Appeal No. UKEAT/0722/04/RN

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 15 November 2004

Before
HIS HONOUR JUDGE RICHARDSON
MR M CLANCY
				               MR I EZEKIEL

MRS LINDA JANE SWANNEY	APPELLANT

PENN HILL PHARMACY LIMITED	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR B HAVENHAND
(Of Counsel)
Instructed by:
Messrs Porter Dodson
Solicitors
Central House
Church Street
Yeovil
Somerset BA20 1HH	
For the Respondent	MR R PIRANI
(Of Counsel)
Instructed by:
Messrs Crosse & Crosse
Solicitos
14 Southernhay
Exeter
EX1 1PL	

SUMMARY

Tribunal had to decide whether certain persons were “employees” as per the extended definition in Section 68(1) DDA.  Findings and reasons in respect of a director and shareholder did not, as regards contract of service, apply the Bottrill test, and did not address directly the question whether this was a contract to do work personally.  In all other respects judgment upheld.  Issue remitted to the Tribunal to be heard at same time as merits hearing.

HIS HONOUR JUDGE RICHARDSON
1.	This is an appeal by Mrs Linda Swanney against the Decision of the Employment Tribunal sitting in Exeter entered in the Register on 2 August 2004.  Mrs Swanney had presented complaints to the Tribunal arising out of her dismissal by Penn Hill Pharmacy Ltd hereafter (“PHP”) on 31 March 2004.  One of her complaints was a complaint of disability discrimination, contrary to the Disability Discrimination Act 1995.  The Tribunal found that she was a person with a disability for the purposes of the 1995 Act, but dismissed her claim because it found that PHP was exempt by virtue of Section 7(1) of the Act. 
The legal background 
2.	Section 7(1) of the Act (which has now been repealed, but which still applies to this case) provided:
“Nothing in this Part applies in relation to an employer who has fewer than 15 employees” 
Section 68(1) of the Act contains the following definition of employment:
“employment means, subject to any prescribed provision, employment under a contract of service or of apprenticeship or a contract personally to do any work, and related expressions are to be construed accordingly”
This definition is to be contrasted with the familiar definition in Section 230(1) Employment Rights Act 1996.  Unlike that definition it applies to employment under a contract personally to do any work as well as to a contract of service or apprenticeship.  The 1995 Act’s definition is an extended definition by comparison with the 1996 Act. 

3.	The term “employee” in Section 7(1) is a related expression, and is accordingly to be applied in accordance with the extended definition – see Burton v Higham [2003] IRLR 257.  This the Tribunal sought to do.

The Tribunal hearing and decision 
4.	PHP accepted that it had 10 employees.  Mrs Swanney asserted that 8 other people were employees.  It was therefore necessary for the Tribunal to go person by person through the others to find whether they were employees within the extended definition or not.  This it did. The hearing was completed within a day and commendably clear extended reasons were provided within a fortnight. 

5.	The Tribunal decided in Mrs Swanney’s favour in relation to some, but not others.  In the result the Tribunal decided that PHP had 14 employees.  The exemption therefore applied and the claim for disability discrimination was dismissed.  Other claims remain to be heard. 

6.	The Tribunal’s decision is appealed in relation to 2 persons.  It is convenient to deal with them separately.

Mrs Morris
7.	We deal first of all with Mrs Morris.  The Tribunal’s findings in relation to Mrs Morris are set out in paragraphs 12-14 of the Decision:

“12   Another self employed pharmacist is Hilary Morris whose situation is rather more complex.  The position is that Mrs Morris is married to another qualified pharmacist and they used to run their own business until they gave it up apparently at the beginning of 2004.  Mr Taylor contacted Mrs Morris in the early part of March to ask if she would be able to provide cover and she was able to cover for one day in the early part of March, a date we therefore take to be outside the relevant period, when she worked a ten hour day. 
13    Mr Taylor then discussed with Mrs Morris the prospect of her providing further cover in order to look after periods during the day which would fit in with her domestic and other commitments and it was at that point that it was explained that both Mr and Mrs Morris were available to provide cover and that they would be able, subject to their own commitments, to cover on the sort of basis that Mr Taylor wanted.  Thereafter, over the course of March, although the dates are not established Mrs Morris attended to cover on three separate occasions.  In April however it was Mr Morris who turned up instead.  We are satisfied on the basis of Mr Taylor's evidence that the matter had been left on the basis that one or other would cover.  So far as Mr Taylor was concerned, he really did not mind whether it was Mrs Morris or Mr Morris who showed up on the day: both of them were perfectly satisfactory qualified pharmacists.  He did not know who would turn up on any occasion, and he had no say in that. It appears that it has been a matter of chance; related solely to their own domestic circumstances, as to who came in to cover and when. 
14   That being so we find it difficult to see how it can be argued that Mrs Morris was employed under a contract to perform work personally.  It is quite clear that she was perfectly able to send along a substitute, namely her husband, and so far as the Respondent was concerned, it could equally well have been either of them who attended without prior warning or permission.  We do not therefore count Mrs Morris as an employee.”

