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	Industrial Tribunals Northern Ireland Decisions
You are here: BAILII >> Databases >> Industrial Tribunals Northern Ireland Decisions >> Fitzgerald & Anor v Department for Employment and Learning (Status of Applicants) [2002] NIIT 3640_01 (18 December 2002) URL: http://www.bailii.org/nie/cases/NIIT/2002/190.html Cite as: [2002] NIIT 3640_1, [2002] NIIT 3640_01

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Fitzgerald & Anor v Department for Employment and Learning (Status of Applicants) [2002] NIIT 3640_01 (18 December 2002)

THE INDUSTRIAL TRIBUNALS

CASE REF: 3640/01

3641/01

APPLICANT: 1. Eamon Fitzgerald

2. Ciaran Fitzgerald

RESPONDENT: The Department for Employment and Leaning

DECISION

The unanimous decision of the Tribunal is that the applicants are "employees" within the meaning of Article 3 of the Employment Rights (Northern Ireland) Order 1996 and that the case shall proceed to hearing on all issues.

Appearances:

The applicants were represented by Mr Coll, Solicitor of Elliott, Duffy, Garret, Solicitors

The respondent was represented by Mr P Sullivan BL, instructed by Mr Johnston of the Departmental Solicitor's Office.

FACTS:

1. The parties agreed at the outset that, as both applicants were in an identical situation, they would invite the Tribunal to hear evidence from one applicant only and the parties agreed that the Tribunal's finding in relation to that applicant would apply to the other applicant as well. Accordingly the Tribunal heard evidence only from Mr Ciaran Fitzgerald.
2. Both applicants were employed by Fitzgerald Livestock Housing Specialists Ltd, formerly known as Fitzgerald and Killen Ltd, which was a company set up by their father and his colleague, Mr Killen. The company was wound up by a creditors' voluntary liquidation on 6 September 2000. After an earlier period of employment with the company ending in 1972, Mr Ciaran Fitzgerald ("the applicant") returned to the company in 1981 and was employed as a joiner. This employment continued until 1993 when Mr Fitzgerald and his brother Eamon bought out Mr Killen's 50% stake in the business for £50,000 and became shareholders in the company. At about the same time, their father gifted all but 2 of his shares in the company to the two applicants in equal shares. He apparently had had some difficulties in his relationship with Mr Killen and retained two shares so that if necessary, he could intervene in the event of a disagreement between his sons. Both the applicants were appointed as directors of the company at the same time.
3. Ciaran Fitzgerald gave evidence that his brother Eamon was responsible for the administration of the office, pricing work, obtaining supplies and acted as Company Secretary, while he himself was in charge of manufacturing and went out on jobs with work squads, putting up buildings. His job title was Production and Personnel Director. He said he considered himself an employee of the company. Both worked in the business on a full-time basis and drew a weekly salary from the business, with PAYE tax and both employer's and employee's National Insurance contributions being paid. There were no other directors of the company and the applicants supervised the running of the business.
4. In 1995, written contracts of employment were prepared for the applicant and other employees in consultation with the Labour Relations Agency as part of an exercise the Company was undertaking with LEDU, the small business agency at the same time. Ciaran Fitzgerald said those contracts reflected the existing situation and were part of an overall process of putting in place a management structure which had not been there before. As director of Personnel, he had issued the contracts including the contract issued to him himself by the Company. The contracts provided regulation in relation to issues such as pay, hours of work, holidays, grievances, layoff in particular circumstances, sickness procedure and disciplinary procedure. Ciaran Fitzgerald said that in the event that he or his brother was not "pulling his weight" in the business he knew he could be dealt with by disciplinary action initiated by the other brother and their father. He conceded however that up to the date when the company was wound up in 2000, neither he nor his brother had been subject to any disciplinary action although their father had been involved in disciplinary action regarding other employees.
5. The applicant also agreed that to a certain degree, he was his own boss and that he owned just short of half the Company. While he and his brother had received bonuses from the business when it was prospering, they also took a reduction in salary for some months before the company became insolvent. Each of the applicants also had a self-administered pension scheme, which was not available to other employees.

REASONS:

