Mr I Phillips v Applied Corrosion Monitoring Ltd: 2405912/2022

EMPLOYMENT TRIBUNALS

Case No 2405912/2022

Between

Mr I PhillipsClaimant

Applied Corrosion Monitoring LtdRespondent

Before

Employment Judge McDonald

In person for claimant

Date 4 August 2023

JUDGMENT

[1]The claimant’s claim that the respondent made an unauthorised deduction from his wages in breach of section 13 of the Employment Rights Act 1996 (“ERA”) fails and is dismissed.

[2]The claimant’s claim of breach of contract succeeds. His contract with the respondent entitled him to “cash in” his bonus bonds in the event of his employment terminating prior to retirement. The respondent’s refusal to allow him to do so in response to his request on 19 January 2022 was a breach of contract.

[3]A remedy hearing will be listed.

REASONS

Introduction

[1]This is my reserved decision in relation to the final hearing of this case. This was a claim by the claimant for unauthorised deduction of wages and/or breach of contract against his former employer, the respondent.

[2]There was a bundle of documents consisting of 197 pages (“the Bundle”). References in this judgment to page numbers are to pages in the bundle. For the claimant, I heard evidence from the claimant, Shirley Turner, Nicholas McGovern and Marie Wilson. I heard evidence from Raymond Gill, (“Mr Gill”) for the respondent. I heard oral submissions from the claimant and Mr Gill. By the time we finished it was late in the afternoon and so I reserved my decision.

[3]The parties were given an opportunity to provide written submissions by 28 March 2023. The matter had originally been listed for an “in chambers” hearing for me to make my decision on 17 April 2023. That hearing had to be postponed which meant that the “in chambers” hearing did not take place until 5 May 2023. Both parties provided brief written submissions.

Relevant Law

[4]I have taken into account the oral and written submissions made by the parties. I have not repeated those submissions in this judgment but refer to specific points made in those submission where relevant to decisions I made. Summary of Case

[5]The claim is about whether the respondent acted unlawfully by refusing to allow the claimant to “cash in” 58660 bonus bonds which he holds. He accumulated those bonds during his employment with the respondent.

[6]The claimant says the failure to allow him to cash-in those bonds is an unauthorised deduction from wages and/or a breach of contract.

Preliminary matters

[7]By the time of the hearing, the claimant was seeking payment of £58,660 by way of damages for breach of contract, i.e. £1 per bond. At the start of the hearing I explained to him that if the breach of contract claim succeeded, the compensation I could award was limited to £25,000. I explained that other courts with jurisdiction to hear a breach of contract claim can award in excess of that limit. The claimant confirmed that he wanted to proceed on the basis that his claim for damages for breach of contract would be limited to £25,000. Relevant Law Unauthorised deductions from wages

[8]In relation to a claim for deduction from wages, s.13(1) of the Employment Rights Act 1996 (“ERA”) says: "(1) An employer shall not make a deduction from the wages of a worker employed by him unless-(a) the deduction is required or authorised to be made by virtue of a statutory provision of a relevant provision of the worker’s contract, or

(b) the worker has previously signified in writing his agreement or consent to the making of the deduction.”

[9]S.27(1) of ERA says: "(1) In this Part 'wages', in relation to a worker, means any sums payable to the worker in connection with his employment, including- (a) Any fee, bonus, commission, holiday pay or other emolument referable to his employment, whether payable under his contract or otherwise”

[10]S.27(2) of ERA excludes from the definition of “wages”: “…..(e) any payment to the worker otherwise than in his capacity as a worker”.

[11]This exclusion applied in Nosworthy v Instinctif Partners Ltd EAT 0100/18 where the EAT rejected the claimant’s claim that shares and loan notes were “wages”. Although payable in connection with employment, they were deferred consideration for the claimant’s sale of shares to the respondent and so were provided to the claimant in her capacity as a vendor of shares, not as a worker.

[12]S.13(3) of ERA says: "Where the total amount of wages paid on any occasion by an employer to a worker employed by him is less than the total amount of the wages properly payable by him to the worker on that occasion (after deductions), the amount of the deficiency shall be treated for the purposes of this Part as a deduction made by the employer from the worker's wages on that occasion."

[13]In New Century Cleaning Co Ltd v Church

2000 IRLR 27

, CA the majority of the Court of Appeal held that a worker would have to show an actual legal, although not necessarily contractual, entitlement to the payment in question in order for it to fall within the definition of “wages”.

[14]When it comes to the relevant test in deciding the terms of a contract, Lord Clarke explained the relevant principles in this way in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH

[2010] UKSC 14

;

[2010] 1 WLR 753

, para 45: "The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. "

[15]In Blue v Ashley

[2017] EWHC 1928

Leggatt J noted that where the court is concerned with an oral agreement, the test remains objective but evidence of the subjective understanding of the parties is admissible in so far as it tends to show whether, objectively, an agreement was reached and, if so, what its terms were and whether it was intended to be legally binding. Evidence of subsequent conduct is admissible on the same basis.

[16]When it comes to implied terms, The courts will not imply a term simply because it is a reasonable one. Nor will they imply a term because the agreement would be unreasonable or unfair without it. A term can only be implied if the court can presume that it would have been the intention of the parties to include it in the agreement at the time the contract was made. In order to make such a presumption, the court must be satisfied that:a. the term is necessary in order to give the contract business efficacy: In Ali v Petroleum Co of Trinidad and Tobago

2017 ICR 531

, PC, Lord Hughes explained that: “A term is to be implied only if it is necessary to make the contract work, and this it may be if…..it is necessary to give the contract business efficacy..….The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient precondition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.”

b. it is the normal custom and practice to include such a term in contracts of that particular kind: the custom in question must be reasonable, notorious and certain (see, for example, Devonald v Rosser and Sons 1906 2 KB 728, CA, and Sagar v H Ridehalgh and Son Ltd 1931 1 Ch 310, CA). This means that the custom must be fair and not arbitrary or capricious; that it must be generally established and well known; and that it must be clear cut. But it should be borne in mind that neither custom and practice nor any of the other legal bases for implying terms into a contract permits the courts to displace specific express terms that deal fully with the same subject matter as that on which a party is seeking to imply a term.

c. an intention to include the term is demonstrated by the way in which the parties have operated the contract in practice, including all the surrounding facts and circumstances. This approach may demonstrate that the contract has been performed in such a way as to suggest that a particular term exists, even though the parties have not expressly agreed it, see Mears v Safecar Security Ltd

1982 ICR 626

, CA.

d. the term is so obvious that the parties must have intended it (known as the ‘officious bystander’ test). In Shirlaw v Southern Foundries (1926) Ltd 1939 2 KB 206, CA, affirmed by the House of Lords in Southern Foundries 1926 Ltd v Shirlaw 1940 AC 701, HL held that a term could be implied in a situation where ‘if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common “oh, of course”’. In practice, this means that a term will be implied if it can be said that it is so obvious that it goes without saying.

[17]In Horkulak v Cantor Fitzgerald International

2005 ICR 402

, CA, the Court of Appeal held that where under the terms of a contract one party was empowered to exercise a discretion the court would read into the contract an implied term that there would be a genuine and rational exercise of that discretion.

[18]Horkulak concerned an express provision relating to payment of a discretionary bonus contained in a written contract of employment. In the Court of Appeal’s view that meant that the provision “was necessarily to be read as intended to have some contractual content” and contrasted that with “a mere declaration of the employer’s right to pay a bonus if he wishes, a right which he enjoys regardless of contract” (para 46 of Horkulak).

[19]The amount payable must be capable of quantification. In Coors Brewers Ltd v Adcock and ors

2007 ICR 983

, the Court of Appeal made it clear that Part II of the ERA ‘is designed for straightforward claims where the employee can show that they have not been paid quantified or quantifiable sums properly due to them under his contract’. Breach of Contract

[20]Under Article 3 of the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 (“the 1994 Order”), a claim of breach of contract can be brought before an employment tribunal in respect of a claim of an employee for the recovery of damages or any other sum f -(a) the claim is one to which section 3(2) of the Employment Tribunals Act 1996 applies; and

(b) the claim is not one to which article 5 applies; and

[21]Article 5 of the 1994 Order does not apply to this case.

[22]Article 10 of the 1994 Order provides that the Tribunal shall not in relation to a contract claim order the payment of an amount exceeding £25,000. Findings of Fact

[23]The respondent is a small business incorporated in 1985 having been founded by Mr Gill and his brother Dr John Stuart Gill (“John Gill”). At the relevant time, it manufactured electrical instrumentation for corrosion monitoring and wrote the software that controlled the instrumentation. It also manufactured cables and probes and other accessories. The claimant joined the respondent on 17 July 1989, initially on a Job Training Scheme. At the end of the scheme, he was taken on as a permanent employee. By the time his dismissal for redundancy took effect on 3 March 2022 he had worked for the respondent for over 30 years.

[24]The respondent had around 5 employees. Mr Gill viewed it as a close-knit family or tribe and the payment structure which he devised aimed to reward loyalty and commitment to the business. It is clear that relationships unravelled into acrimony at the end of 2021/beginning of 2022 when Mr Gill and his brother decided, in effect, to retire from the business and the employees (barring one) declined the offer to take it on. I heard some evidence about the events at the end of employment. I have only made findings of facts about those incidents to the extent that they are relevant to the issues I need to decide. Events from April 2020 onwards

[25]From April 2020 most of the employees and John Gill and Mr Gill were furloughed due to the COVID-19 pandemic.

[26]In mid to late November 2021 the claimant says the employees were given an ultimatum by Mr Gill. Mr Gill told them he wanted to retire and wanted the employees to buy the company otherwise they would be made redundant. John Gill and Mr Gill were already semi-retired from about 2010. The initial proposal was that the employees would buy the company for £200,000 and also pay the directors 5% of the business’s turnover for life. The respondent’s premises would be included in the sale but on condition that it could not be disposed of. The offer was not put in writing and no lawyers were involved.

[27]A few days later Mr Gill asked the claimant for his decision on the offer. The claimant asked for a full week to make an informed decision. Mr Gill initially agreed but later scheduled a meeting on the following Thursday which was less than a week afterwards. The claimant looked into the possible financial implications of buying the respondent but was unable to obtain a bank loan and did not want to use his house as collateral. He decided not to be involved in purchasing the company. The other employees had no interest in buying the company other than an employee called Andrew Haworth.

[28]At that first company meeting in November 2021, which was attend by John Gill, Mr Gill, Andrew Haworth, the claimant, Shirley Turner, Marie Wilson and Nick McGovern, the claimant informed Mr Gill and John Gill that he did not want to purchase the company and the rest of the employees said the same. Mr Gill’s response was angry. He suggested that as young man he would jump at the chance to buy his own company. He spoke in terms which left Marie Wilson and Shirley Turner very upset. Mr Gill made clear the alternative to the employees purchasing the company was redundancy. He said that the value of each of the employees’ bonds was less than the redundancy payment they were entitled to so they should just accept their redundancy payout. Mr Gill also said the bond and share scheme was to be terminated. Mr Gill initially said that he would be leaving “today” but later calmed down.

[29]There were further meetings over the next two weeks. The directors dropped the requirement of a payment of 5% of turnover for life. The premises was removed and was to be retained by Mr Gill and John Gill but would be available to rent for the next 10 after which it would be sold to the employees for £1, with rent will be payable for a further 5. There was later a proposal that the premises would be available rent free until the end of 2022. These deals proposals were never put in writing but made orally. The meetings were at times acrimonious.

[30]On 3 December 2021 Nick McGovern, Marie Wilson and Shirley Turner were given letters making them redundant. Shirley Turner and Marie Wilson were required to work their full notice while Nick McGovern was to leave before Christmas.

Discussion and Conclusions

[31]On 9 December 2021 Andrew Haworth and the claimant were given their redundancy notices. Their last day of employment was to be 3 March 2022 and they were required to work their notice.

[32]On 20 December 2021 Mr Gill handed Andrew Haworth a handwritten note rescinding the redundancy notices (page 178). By that point Nick McGovern had already left the respondent. After seeking advice from Citizens Advice the claimant advised Mr Gill that a scribbled note did not constitute a rescinding of the redundancy notices, but they would wait to see what new scheme he came up with in the New Year.

[33]On 6 January 2022 Mr Gill emailed new options for consideration. In that note Mr Gill said the value of one million bonds was £200,000 i.e. 20p per bond. He stated that since the claimant’s redundancy pay would be greater than the value of his bonds, the claimant would be paid whichever was the greater sum.

[34]On 19 January 2022 the claimant sent Mr Gill a written request that he wished to cash in his shares at 20p per bond. Marie Wilson and Shirley Turner did the same. At that point the claimant believed (he accepts mistakenly) that he held shares in the respondent company whereas in fact that had not been the case since Mr Gill cancelled the share scheme as a result of the HMRC meeting in 2009.

[35]Andrew Haworth then decided he would buy the respondent company. The claimant said he did not know the details of the transaction or the money involved.

[36]On 11 February 2022 Marie Wilson’s employment terminated by reason of redundancy.

[37]On 25 February 2022 Shirley Turner’s employment terminated by reason of redundancy.

[38]On 3 March 2022 the claimant’s employment terminated by reason of redundancy.

[39]The claimant was handed a handwritten note by Mr Gill showing how his redundancy payout and holidays etc. had been calculated. He was given two options – the first was to go down the Employment Tribunal route and receive less money. The second was to receive an extra month’s pay of £2,448 if he did not go down the Tribunal route. The claimant chose option one i.e. accepting the lesser sum and in no way compromising his right to bring a claim to the Tribunal. For the avoidance of doubt, there was no evidence to suggest that the claimant had contracted out of his right to bring a claim to the Tribunal in circumstances falling within s.203(2) of the ERA.

[40]The claimant was told to wait until 8 March 2022 to get paid because Mr Gill would be away until that time. On that date the claimant had to go to the respondent to show Mr Gill and Andrew Haworth how to do the payroll so they could pay him his redundancy pay. That was because Shirley Turner used to do the payroll and accounting and had by then left the respondent’s employment.

[41]On 26 May 2022 the claimant started ACAS early conciliation. The early conciliation certificate was issued on 6 July 2022. The claimant started his employment claim on 2 August 2022. The Company Structure

[42]The respondent initially had a share capital of four shares. Two shares were issued to John Gill and one share to Mr Gill. They are both directors and Mr Gill is the Company Secretary. The fourth share was issued to Mr Gill’s wife, Dawn. On 17 October 2006 the respondent increased its share capital from four shares to one million shares. That was to facilitate a company distribution scheme. Prior to any distribution to employees, John Gill had 500,000 shares, Mr Gill had 250,000 shares and Dawn Gill had 250,000 shares.

[43]As I explain below, the respondent operated a scheme whereby employees could both buy and sell shares (later “bonus bonds”). By March 2009 the claimant had a share total of 17,871 shares. From 2006 (or at the latest by 27 April 2008) the shares purchased by the employees were held (according to the respondent’s annual return at Companies House by the “Pension Pension Scheme/ACM” (which I will refer to as the “ACM Pension Scheme”. By 27 April 2009 the ACM Pension Scheme held 59,711 shares. However, by 22 May 2010 the ACM Pension Scheme held zero shares with the share capital once again being wholly divided between Stewart Gill (500,000), Ray Gill (250,000) and Dawn Gill (250,000).

[44]I find that happened as a result of a meeting which Mr Gill had with HMRC which I describe below. The position from May 2010 at the latest, therefore, was that the ACM Pension Scheme did not actually hold any shares in the company.

[45]From that point, “bonus bonds” were allocated instead of shares. Mr Gill described those bonds as “tokens”. The meeting with HMRC

[46]On 24 November 2009 HMRC Pension Scheme Services held a meeting with Mr Gill and John Gill about the respondent’s share scheme. The notes of the meeting were in the Bundle at pages 128-136. The claimant was not aware of that meeting and what happened at it until August 2022.

[47]The discussion was about whether the share scheme met the criteria to be a registered pension scheme and so entitled to beneficial tax treatment. Mr Gill explained to HMRC why he said it was a pension scheme, albeit there was also an intention that the shares would gradually be transferred to employees so they could eventually take over 100% of the respondent company. HMRC’s view was that the scheme was not a pension scheme which complied with the relevant legislation. That had tax consequences. HMRC explained that the options for taking the matter forward were either raising a series of unauthorised payment tax charges in connection with the share purchases, or the deregistration of the scheme. The tax charges would have been very substantial. HMRC said they would be referring the matter to their senior management team to consider the deregistration of the scheme. It was as a result of this that the scheme was converted into the bonus bond scheme.

[48]The notes of the HMRC meeting also provide some evidence about the intentions of Mr Gill and the respondent in relation to the scheme as it then was. Mr Gill was asked by HMRC about the position when somebody who had been a member of the scheme for 10 years died. What would happen to their dependents? Mr Gill’s answer was that the member’s shares could be sold and the money transferred to their heirs, alternatively the shares could be passed to the heirs. HMRC asked how the scheme could pay benefits where a member had serious ill health. Mr Gill said the member would have a wad of shares available for sale via fire sale to the other employees or members of the scheme. The claimant’s contract of employment and the respondent’s pay system

[49]The claimant’s Contract of Employment (pp. 164-172) was dated 21 August 2013.

