Mr M Rose and Mr E O’Dwyer-Smith v English in Manchester and Secretary of State for Business and Trade: 2409436/2023 and 2409437/2023
EMPLOYMENT TRIBUNALS
Case No 2409436/2023, 2409437/2023
Between
Mr M Rose and Mr E O’Dwyer-SmithClaimantEnglish in Manchester and Secretary of State for Business and TradeRespondent
Before
Employment Judge AinscoughDate 17 February 2025
JUDGMENT
[1]The claimants’ application for a redundancy payment is unsuccessful and is dismissed.[2]The claimants’ application for payment of unlawful deduction from wages is unsuccessful and is dismissed.[3]The claimants’ application for payment of notice pay is unsuccessful and is dismissed.[4]The claimants’ application for payment of holiday pay is unsuccessful and is dismissed.
REASONS
[5]The claimants were not in attendance at the final hearing. The first claimant resides in a country that the United Kingdom does not have arrangements in place for the provision of evidence from that country in these proceedings. The first claimant chose not to join the final hearing to make submissions.[6]The final hearing was listed in accordance with the second claimant’s availability. However, shortly before the start of the final hearing the second claimant informed the Tribunal that he was no longer available to join the hearing and was content for the hearing to take place in his absence.[7]Regional Employment Judge Franey wrote to both claimants and informed them that if they did not attend the final hearing it would impact upon the weight that could be given to the written witness statement that had been submitted to support the claimants’ case.[8]The first respondent is insolvent and did not submit a response to the claims.[9]The second respondent did submit a response to the claims and Mr Soni attended to make submissions on behalf of the second respondent.
Evidence
[10]The parties agreed a bundle of 243 pages. The first claimant submitted a witness statement and both claimants submitted a number of documents in support of their claims. The second respondent relied on the content of the response and a number of documents in support of that position. Mr Soni also made submissions.
Issues
[11]The issues to be determined at the final hearing were:11.1 Were the claimants employees of the first respondent within the meaning of section 230 of the Employment Rights Act 1996?11.2 Were the applications for a redundancy payment made within the time limit in section 164 of the Employment Rights Act 1996? Relevant findings of fact[12]On 31 March 2017 the first respondent was incorporated.[13]On the same date the claimants were provided with a service contract. In this contract the claimants were described as “directors”. The contract set out terms and conditions in accordance with employee status and stated that the claimants would receive a salary of £30,000 per year.[14]On 6 January 2022 the first respondent entered creditors voluntary liquidation.[15]On 13 April 2022 the first claimant made a claim to the second respondent for redundancy and insolvency payments. In the application form the first claimant stated that his job title was Director and that his employment ended on 11 January 2022.[16]The first claimant also stated that his gross income was £1016.67 per month and he worked 35 hours per week over 5 days. The first claimant’s hourly rate of pay was therefore, £7.26.[17]On 26 April 2022 the second claimant made a claim to the second respondent for redundancy and insolvency payments. In the application form the second claimant stated that his job title was Director and that his employment ended on 11 January 2022.[18]The second claimant also stated that his gross income was £1016.67 per month and he worked 35 hours per week over 5 days. The second claimant’s hourly rate of pay was therefore, £7.26.[19]The second claimant also stated that he had started new employment on 6 September 2021.[20]The national minimum wage for the financial year 2021 – 2022 was £8.91.[21]Both claimants stated that they were owed payment for 35 annual leave days that they had been unable to take due to coronavirus.[22]Following receipt of the claimants’ applications, the second respondent asked both claimants to complete director’s questionnaires.[23]On 22 August 2023 the first claimant submitted his questionnaire. In this document the first claimant stated he was entitled to 28 days annual leave.[24]The first claimant also revealed that he did not take any salary in February or March 2020.[25]The first claimant stated that he was not subject to supervision by any other person.[26]The first claimant stated that he was aware that the first respondent was insolvent on 30 September 2021.[27]On 31 August 2023 the first claimant made a claim to the second respondent for loss of notice.[28]On 10 September 2023 the second respondent rejected the second claimant’s application on the basis that the second claimant had not completed the director’s questionnaire.[29]On 20 September 2023 the second respondent rejected the first claimant’s applications on the basis that the second respondent did not believe the first claimant was an employee because he did not receive national minimum wage.[30]On 19 November 2023 the claimants submitted the Tribunal claim form and contended that they had been employees of the first respondent and were entitled to payments from the second respondent.[31]On 27 October 2024 the second claimant completed the director’s questionnaire and provided the same information as the first claimant. Relevant legal principles[32]Section 164 of the Employment Rights Act 1996 provides: “(1) an employee does not have any right to a redundancy payment unless, before the end of the period of six months beginning with the relevant date:(a) The payment has been agreed and paid;(b) The employee has made a claim for the payment by notice in writing given to the employer,(c) A question as to the employee’s right to, or the amount of, the payment has been referred to an employment tribunal, or(d) A complaint relating to his dismissal has been presented by the employee under section 111. (2) an employee is not deprived of his right to a redundancy payment by subsection (1) if, during the period of six months immediately following the period mentioned in that subsection, the employee: (a) makes a claim for the payment by notice in writing given to the employer, (b) refers to an employment tribunal a question as to his right to, or the amount of, the payment, or (c) presents a complaint relating to his dismissal under section 111, And it appears to the tribunal to be just and equitable that the employee should receive a redundancy payment.”[33]Section166 of the Employment Rights Act 1996 provides: “(1) where an employee claims that his employer is liable to pay to him an employer’s payment and either:(a) That the employee has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused or failed to pay it, or has paid part of it and refused or failed to pay the balance, or(b) That the employer is insolvent and the whole or part of the payment remains unpaid, The employee may apply to the Secretary of State for a payment under this section.”[34]Section182 of the Employment Rights Act 1996 provides: “If, on an application made to him in writing by an employee, the Secretary of State is satisfied that:(a) The employee’s employer has become insolvent,(b) The employee’s employment has been terminated, and(c) On the appropriate date the employee was entitled to be paid the whole or part of any debt to which this part applies, The Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.”[35]Section 184 of the Employment Rights Act 1996 confirms that a “debt” includes: “arrears of pay” “notice” and “holiday pay”.[36]Section 230 of the Employment Rights Act 1996 provides: “(1) in this Act, “employee” means an individual who has entered into or works under (or where the employment has ceased, worked under) a contract of employment. (2) In this Act “contract of employment” means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.”[37]In Autoclenz Ltd v Belcher (2011) ICR 1157 SC the Supreme Court determined that it is important to understand the legal obligations of the parties, despite the existence of a contract, by examination of the parties conduct and expectations.[38]In Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497 the High Court determined the factors which would indicate the existence of a contract of employment as:(a) An employee agreeing to personally provide work for a wage;(b) An employee agreeing to be subject to control by the employer in the performance of that work;(c) Other terms of the contract that are consistent with it being a contract of service. Submissions[39]The second respondent relied upon the content of the response submitted on 18 December 2023.[40]In the response the second respondent submitted that the claimants were not employees and had a contract for service not a contract of service.[41]The second respondent submitted that the issue of employment status was a question of fact.[42]The second respondent relied on the fact that the claimants never received the national minimum wage.[43]The second respondent submitted that there were no other Directors to whom the claimants were answerable and had that the claimants had autonomy over their hours and pay.[44]During the hearing, Mr Soni submitted that in fact, the claim for redundancy payment was out of time. Mr Soni contended that neither claimant had asked the first respondent for a redundancy payment in writing and had not referred the question of a right to a redundancy payment within the prescribed time limits. Discussion and conclusions Employment status
Discussion and conclusions
[45]In order to qualify for a redundancy payment or a payment of a debt, which includes wages, holiday pay and notice pay, from the second respondent, an applicant must be an employee within the meaning of section 230 of the Employment Rights Act 1996.[46]It is therefore necessary for a claimant to prove that they entered into a contract of employment which equated to a contract of service.[47]The second respondent has submitted that the claimants’ working arrangements did not satisfy the principles established in the Ready Mix Concrete case.[48]The first claimant provided a copy of a service contract which recorded that the claimants were “directors”. The document also provided that the first respondent would provide work and pay the first claimant a salary of £30,000 per year.[49]However, it is clear from the documents provided by the claimants that they did not receive this amount and the first claimant admitted in his witness statement that the claimants reduced their salaries to below the national minimum wage in order to keep the first respondent solvent. As a result, the claimants were not required to pay income tax. In the director’s questionnaire, the first claimant revealed that neither claimant took a salary in January or February 2020.[50]The National Minimum Wage Act 1998 provides that office holders are not entitled to receive national minimum wage for their office holder duties. If an office holder works as an employee or worker, they are entitled to national minimum wage for those duties. It is clear from the documents that the claimants were never paid national minimum wage.[51]The witness statement also reveals that that the claimants were able to substitute another to perform their duties when they were away from the first respondent and were therefore, not required to personally perform their duties.[52]There was therefore, no mutuality of obligation for the first respondent to pay the claimants for the work they personally performed in accordance with the contract as employees or workers.[53]It is also clear that the first respondent did not “control” the claimants. The claimants had sufficient autonomy to vary their salaries in this way. The claimants admitted in the documentation that they were not subject to supervision by any other person and both held 49% of the[54]In addition, I do not accept that both claimants were unable to take any holidays. On the balance of probabilities, I have determined that the claimants had sufficient control over their own working hours that they chose not to take holidays during the last financial year.[55]In accordance with the principles established in the Autoclenz Ltd case, the service contract provided did not reflect the reality of the claimants’ employment status.[56]The claimants were the owners and directors of the first respondent and determined their own pay, hours and leave.[57]I have therefore determined that the claimants were not employees in accordance with section 230 of the Employment Rights Act 1996. As a result, the claimants’ claims for redundancy payment, unlawful deduction from wages, holiday pay and notice pay are unsuccessful and are dismissed. Time Limit[58]In light of my determination about the claimants’ employment status it was not necessary to make a determination on whether the claimants had applied for payments from the second respondent within the prescribed time limits.[59]However, section 164(1) of the Employment Rights Act 1996 provides that an employee does not have a right to a redundancy payment unless they have made a claim for the payment in writing to the employer or referred a question as to that right to an employment tribunal within six months of the effective date of termination of employment.[60]Section 164(2) provides that if the employee does either of those things within the next period of six months, the Tribunal can, if just and equitable to do so, make a determination that a redundancy payment should be made.[61]The claimants never made any such request of the first respondent or referred a question about that right prior to submitting their applications to the second respondent.[62]When an employer becomes insolvent, section 166 allows an employee to apply to the second respondent for payment of a redundancy payment, if the employee is eligible for such a payment and the employer is therefore, liable for such a payment.[63]In this matter, because the claimants did not comply with the requirements of section 164 within the prescribed time limits, the first respondent was not liable to make a redundancy payment. Subsequently, the second respondent is not liable to make a redundancy payment to the claimants.[64]The claimants’ application for a redundancy payment would also have been unsuccessful and dismissed.