8.	The arrangement with Mrs Morris, we observe was an unusual one, very much dependent on the unusual circumstance that Mr and Mrs Morris had been in business together, that they had recently become free for other work and that Mr Taylor was in need of cover.  The Tribunal found an unlimited right to send a substitute.

9.	Mr Havenhand submits that the Employment Tribunal erred in law in concluding that Mrs Morris was not an employee under the extended definition in the 1995 Act.  He made his submissions in a Skeleton Argument which he has developed on appeal.  He submits that Mrs Morris’s position can be analysed as containing a contractual obligation to turn up personally when agreed with PHP.  If she failed to do so and sent her husband instead, that he submits, would be a breach of contract.  PHP might choose to take no action in respect of the breach but it would nevertheless be a breach of contract and would not detract from her obligation to work personally.

10.	This submission, we reject.  The Tribunal has found that Mrs Morris was free to provide her own services or send her husband.  On the Tribunal’s findings it was not a breach of contract for her to do the latter 

11.	He also submits, alternatively, that Mrs Morris might either go herself to do the work or send a substitute so her situation was analogous to a temping agency.  The personal contractual obligation, he submits, was either to do the work herself or to arrange a pharmacist.

12.	We reject this submission.  We certainly do not accept that a contract with a temping agency is a contract for the agency personally to do the work.

13.	It seems to us that in the unusual circumstances which applied to Mrs Morris the Employment Tribunal did not err in law in its conclusion that she was not an employee within the extended definition.  There is, certainly, no evidence at all that she had a contract of service.  The argument that she had a contract to do work personally, in our judgment, founders on the Tribunal’s findings of fact. 

14.	In these circumstances we do not need to consider in detail the authorities to which we have been referred in Skeleton Arguments on the question to what extent a limited power to provide a substitute prevents a contract from being a contract of service or a contract to do work personally.  On the one-off facts of this case the issue does not arise for a decision. 

Mr Taylor
15.	We turn then to Mr Taylor.  So far as Mr Taylor is concerned the Tribunal’s findings are set out in paragraphs 19 and 20 of its Decision:

19   It is suggested that Mr Taylor himself is an employee. This is on the basis that the Respondent is. in fact a limited company.  Mr Taylor is a director; he draws a certain sum from the business each month; which is dealt with through the PAYE payroll.  On the other hand he has no service agreement or contract of employment.  He is the sole shareholder.  There is only the one £1 share issued and he holds it.  He directs the business; although there is a company secretary, and a qualified pharmacist is on the board as there is a statutory requirement that there should be, it does not seem to us that in an sense of the word Mr Taylor could be described as being under the control of the company.  It is he who controls the company in the sense that he makes all the decisions.  It does not seem to us that anybody else can made decisions which bind him.
20   We note that the pharmacist is on the board to ensure compliance with minimum professional standards but the pharmacist, although a director, has only the sanction of reporting Mr Taylor to the appropriate professional body or possibly to the police if there were a .serious drop in standards.  The pharmacist certainly has no power to direct Mr Taylor to do or refrain from doing any act and certainly has no method of dismissing or otherwise disciplining him.  It seems to us that an essential aspect of being an employee is being under the control of the company in the sense that the company needs to have the authority to discipline or, if necessary, dismiss, and that is wholly lacking here. It seems to us that the reality is that this is Mr Taylor's business.  He is simply operating under the statutory cloak of limited company status. We are not therefore satisfied that Mr Taylor is an employee.” 

16.	Mr Havenhand on behalf of Mrs Swanney submits that the Tribunal erred in its reasoning, at this point by failing to take into account that PHP and Mr Taylor were separate entities, and by placing primacy on a test of control.  Further, he submits that the Tribunal did not separately address the question whether Mr Taylor had a contract at all and if so whether it was a contract to work personally.  It is true that the Tribunal did not expressly find that there was no contract of any kind.  It found only that there was no service agreement or contract of employment.

17.	As to the question of control there is authority.  It is clear from the Tribunal’s decision, particularly paragraph 20, that it seems to have regarded it as decisive that the business was Mr Taylor’s, that no-one in reality could discipline him, and that the essential aspect of control was therefore absent.  But Secretary of State v Bottrill [1999] IRLR 326 was not cited to the Tribunal.  Secretary of State v Bottrill overruled an earlier decision of the Employment Appeal Tribunal, Buchan and Ivey v Secretary of State for Employment [1997] IRLR 80, which had held that a controlling shareholder could not be an employee for the purpose of Section 230 of the 1996 Act.  The reasoning in Buchan and Ivey is close to the reasoning contained in paragraph 20 of the Tribunal’s decision in this case. 
In Bottrill Lord Woolf MR (as he then was) said:
“We recognise the attractions of having in relation to the ERA a simple and clear test which will determine whether a shareholder or a director is an employee for the purposes of the Act or not.  However, the Act does not provide such a test and it is far from obvious what Parliament would have intended the test to be.  We do not find any justification for departing from the well-established position in the law of employment generally.  That is whether or not an employer or employee relationship exists can only be decided by having regard to all the relevant facts.  If an individual has a controlling shareholding, that is certainly a fact which is likely to be significant in all situations, and in some cases it may prove to be decisive. However, it is only one of the factors which are relevant and certainly is not to be taken as determinative without considering all the relevant circumstances.”

