accepted that the various companies evolved and were instituted by the same shareholders over a lengthy period of time. They undertook the same, or similar work, for many of the same clients. They operated from the same premises. Employees retained the same employee number when they left one and started to work for the other. However, I did not accept that that meant that, as a matter of common sense, I should find that they were associated. The crucial factor in deciding whether companies are associated is still control.[68]Again, while the Tribunal might infer legal control from de facto control, I did not find that there was such de facto control, on the facts. The shareholders were clearly not family members, in contrast with many of the cases where an association has been found. There was no evidence of any special relationship between them or any tacit agreement that they would act in a certain way.[69]I did not consider that a purposive approach to construction would assist the Claimant as, on the facts, there was no evidence that, in this case, there had been any tactical manoeuvre which sought to avoid the clear intention of Parliament. 9 of 10[70]That being the case, on the facts, I found that Sahaj AI India and Sahaj Pvt were not, as at 31 July 2022, associated employers within the meaning of s 218(6) ERA 1996. The Claimant was not employed for 2 years as required by s108 ERA 1996. He cannot bring a complaint of unfair dismissal. The Claimant’s complaint of unfair dismissal is dismissed.