6. The Tribunal has to consider as a preliminary issue whether the applicant is an "employee" within the meaning of Article 3 of the Employment Rights (NI) Order 1996 and therefore entitled to claim a redundancy payment from the respondent under the insolvency provisions of the Employment Rights (NI) Order 1996.
7. The respondent contended that, because the applicants between them effectively owned 99.99% of the shares in the company and were not controlled by a Board of Directors but could not be removed by any other person, they were not in reality employees. The respondent argued that the contracts of employment entered into between the Company and the applicants were a sham and not genuine contracts of employment. Accordingly, the applicants were not entitled to the protection of Article 202 of the Employment Rights (NI) Order 1996.
8. The applicants argued that the contracts of employment between them and the company were genuine and were of long standing. They also pointed to the fact that neither of them had complete control over the company, as their father held two shares to enable him to act as arbiter in the event of any dispute between the applicants. They both worked full-time in the business and were paid a regular salary, with all appropriate deductions being made for tax and National Insurance.
9. The Tribunal has been assisted in its consideration of this case by the decision of the Court of Appeal in England in the case of Sellars Arenascene Ltd v Connolly [2001] IRLR 222CA which in turn applied the decision of the Court of Appeal in the case of Secretary of State for Trade and Industry v Bottrill [1999] IRLR 326 CA. In the Bottrill decision, the Court gave some guidelines to be considered by Tribunals, with the caveat that these should not be rigid because of the different circumstances which could arise in each case.
10. The first factor to be considered was whether there has been a genuine contract between the company and the shareholder. The reasons for the contract coming into existence and the actions of each party pursuant to the contract should be taken into account. In this case, the contracts came into existence in 1995 as part of an exercise being carried out with LEDU and at a time when the Company was trading successfully. There was no suggestion of insolvency at the time. Moreover the contracts were prepared with the benefit of advice from the Labour Relations Agency, an independent body specialising in Industrial Relations and appear to be standard form contracts, covering all the matters usually dealt with in such a document. There are no deletions, for example of the disciplinary procedure, which would suggest that the shareholder was in a special category of employee and Mr Fitzgerald was clear that he understood he could be disciplined in appropriate circumstances by the other shareholders. The situation had not arisen, but it is worthy of note that Mr Fitzgerald considered himself answerable to his brother and father, his fellow shareholders.
11. As what the parties actually did in pursuance of the contract, the applicant worked full-time, sometimes overtime, in accordance with his contract for the Company. The Company for its part, paid him in accordance with his contract and accounted for tax and National Insurance as required by legislation. The finding of the Tribunal therefore is that this was a genuine contract of employment between the shareholder/applicant and the company and no evidence has been adduced to suggest that the contract was a sham.
12. The next stage, according to the guidance of Lord Woolf in Bottrill, is that the Tribunal should consider whether the contract of employment actually gave rise to an employer/employee relationship. In this context the Court observed that the degree of control exercised over the shareholder is always important. This is distinct from the controlling interest or otherwise which the shareholder employee may have. One of the matters to be considered is whether the director is in reality answerable only to himself and whether he is capable of being dismissed. In the present case, no evidence was adduced to the Tribunal by the respondent indicating that Mr Fitzgerald could have prevented his own dismissal, or secured his reinstatement in the event of dismissal and so the Tribunal accepts Mr Fitzgerald's assertion that he could be dismissed by the joint decision of his other shareholders. He clearly accepted that he had a certain degree of independence in his work, but was nevertheless accountable to his fellow director and his fellow shareholders. It is also questionable how much importance the Tribunal should give to the question of power to prevent dismissal in a case such as this, where the Company was wound up by a creditors' voluntary winding up and the decision to terminate the directors' employment was taken by the liquidator, rather than by them. The Tribunal respectfully agrees with the comments of Lord Coulsfield in the case of Fleming v Secretary of State for Trade and Industry [1997] IRLR 682, where he noted that in the case of Buchan considerable reliance was placed on the fact that the shareholder had power to prevent his own dismissal. However Lord Coulsfield observed that it was not clear how this would apply in a case where the liquidator dismissed the applicant. He declined to lay down a rule of law to the effect that the fact that the applicant is a majority shareholder "necessarily and in all circumstances implies that person cannot be regarded as an employee". "The Tribunal agrees. Indeed the caselaw notes the irony that if control of the company were to be the decisive test, this would probably only "bite" in cases where, due to insolvency, the individual is no longer in control.
13. The Tribunal is conscious that, although the applicants are brothers and between them owned the vast majority of the shares in the Company, they are individual claimants before the Tribunal and should be treated as separate cases. While it is tempting to view the applicants as jointly controlling the Company, it should be borne in mind that as individuals, neither of them had a controlling interest and could not impose his will on the other. Although their father had retained what was effectively a casting vote in the event of a dispute between the brothers, decisions requiring a special resolution of the Company would have needed the agreement of all three shareholders to be carried. The corollary of this is that either of the larger shareholders could have blocked a proposal with which he was unhappy, although probably not a proposal for his dismissal as a director.
14. The contract of employment under which Ciaran Fitzgerald was employed does not at any point state that it is conditional on him remaining either as a shareholder or a director of the Company. It is perhaps unlikely in the context of a family owned and run Company that this would occur, but it is not impossible. The applicant had worked for the firm as a self-employed contractor before he became an employee. This is another relevant factor, in the Tribunal's view.
15. The respondent sought to put some emphasis on the payment of bonuses to the applicant when the Company was doing well and his acceptance of a reduction in salary when the business was in difficulty. Again, the Tribunal does not consider this to be a decisive factor. Many firms have bonus systems – often related to profits – where they reward additional effort on the part of their staff. The action of the applicant in accepting a drop in salary suggests a responsible attitude and a desire to try to keep the business going. The Tribunal also notes the comments in Bottrill on the inequity of depriving an individual of his claims under the Employment Rights Order 1996 where the National Insurance contributions have been paid both by the individual concerned and by his employer Company and he might properly expect to receive his redundancy payment from the Department for Employment and Learning.
16. The finding of the Tribunal, for all of the reasons set out above, is:-

(i) that the contract of employment under which the applicant was employed was genuine and not a sham;

(ii) the contract gave rise to a genuine employment relationship between the applicant and the employer Company and the applicant is therefore an employee within the meaning of Article 3 of the Employment Rights (NI) Order 1996.

Chairman:

Date and place of hearing:

Date decision recorded in register and issued to parties: