Huxley & Anor v Secretary Of State For Education & Employment [1996] UKEAT 219_95_1005

EAT

Huxley & Anor v Secretary Of State For Education & Employment

[1996] UKEAT 219_95_1005 · 1996-05-10

JUDGE HARGROVE Q.C. :

In this appeal the appellants were directors of a company called Clockswitch Limited, it is in liquidation. The appellants claiming as employees have sought to obtain from the Secretary of State the various sums to which they would be entitled, the Secretary of State being subrogated to the position of the employer on matters such as arrears of salary, pay in lieu of notice, holiday pay, etc.

The area in dispute was whether the appellants were employees or were self-employed. The Industrial Tribunal dealt with this, I think as a preliminary issue, and the tribunal set out a series of findings of fact concerning both the document which was entitled "Service Agreement" and other matters which they thought were relevant to the question they had to decide. In effect, the directors had formed a buy-out team for the company. They had previously all been employed by a company, they formed Clockswitch through which they were buying out their previous employers. They clearly put in substantial sums of money in order to do this.

In the course of the development of the situation, both Mr Chase and Mr Huxley signed documents which were extensive and dealt with all those matters that one would find so frequently in the straightforward employer/employee contracts. Indeed, the expression "employment" is not only used, but is defined early in the contract.

Doubtless because of the problems and the state of the company's finances, the directors did not draw salary and matter mounted up so that the claim for example of Mr Huxley's case was one of over £300,000.

The approach which the appellants take is to say that having regard to Section 153, they comply with all the requirements looking at the service document, looking at the fact that they have been dealt with by the Income Tax authority as employees. Furthermore they were under control, in the sense that Mr Yabsley the major shareholder was also the managing director and therefore he headed the organisation, and that eventually they installed a chief executive to whom they were responsible. These were all gentlemen who were experts in a highly technical area and therefore from the point of view of day-to-day control, it was an impossibility for that sort of test to be met, because no one else in the company had anything like their expertise and they were, so to speak, the company expert in each area.

The tribunal listed some 15 different areas where the duties and rights of the company and the directors were set out, and then they turned to the question, what should they do in order to decide whether this was a situation of employment or a situation where the individual directors were self-employed.

The way in which the Industrial Tribunal approached the matter was to inform themselves of what the law was at the time. They quote Hall v Lorimer , and they quote the Court of Appeal. They take Vinelott's J view in Walls v Sinnett , they say that it is clear from the authority that no one factor is ever likely to be conclusive one way or the other.

The only basis upon which the appellants can really attack that is to say, there has been a further decision in the case of McMeechan v Secretary of State for Employment

[1995] ICR 444

, which has taken the view that the primary approach should be to look at the document. This is reported at page 450. Here the President, Mummery J. is setting out the reasons why in that case it was held that the Industrial Tribunal was in error. The vital paragraph is this:

"(1) The industrial tribunal adopted the wrong approach to the determination of the question for decision. The applicant's relationship with Noel Employment Ltd was governed by printed conditions of service. Where the relevant contract is, as here, wholly contained in a document or documents, the question whether the contract is one of employment is a question of law to be determined upon the true construction of the document it is factual matrix."

The first question is whether that statement is meant to exclude all considerations of surrounding circumstances. If it is so intended, then it runs contrary to a substantial body of law which has indicated that a multi factorial approach should be adopted, and that the document itself, except in a very limited number of cases, is not decisive.

One of the factors in this particular case which lies outside the document, is that manner in which these four gentlemen had funded the entire operation. It was a matter which the tribunal in our view was entitled to take into account.

The tribunal looked at various factors which indicated that the appellants were employees. In paragraph 13 it is stated:

"13 In this case there are factors which undoubtedly point to the conclusion that the applicants were employees. They worked regular hours, were paid a regular salary and were taxed under PAYE. They had service contracts in which they were described as employees. There were provisions whereby each of them could be dismissed."

I interpose here, that there are of course many other conditions contained in the document which pointed in the same direction. The tribunal continues:

"14 There are, equally, factors which point to the opposite conclusion. Neither of the applicants was answerable to anyone within his own sphere of responsibility save to his other directors and shareholders. Each had raised substantial sums of money to inject into the business and each has lost his money. In evidence, both stated that they hoped that they would recoup their investment and, ... Mr Chase stated "If it had come off, we would have reaped the benefits". In the view of the Tribunal one of the hallmarks of self-employment is the undertaking by the proprietor or proprietors of the risk of loss if the venture fails in return for the chance of profit if its succeeds. It is unlikely that an individual who is an employee and nothing more would undertake such a financial risk."

They then applied the test of Mummery J. in the Lorimer case, and reached the conclusion that in fact these two gentlemen were not employees.

We are of the view that the question whether a person is or is not an employee has got to be approached as Mummery J. said in the McMeechan case. First upon the basis if the contract is the sole indication of the relationship, it can be interpreted of course in the background in which it exists. If it is not the sole indication then the other factors can then be brought into play. That in our view is precisely what the tribunal did here.

We recognise that it is a very difficult decision to make, and it must have been one which vexed the tribunal sorely. That fact that we might, looking at the facts and the contract again without having the benefit of the hearing might reach a somewhat different conclusion, is neither here nor there.

On the matter of law there has been no misdirection of law and as a question of fact, this decision cannot be attacked as being perverse. Accordingly, we have reached the conclusion that this appeal must fail.