[50]The claimant was tasked to prepare written contracts of employment for himself and colleagues by Mr Gill after the respondent was involved in a Tribunal claim brought by a former employee. The claimant found a template contract of employment online. He altered and tweaked a few things but left the section on “the ACM Instruments Pay Scheme” in its entirety for Mr Gill to write.

[51]Above the signature the contract states that “It is the responsibility of the employee to understand the terms of this contract. Please ask questions about any terms in this contract if you have any queries.” The claimant and Mr Gill both signed the contract on 21 August 2013.

[52]The contract is idiosyncratic. It does not set out the claimant’s wage or pay in the usual way. Instead, there is a section of the contract headed “The ACM Instrument Pay Scheme” (pp.165-167). It said: “ACM Instruments Pay Scheme At ACM we operate a distribution scheme that uses mathematics to evenly spread the distribution amongst the present employees and various stages of retired employees. The word pro rata can be applied to pretty much every aspect of this scheme in order to make it fair for all. The scheme is designed to encourage commitment and a long term care attitude to the company, rewarding long term employees and their present wife / husband with significant income in retirement. In many respects, ACM Instruments may be considered as your best friend, which if treated well will look after you and your spouse for a long time if not throughout your lives. When all is running well at ACM Instruments we use simple mathematics to distribute money. Basically money is shovelled into a wage engine and that money is distributed using a series of mathematical tools. An accurate distribution for the year can only be made at the end of the holiday year in mid February for final distribution in March, though estimates are made for each month of the year. The method of paying employees is believed to be similar if not the same as an Annualized Hours Contract. In a normal distribution, 50% of the distribution is paid in the form of wages and 50% of the distribution is used to purchase bonus bonds. At ACM Instruments we endeavour to make this system as accurate as possible and work it to maximize the employee's income. Mistakes can and do occur, however to minimize disruption these can only be rectified up to six months after the financial year end. These rules have modified and advanced with the passing of time, however they remain true to the original scheme started in 2006 with only minor tinkering in order to cope with developments as they occur. Acceptance of this scheme will be assumed if you continue to receive income from ACM without cause for concern. NB. Some employees who are still serving a Probationary period might be paid a fixed monthly wage. Once their employment becomes permanent then the employee will join the ACM Instruments Pay Scheme.”

[53]I have not in this judgment set out in detail how the respondent allocated the bonus bonds to each employee. The claimant does not raise any complaint about the number of bonds he was issued. The key question is what happens to the bonds on an employee being made redundant.

[54]There is no specific term in the contract dealing with this other than under the heading “Loss of Employment” where the contract provides that “Employees that have worked for the company for less than 20 years lose all their bonus bonds upon leaving. These bonds are redistributed among the owners of the firm” (p.165). It is accepted that term does not apply to the claimant, who was employed in excess of 20 years.

[55]Although Mr Gill did at points suggest that the claimant had lost his bonus bonds during the course of proceedings, he ultimately accepted that was wrong. The claimant still holds the bonds. The question is what his rights are in relation to them when made redundant. Specifically, can he cash them in all at once. The contract is silent on that.

[56]There are terms in the contract which address what happens to bonds when employees retire or die.

[57]Under “Bonus Bonds” the contract provides that “To enable people to dispose of all of their bonus bonds in retirement, 4% of their maximum ever holding can be offered to the scheme each year.”

[58]It also provides that “Upon death, the benefits from the remaining bonus bonds can be transferred only once to the bonus bond earners present wife or husband, otherwise they are redistributed to the owners of the company.”

[59]Finally, under that same heading, it states that “Money earned from bonds could be seen as unearned income and if the Inland Revenue approves it, payments from Bonus Bonds may in the future attract a lower rate of tax, perhaps without the addition of National Insurance.” Evidence about treatment of leavers in practice/how the bonds scheme was intended to work

[60]There was some evidence about what had happened in practice when employees who were bondholders had left the respondent.

[61]In early 2014 an employee named Maxine Wilkinson was dismissed. Her bonus bonds reverted back to the directors. It is not clear whether she had been employed for 10 years. Her dismissal was not due to redundancy.

[62]In 2020 an employee named Adam Thistlethwaite left the firm after 9 years and his bonds reverted back to the directors.

[63]Shirley Turner’s evidence was that she was told by John Gill and Mr Gill in a meeting on 3 December 2021 that she was to receive a redundancy payout of £13,155, her bonus bond scheme money of 31,985 shares at 20p per share of £6,396.60 and her final wage pay. She had worked for the respondent for more than 10 years. However, on 6 December 2021 Mr Gill came into the assembly workplace and said in a jovial mood that he had made an error and that she was not entitled to the bonus bond share scheme money. On 25 February 2022, when her redundancy took effect, Mrs Turner asked Mr Gill about her bonds. Mr Gill told her that they were now worthless bit that Mr Haworth might buy them for £10 or £100.

[64]On 21 November 2022, some 9 months after her employment ended, Mr Gill sent Mrs Turner a text message saying he had made a mistake and the bonus bonds system would continue to function. He said that if the respondent company was sold, Mrs Turner would get a fair share based on her bond holding. He said she would also continue to receive funds via the bonds system with the intention being to distribute funds received from rental income less costs. On 23 November 2022 Mr Gill send her a cheque from the respondent for £146.60 with a covering handwritten note saying it was “in relation to sale of bonus bonds”. It did not specify how many bonus bonds had been sold or at what rate. Mrs Turner did not cash the cheque.

[65]Nick McGovern worked for the respondent for over 16 years. He was told by Mr Gill and John Gill during his dismissal meeting on 3 December 2021 that if he worked his 12 weeks’ notice he would retain his shares. Alternatively, in exchange for not working his notice period he could surrender all claims to the bonds but “effectively get paid for the bonds”. At no point during the meeting or subsequently was he given a statement of bond ownership nor was a value attributed to his share. The last available information he had about the number of bonds he held was 53,215 shares as of year 2021 which did not include any shares which would have been accrued during the year 2021/2022. However, based on the calculation that his 12 weeks’ notice pay was equivalent to the value of his bonds he calculated his bonds would be would be valued at £11,331 divided by 53,215, valuing each share at 21 pence.

[66]Marie Wilson had 11 years’ service. She believed she did not have an entitlement to participate in the share/bond scheme because she had not been employed for 20 years or more. She was led to believe by Mr Gill that after 20 years’ service she would have been entitled to benefit from the scheme. Discussion and Conclusions

[67]In this section of my judgment I set out my findings about the terms of the contract relating to the bonus bonds and then my conclusions in relation to each of the issues identified by Employment Judge Feeney. The terms of the contract relating to the bonds

[68]I find that the contract did not provide for an employee to surrender their bonds where they left the respondent’s employment after more than 20 years. The claimant was entitled to retain the bonds post-employment.

[69]The scheme does not make express provision for what happens when an employee is made redundant after 20 years other than it is clear that they retain their bonds.

[70]I find it is necessary to imply a term to address the situation where a bondholder is made redundant. I do not consider that the situation is analogous to retirement, where the contract expressly provides that a bond holder is entitled to cash-in/redistribute up to 4% of their maximum bondholding every year. A redundancy dismissal is a very different situation. It means the association between the employer and employee comes to an end pre-retirement.

[71]A redundancy situation is also a different situation to a dismissal due to misconduct or capability when I find the bonds would revert to the respondent. In those cases the termination of employment can be said (at least to some extent) to be due to the employee’s actions. In contrast, in a redundancy situation the employee finds themselves dismissed because of the decision of the respondent/the position of the employing business rather than any misconduct on their part. They find themselves out of work and in need of funds through no fault of their own.

[72]I find an officious bystander (para 16(d) above) would take the view that in those circumstances the employee would be entitled on dismissal for redundancy to opt to “cash in” the whole of their bond-holding at once on giving notice to the respondent that they wished to do so. The claimant elected to do so by his written notice to the respondent on 19 January 2022. 1. Unauthorised deductions 1.1 Did the respondent make unauthorised deductions from the claimant's wages in that:1.1.1 There was a legal obligation to pay the claimant for the bonus bonds he had accumulated;

1.1.2 The bonus bonds were emoluments connected with employment within the definition of section 27(1) of the Employment Rights Act 1996;

1.1.3 Were these deductions quantifiable?

[73]I have found it necessary to imply a term into the contract between the claimant and the respondent that he was entitled to opt to cash-in all his bonds in one go rather than merely continue to receive an income from them limited to 4% of his maximum holding of bonds per annum.

[74]However, I find that the payment for those bonus bonds were not “wages” because the payment would be made to the claimant in his capacity as a bond holder rather than in his capacity as a worker. The circumstances of this case are slightly different to that in Nosworthy in that the Bonds were initially allocated to the claimant by way of a “bonus” in his capacity as a worker through the bonus bonds scheme. I accept that a failure to award the bonus by a failure to award bonus bonds in a year in which the calculation showed the claimant was entitled to them would fall within the definition of wages. However, once the bonus bonds have been issued, it seems to me that payment in relation to a cashing in or “redistribution” of those bonds was a payment made to the claimant in a capacity other than that of a worker. It is therefore a payment excluded from the definition of “wages” by s.27(2)(e).

[75]If I am wrong about that, I would not have found the deductions “unquantifiable”. The calculation of the bond values is not, it seems to me, straightforward but it is not unquantifiable. The number of bonds issued is known and the sum due can be quantified (as proposed by Mr Gill) by identifying the total value of the respondent business at the relevant time. 2. Breach of Contract2.1 If the claimant cannot pursue a claim of unlawful deductions the Tribunal will consider whether the claimant has a breach of contract claim.

2.2 Did this claim arise or was it outstanding when the claimant’s employment ended? The parties agree that if there is a claim it was outstanding when employment ended.

2.3 Did the respondent do the following: 2.3.1 Fail to pay the claimant a market rate for his bonus bonds.

2.4 Was that a breach of contract?

[76]I have found that there was an implied term entitling the claimant to opt to cash in his bond-holding in one go if made redundant. The respondent failed to allow the claimant to do so in response to his notice of 19 January 2022. That was a breach of contract. The claimant’s claim of breach of contract succeeds. 2.5 How much should the claimant be awarded as damages?

[77]I have considered whether I can calculate the damages due to the claimant based on the information I have. That involves calculating how much the claimant should be paid if he cashes in his bonds in one go. Should there, for example, be a discount applied – the “fire sale” price referred to by Mr Gill in the HMRC meeting? Should the value be determined by the value of the business as a whole at the time of the election to “cash-in”? Should the bonds be valued as the proportion of the value of the business which the claimant’s holding bears to the whole of issued bonds? Should the valuation take into account past bond sale values which the claimant submits has never been below £1 per share? I have decided that further submissions from the parties are needed on this issue. I have listed a remedy hearing and today made case management orders for preparation for that hearing. It may be the parties are in a position to resolve the issue between them to avoid the need for that further hearing.

[1]This was the remedy hearing in this case. My liability Judgment was sent to the parties on 21 August 2023. This judgment should be read alongside that.

[2]In the liability judgment I found that the respondent was in breach of contract. I found that the claimant’s contract with the respondent entitled him to “cash in” his bonus bonds under the ACM instruments Pay Scheme (“the Bonus Bonds”) in the event of his employment terminating prior to retirement. The respondent’s refusal to allow him to do so in response to his request on 19 January 2022 was a breach of contract. The remaining issue was how the bonds should be valued in such a “cash in” situation.

[3]I had given directions that the parties prepare written submissions (and submissions in reply if they wanted to). For this hearing I had a remedy hearing bundle consisting of a total of 103 pages (“the Remedy Bundle”). That included the parties’ submissions dated 8 September 2023 and the claimant's response to the respondent’s submission which was dated 22 September 2023. I had a small supplementary bundle headed “Written Representations for Consideration Bundle” which included the respondent’s response to the claimant’s submissions (“the Supplementary Remedy Bundle”). In this judgment I refer to the Bundle used at the liability hearing as “the Liability Bundle”.

Relevant Law

[4]There were no express contractual terms governing how the Bonus Bonds should be valued in such a “cash in” situation. To determine the appropriate remedy, it is necessary to imply a term into the contract.

[5]When it comes to implied terms, The courts will not imply a term simply because it is a reasonable one. Nor will they imply a term because the agreement would be unreasonable or unfair without it. A term can only be implied if the court can presume that it would have been the intention of the parties to include it in the agreement at the time the contract was made. In order to make such a presumption, the court must be satisfied that:a. the term is necessary in order to give the contract business efficacy: In Ali v Petroleum Co of Trinidad and Tobago

2017 ICR 531

b. it is the normal custom and practice to include such a term in contracts of that particular kind. (There was no suggestion in this case that any such custom and practice had been established).

1982 ICR 626

, CA.

[6]In Horkulak v Cantor Fitzgerald International

2005 ICR 402

Findings of Fact

[7]I heard evidence from the claimant and from Mr Raymond Gill (“Mr Gill”). I set out below my findings of fact relevant to remedy. The Bonus Bond scheme

[8]As I said at paragraph 45 of my liability judgment, from 2010 onwards the claimant held “bonus bonds” in the respondent rather than shares. There were a total of 1,000,000 Bonus Bonds. As at January 2022 over 78% of those were held by the respondent’s directors. The remainder were held by the respondent’s employees. As at that date, the claimant had 58,660 Bonus Bonds representing 5.87% of the total bonds.

[9]Employment Judge Feeney had ordered that the respondent provide an explanation of the workings of the ACM Instruments Pay Scheme. Mr Gill had provided an explanation and examples in writing. They were at pages 61-72 of the Liability Bundle. I base my findings about how the Bonus Bond scheme worked on that, on the evidence I read and heard at both hearings and on the parties’ written and oral submissions.

[10]I find that calculation of the amount distributed to bond holders per month during any particular year began with Mr Gill deciding how much money should be put into what he called the “Wage Engine”. I understand that to be a notional “pot” of money used to calculate wages and the Bonus Bond distributions, rather than an actual separate pot of money, e.g. held in a separate pension fund or bank account. Mr Gill would decide how much money to pay in to the Engine based on the respondent’s financial position and the funds it had available for distribution in the relevant period.

[11]By 2022 each of the respondent’s employees was paid a guaranteed “minimum” wage. That should not be confused with the National Minimum Wage – the claimant’s “minimum” wage was significantly more than the NMW. The total of the employees’ “minimum wage” was deducted from the money put into the Wage Engine. Of the balance after that deduction, half the money put into the Wage Engine was paid out to the employees by way of enhanced wages additional to their “minimum” wage. There was a formula for calculating what proportion of that enhanced wage pot each employee was entitled to. This case is not concerned with that enhanced wage payment.

[12]The other half of the Wage Engine money was used to buy Bonus Bonds from the bondholders. A maximum of 40,000 bonds (4% of the total) would be “traded” in any one year. That maximum figure would be reduced if there were insufficient funds in the Wage Engine to buy bonds during any part of the year. If, for example, the bonds were only traded in 9 months of the year, the maximum traded in that year would be 30,000 bonds (i.e. 9/12 of 40,000 bonds). There could be years where no bonds were traded because there was, in Mr Gill’s judgment, insufficient money available to be put into the Wage Engine. That happened in 2018-19, 2020-21 and 2021-22. In years in which the Bonus Bonds were traded, the bonds “bought” were then redistributed to the employees and the directors of the respondent in proportion to their wage.

[13]The mechanism by which the “trading” or “buying” and “selling” of Bonus Bonds took place was unclear to the claimant. Doing my best with the evidence I heard and read, I find that there was no paperwork documenting the “buying” and “selling” of the Bonus Bonds beyond the records of the transaction in the Register of Shareholdings book (pp.106-127 of the Liability Bundle). There was, for example, no evidence of a process equivalent to the transfer of share certificates when Bonus Bonds were bought and sold. I find that although the bondholders were paid when their bonds were “bought”, they did not have to pay to acquire bonds when they were redistributed.

[14]The respondent’s directors’ wages were low but they had very large bondholdings. When there was money in the Wage Engine to buy bonds, the directors received by far the largest proportion of the money distributed to bondholders to “buy” the bonds. However, because their wages was low compared to the other employees, they received proportionately fewer Bonus Bonds when the purchased bonds were redistributed. Because the total number of Bonus Bonds was fixed at 1,000,000, the long-term effect was that the directors’ Bonus Bonds were very gradually being redistributed amongst the other employees. The value of the Bonus Bonds

[15]The amount paid to the claimant when he “sold” Bonus Bonds depended ultimately on the amount put into the Wage Engine when they were bought. Mr Gill’s calculation was that the average value of each bond traded by the claimant in the period 2013-2022 was £3.88 (p.72 of the Liability Judgment). The claimant submitted that was too low. He submitted (p.4 of the Remedy Bundle at para 15) that for the 6 years 2006-2012 the average paid per bond was £6.03. I find that fails to take into account the fact that no bonds were traded at all in some years subsequent to that.

[16]The latest payment of Bonus Bond distribution in November 2022 was based on a distribution pot of £10,000. That resulted in a payment to the claimant of £268.95 which Mr Gill’s covering note said was “for the year” (p.78 of the Liability bundle). The claimant did not cash the payment made by cheque. However, the respondent then paid it to the claimant by direct transfer on 9 December 2022 (p.80- 81 of the Liability Bundle).

[17]I find that holding the Bonus Bonds did not guarantee the claimant a payment for them in any particular year. Their value was dependent on there being enough money in the respondent’s business to put into the Wage Engine and on that money being more than the money needed to cover the employees’ minimum wages. That meant that the past performance was no guarantee of future performance when it came to Bonus Bond related distributions. Whether or not there would be distributions in future dependent on the ability of the respondent to keep paying into the Wage Engine. That requires me to make findings about the state of the respondent’s business and assets as at 2022. The state of the respondent’s business as at 2022

[18]In broad terms, Mr Gill’s case for the respondent was that by 2022 it was a business in decline because it was not continuing to innovate. Based on the respondent’s accounts for the year ending 31 March 2022 (pp.74-81 of the Remedy Bundle) I find that in that year it made a loss of £172,003). I find that that figure is distorted to some extent by the redundancy payment of around £75,000 made to its former employees. However, those accounts also show its turnover had reduced from £188,774 in the year to 31 March 2021 to £146,517 in the year to 31 March 2022.

[19]The claimant submitted that there was evidence to suggest the respondent was still a viable liquid business. He pointed out that Mr Gill in his email dated 6 January 2022 (pp.180 of the Liability Bundle) referred to the respondent as having “recently had about £150,000 of orders”. However, Mr Gill goes on in his email to say, “the consensus is that there is no hope of any more”. There was a possible increase in sales due to the high price of oil but I accept Mr Gill’s evidence that the long term prospect was not of sustained increases sales.

[20]The claimant also referred to quarterly sales figures for 2022 (p.28 of the Remedy Bundle) which he submitted showed an upturn in sales. Those figures were incomplete, missing the last quarter for 2022. I prefer the evidence in the end of year accounts filed by the respondent. I find the respondent’s turnover was in decline and, as at 2022, the position was that it seemed unlikely to see a significant upturn in the future.

[21]In November 2022, the respondent sold its business for £1 to ACM Instruments Ltd, a company operated and owned by Andrew Haworth, another former employee of the respondent. The sale agreement (pp.72-73 of the Remedy Bundle) included goods sold since 6 April 2022 less £4,999 together with all remaining stock and business equipment, excluding some “nominal pieces of furniture”. It provided for liabilities to pass to ACM Instruments Ltd (except for those relating to this Tribunal claim) and for assistance to be provided both in terms of help and technical advice and use of the respondent’s premises. The premises itself at Station Road, Cark In Carmel (“the Premises”) was not included in the sale. The sale agreement notes that the sale had been intended to take place in April 2022.

[22]Taking the evidence in the round, I prefer the respondent’s case that the respondent’s business was in decline and find that its turnover levels were more likely to continue to decline than recover. That does not amount to a finding that the respondent’s business was not a viable one. Based on the evidence I heard the business remains viable, albeit on a smaller scale than when it was flourishing in the years up to around 2015-2016. I note the downturn in sales pre-dated COVID and could not be attributable to that pandemic. My finding also seems to me consistent with the findings of fact made in my Liability judgment about the decision to make redundancies. I find that by early 2022 the directors had decided to put the business into “retirement mode”.

[23]I find that after the sale of the business, the respondent lost its primary source of income. There had been a suggestion by Mr Gill that it could derive a new source of income from renting out the Premises but that did not happen. From that point on in early 2022, the only money available for paying in to the Wage Engine would be those generated by realising the respondent’s assets. The respondent’s assets

[24]There was a dispute of fact about the value of the respondent’s remaining assets after the business was “retired” in early 2022. I find there were 4 primary assets/categories of asset.

[25]The first was moneys owed by customers. There were unpaid invoices totalling around £92,007 for 2021-2022 (p.22 of the Remedy Bundle) including one for £50,318.55 which Mr Gill was confident would be paid. I find the directors were also chasing up older invoices, some of which would not be recoverable (or at least not in full), e.g. because of the insolvency of the customer (p.26 of the Remedy Bundle). The respondent’s accounts for the year ending March 2022 (p.17 of the Remedy Bundle) recorded a figure for debtors of £62,177. Allowing for the possibility that not all outstanding invoices shown in the sales ledger would be recoverable, I find that the most reliable figure for this asset.

[26]The second asset was cash in the bank. The respondent’s accounts show a figure of £27,564 (p.80 of the Remedy Judgment). The claimant submitted that the figure was higher. The extract from the respondent’s current business account dated 4 March 2022 showed £89,947.16. He suggested that the respondent also had a savings account but there was no evidence on which I could find that was the case. The bank statement extract does not extend to 31 March 2022. The accounts postdate it and I find that as at 31 March 2022 the respondent had £27,564 cash in the bank. That was the figure after payment of redundancy payments.

[27]The third asset was stock. The claimant said that the respondent had a significant amount of parts for the monitoring equipment it installed. His evidence was that it would be very expensive to replace and was therefore inherently valuable. In response to Mr Gill’s cross examination question, however, he accepted that if that equipment was sold on eBay (for example) it would be worth only pennies in the pound. I find the most reliable valuation is that in the respondent’s accounts. It values the respondent’s stock in hand at £5000. However, I find that stock was included in the sale to ACM Instruments Limited and so should not be included in calculating the realisable assets of the respondent.

[28]The fourth asset was the Premises. It is a former residential property which had been used by the respondent for office use. The claimant said that it had initially been valued at a fair market rate of £315,000. He said that the property had dropped in price by about 20% to £250,000 after a WhatsApp conversation he had had with Mr Gill. The respondent’s case is that there are various impediments to the property being sold at the full market rate. It does not currently have a bathroom, would need planning permission to convert into domestic property and (as a sale of a commercial property) would be subject to deduction of various taxes which would not necessarily apply to residential property. On that basis, Mr Gill’s evidence, which I accept, was that the respondent was seeking to reach agreement with a third party to convert the property pre-sale to maximise its value on the property market. The sale particulars of the property adjoining the Premises showed it as being on the market for £465,000 (pp.55-62 of the Remedy Bundle). I find that property is larger than the Premises, and unlike it had an annex and a fully installed bathroom and kitchen. It was already in use and decorated as a residential property when put on the market. On balance I prefer the respondent’s case that were the Premises already converted for use as residential premises the valuation of £315,000 might be achievable but that the valuation of £250,000 reflects the value it is likely to achieve in its unconverted state. I do not find it plausible that the respondent would reduce the sale price of the Premises by £65,000 purely in response to the claimant’s WhatsApp messages. That would be to cut off its nose to spite its face given that Mr Gill and the other directors would also benefit from the higher sale price. I find that the net proceeds of the £250,000 sale price would be reduced by the costs involved in the sale including estate agent fees, costs for works to make the premises saleable and legal fees (including potentially those relating to planning permission for conversion to a residential property). It seems to me reasonable to reduce those net proceeds by £10,000 to take into account those costs, giving a net value for the Premises of £240,000.

[29]The respondent’s accounts show current liabilities of £44,373 (p.80 Remedy Bundle). There would also be a need for the directors to be paid while they worked to realise the assets. Based on p.5 of Mr Gill’s written submissions (p.68 of the Remedies Bundle) I find the directors were paid a combined figure of £960 per month. The Premises have not been sold so there is a continuing need for the directors to be paid up to and beyond the remedy hearing. I find that allowing a period of 24 months’ pay to the directors from 31 March 2022 to realise the assets is reasonable. That amounts to total combined wages to the directors over that period of £23,040.

[30]Taking all those figures into account, while accepting there is inevitably a degree of speculation involved in the exercise, I find that the best estimate of the net realisable value of the respondent’s assets less liabilities and the costs of realisation is £262,328. That is based on my findings of total assets of £329,741 less liabilities and directors wages together totalling £67,413.

Discussion and Conclusions

[31]In the absence of an express term in the claimant’s contract governing how the Bonus Bonds are to be valued when cashed in in a redundancy situation, I find it is necessary to imply such a term to give the contract business efficacy. As to what that term should be, I bear in mind that the case law says that the fairness or equity of a suggested implied term is an essential but not a sufficient precondition for inclusion.

[32]In deciding what the implied term should be, I need to take into account of the purpose of the Bonus Bond scheme and how it worked. The intention was to provide a regular distribution of funds proportionate to the bondholding during employment. It was also intended to provide an income in retirement, with the respondent “buying back” the bonds at the rate of 4% of the total holding per annum. If the claimant had continued in employment and on into retirement, he would not have received the distribution by way of a lump sum in one go. He would, however, have received a continuing income from the Bonus Bonds.

[33]I bear in mind that there was no guarantee of a regular Bonus Bond distribution, with a distribution being dependent on a decision by Mr Gill that there was enough money to allow a payment into the Wage Engine. That was a discretion exercised by Mr Gill. Applying Horkulak, I find he was required to exercise that discretion genuinely and rationally. He could not randomly decide not to put money into the Wage Engine if the respondent had sufficient available to do so. There could well be circumstances, however, where the position of the business meant it would be rational not to put money into the Wage Engine, e.g. if it was necessary for the respondent’s business to invest in new plant or machinery leaving no “spare” funds available to be put into the Wage Engine.

[34]The position is complicated by the fact that the respondent company was (to use the wording of the sale agreement at p.72 of the Remedy Bundle) “going into retirement mode”. I find that in this case, the relevant implied term needs to address the position where the respondent is no longer continuing with its core business but instead realising its assets. I find that in those circumstances, the implied term which best fits with the purpose of the bond scheme and fairness and equity is that the claimant should be entitled to 5.87% of the net realisable assets of the respondent. I have considered whether that figure should be discounted to reflect the fact that the claimant was receiving a lump sum rather than receiving an income from the bonds over time. I find it should not. Set against any benefit from accelerated receipt is the detriment to the claimant of not receiving a continuing income from the Bonus Bonds. He has, in effect, lost his pension. Even allowing for the non-guaranteed nature of the income from Bonus Bonds I find, balancing all the factors, that 5.87% of the net realisable assets of £262,328 is the appropriate sum payable to the claimant.

[35]Based on my finding that the net realisable value of the respondent is £262,328 that means the amount payable to the claimant is £15,398.65. (For the avoidance of doubt, if the claimant has not returned the payment of £268.95 made in November 2022, that amount should be deducted from the amount payable).

[36]I need to deal with 3 submissions made by Mr Gill which he said should result in the sum payable to the claimant being reduced.

[37]First, Mr Gill submitted that the claimant should not receive anything because he had committed misconduct by failing to follow instructions while employed. There was no suggestion that the claimant was the subject of any disciplinary process or was in receipt of a disciplinary warning. He was dismissed for redundancy not misconduct. In those circumstances I do not accept the submission that the claimant should be treated as a “bad leaver” and forfeit his Bonus Bonds.

[38]Second, Mr Gill submitted that the way the Wage Engine worked meant that only half the value of the realisable assets would be distributed to Bonus Bond holders, the other half being paid as wages. I reject that submission. In the context of a realisation of the respondent’s assets there were no wages to pay to employees because there were none (other than the wages to the directors for which I have already accounted). I find that in that context, the appropriate implied term would be that all the net realisable assets would be distributed between the bondholders. The directors would not lose out because they would receive the vast majority of those moneys because of the size of their Bonus Bond holdings.

[39]Third, Mr Gill submitted that the costs of redundancy payments (which he rounded up to £75,000) should be offset against the realisable value of the respondent. However, I have already taken those payments into account in calculating the value of the respondent’s assets. It would be double counting to offset it. For the avoidance of doubt, I do not accept Mr Gill’s argument that the claimant benefited unfairly by getting both a redundancy payment and a payment for his Bonus Bonds. The entitlement to a redundancy payment is a statutory right as an employee. The payment for the Bous Bonds recognises the claimant has lost a source of income and, in effect, his pension. They are distinct and separate things.

[40]In those circumstances, my decision is that the amount payable to the claimant by way of damages for breach of contract is £15,398.65.