The Master of the Roll responded to an invitation from counsel for the Secretary of State to lay down guidelines:
“ … we hope that the following comments may be of assistance. 
The first question  which the tribunal is likely to wish to consider is whether there is or has been a genuine contract between the company and the shareholder.  In this context, how and for what reasons the contract came into existence (for example, whether the contract was made at a time when insolvency loomed) and what each party actually did pursuant to the contract are likely to be relevant considerations. 
If the tribunal concludes that the contract is not a sham, it is likely to wish to consider next whether the contract, which may well have been labelled a contract of employment, actually gave rise to an employer/employee relationship.  In this context, of the various factors usually regarded as relevant (see, for example, Chitty on Contracts 27th edn (1994) para. 37-008), the degree of control exercised by the company over the shareholder employee is always important.  This is not the same question as that relating to whether there is a controlling shareholding.  The tribunal may think it appropriate to consider whether there are directors other than or in addition to the shareholder employee and whether the constitution of the company gives that shareholder rights such that he is in reality answerable only to himself and incapable of being dismissed.  If he is a director, it may be relevant to consider whether he is able under the Articles of Association to vote) in matters in which he is personally interested, such as the termination of his contract of employment.  Again, the actual conduct of the parties pursuant to the terms of the contract is likely to be relevant.  It is for the tribunal as an industrial jury to take all relevant factors into account in reaching its conclusion, giving such weight to them as it considers appropriate.”

18.	On behalf of PHP Mr Pirani has submitted that the Employment Tribunal did not err in law.  He submits in essence that it is clear from the findings the Tribunal made that no contract of any kind can have existed between the company and Mr Taylor.  Therefore, he says it does not matter that there is no express finding that there is no contract of any kind.  He further submits that there is no finding of any mutuality between PHP and Mr Taylor and that any mutuality is in fact most improbable given the circumstances of the case in the absence of a finding that PHP had a duty to provide work for Mr Taylor.  He submits no finding that Mr Taylor is an employee, can be made.  He relies on the words in paragraph 19 where the Tribunal says:
“it does not seem to us that in any sense of the word Mr Taylor could be described as being under the control of the company”

19.	He submits that the dominant purpose of any arrangement between PHP and Mr Taylor cannot have them for him to do work personally.  At all events he says there is no finding by the Tribunal that there was any such dominant purpose – see Kelly v Northenr Ireland Housing Executive [1998] ICR 828.

20.	We have considered the submissions on both sides with care.  There is force in the submissions that Mr Pirani makes but we must bear in mind that we are at the Appeal Tribunal unable to substitute any conclusions of our own for a conclusion of fact the Tribunal reaches unless there is only one answer to the question.

21.	It seems to us that the Tribunal do not directly address the question whether there was a contract of any kind between PHP and Mr Taylor.  The fact that Mr Taylor is drawing a regular sum from the business each month, dealt with through the PAYE payroll is an indication which points in one direction.  It may very well be that the Tribunal will answer that there was no contract of any kind between Mr Taylor and PHP but the Tribunal has not expressly reached this finding.  It does also seem to us that in paragraph 20 of its Decision the Employment Tribunal has expressed itself in a way which is inimical to the manner in which the Court of Appeal has determined the law in Secretary of State for Trade and Industry v Bottrill.  We are not satisfied in this case that there is only one conclusion possible on the facts.  As we say it may very well be that Mr Pirani has strong grounds for submitting that as a matter of fact the Tribunal’s conclusion that Mr Taylor was not an employee is correct.  But there is as we have said no express finding that there was no contract of any kind and the precise test applied in paragraph 20 appears to us to be contrary to that in Secretary of State for Trade and Industry v Bottrill.

22.	For these reasons the single question whether Mr Taylor was an employee in either the strict or extended sense of that word must be remitted to the Employment Tribunal.  We see no reason why the remission should not be to the same Tribunal if that Tribunal is available to deal with the case.

23.	We do not see any need for a further Preliminary Hearing.  The evidence on the question whether Mr Taylor is an employee can in our judgment conveniently be heard at the same time as the rest of the case.  It is now common ground that Mrs Swanney is disabled.  The reasons for her dismissal will have to be dealt with in any case in order to determine her complaint of unfair dismissal and we do not see any reason why the parties should be put to additional expense by having the question of Mr Taylor’s status dealt with on a separate day.

24.	Accordingly, the appeal will be allowed to the limited extent that we have identified and the case will be remitted to be heard by the same Employment Tribunal, if available, and at all events by an Employment Tribunal that deals also with the remaining issues in contention between the parties.  

25.	We are told that Mrs Swanney, whose disability arises from secondary cancer, is far from well and we hope that the remaining matters may be listed promptly for hearing.