The claimant was the CEO and employee of Career Energy Ltd, owning the majority of the shares. Due to financial difficulties, the claimant entered into an agreement whereby the respondent would buy 52% of the shares of the respondent company, Career Energy Consultancy Services, and that Career Energy Ltd would go into liquidation. It was agreed with the liquidator that Career Energy Ltd would be transferred to Career Energy Consultancy Services pending negotiations to acquire the assets and goodwill of Career Energy Ltd. At the date of the share purchase agreement the claimant entered into a service agreement with the respondent whereby he was appointed as Chief Executive – there was no issue that he was an employee of the company at that stage. 2 months later it was agreed he would cease to be Chief Executive and would become founder. The service agreement was replace by a consultancy and the claimant submitted invoice to the company and was responsible for his own tax and national insurance. The claimant was dismissed 6 months later and he claimed unfair dismissal at the ET. The ET ruled they did not have jurisdiction to hear his claim because he was not an employee at the relevant time and consequently he lacked sufficient qualifying service to bring a claim. The claimant appealed.

The EAT upheld the appeal. The EJ had failed to note in the claimant's witness statement that the business had been transferred – in this case there was clearly a TUPE transfer. Also, despite the label given to the claimant as 'consultant', it was clear that he continued to be an employee. The claimant continued to work exactly as he had before he became a consultant and the only difference was the manner in which he was being paid. In conclusion, the claimant was an employee at the relevant time and he did have sufficient continuity of service by reason of the TUPE transfer.

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Appeal No. UKEAT/0519/11/MAA

EMPLOYMENT APPEAL TRIBUNAL

FLEETBANK HOUSE, 2-6 SALISBURY SQUARE, LONDON EC4Y 8JX

At the Tribunal

On 8 May 2012

Before

HIS HONOUR JUDGE SEROTA QC (SITTING ALONE)

DR H FREEDMAN (APPELLANT)

CAREER ENERGY CONSULTANCY SERVICES LTD (RESPONDENT)

Transcript of Proceedings

JUDGMENT

For the Appellant
DR H FREEDMAN (The Appellant in Person)

For the Respondent
No appearance or representation by or on behalf of Respondent

TRANSFER OF UNDERTAKINGS – Transfer

CONTRACT OF EMPLOYMENT – Whether established

Employment Judge clearly wrong in failing to find that Claimant had continuous service by reason of a TUPE transfer and that he remained an employee of the Respondent. Case remitted to Employment Tribunal to determine merits of claims for unfair dismissal and holiday pay, and to determine compensation if appropriate.

1. This is an appeal from the Claimant from a decision of Employment Judge Lewzey, who sat alone, at the London Central hearing centre. The Reasons were sent to the parties on 21 June 2011. Judge Lewzey determined that although the Claimant, Dr Freedman, was an employee of the Respondent between 21 December 2009 and 25 February 2010, at the relevant date, which was 28 October 2010, he was no longer an employee. Consequently, she held, he lacked sufficient qualifying service to enable him to bring a claim for unfair dismissal. The Employment Tribunal lacked jurisdiction to determine his claims, so she found, for unfair dismissal and for holiday pay. Dr Freedman sought a review of that decision; this was refused. HHJ Peter Clark considered the papers and on 17 October directed that there should be a Full Hearing.

1. Today, Dr Freedman has appeared before me. He has provided me with a very helpful skeleton argument and a formidable bundle of authorities, to which I hope I will not have to refer. The Respondent, I am told, is now in insolvent liquidation, having been compulsorily wound up, and the Official Receiver is the liquidator. The Official Receiver has written to the Appeal Tribunal stating that he does not intend to appear today. Dr Freedman tells me that he wishes to pursue his appeal for two reasons: firstly, he believes that the majority shareholder and his successor as Chief Executive, a Mr Giesbrecht, has wrongly transferred assets from the Respondent to another company that he owns without any compensation to the liquidator, and that he has thereby avoided such liability as he may have to the Claimant in respect of his claim for unfair dismissal on the assumption that the Claimant is successful in this appeal.

1. I need to set out something of the factual background, which I take largely from the decision of the Employment Tribunal. Career Energy Ltd was incorporated by the Claimant on 13 August 2002, but it did not begin to trade until January 2007, when the Claimant transferred a business that he operated as a sole trader known as Career Energy. As I understand it, Career Energy and the successor companies to which I shall refer provided a form of educational consultancy. When Career Energy Ltd was incorporated, the Claimant became an employee. He had entered into a shareholders' agreement with a Mr Hosking; the Claimant held 175 of the shares and Mr Hosking 25.

1. I need not go into any great detail, but suffice it to say that as a result of the economic climate the business of Career Energy Ltd found itself short of funds, and the Claimant entered into negotiations with Mr Giesbrecht with a view to Mr Giesbrecht in effect investing into the business. In order to give effect to this agreement, the Respondent company was incorporated on 29 November 2009, and shortly afterwards Career Energy Ltd changed its name to CE 2009 Ltd. I think it was clearly envisaged that Career Energy Ltd would have to be placed in liquidation, and in due course it was placed into creditors' voluntary liquidation.

1. On 3 December 2009 Dr Freedman entered into nonbinding heads of agreement with a company controlled by Mr Giesbrecht known as Stockval, whereby Stockval would acquire 52 per cent of the shares in the Respondent company, and the Respondent commenced trading on or about 11 December 2009. A week later Career Energy Ltd was placed into creditors' voluntary liquidation, as I have mentioned.

1. On 21 December 2009 the share purchase agreement was concluded and the nonbinding heads of agreement, it was agreed, should become legally binding. In essence, the liquidator of the company sold furniture and equipment to the Respondent. The written agreement is silent on the point, but according to the Claimant's witness statement, which was before the Employment Judge, to which she does not seem to make reference, he says this:

"26. Career Energy Ltd had various clients who had paid for, but not yet concluded their programmes of support. It was agreed with the liquidator that these clients would be transferred to [the Respondent company]. As far as these clients were concerned there was no change in their programme of support.

27. All consultants who worked on a freelance basis for Career Energy Ltd were offered contracts in [the Respondent].

28. The employed staff […] (myself and the receptionist, Riwati Davies) were employed in [the Respondent]."

1. The Claimant then says this:

"29. With the liquidator's consent the business was transferred to Career Energy Consultancy Services pending negotiations to acquire the assets and goodwill of Career Energy Ltd."

1. So far as I am aware, and Dr Freedman would doubtless correct me if I am wrong, there is no written agreement – certainly, not one that I have seen – for the transfer of the business to the Respondent, but it is quite clear on the facts that it must have been transferred, because the benefit of the contracts and the other assets, as well as the staff, all transferred over and continued as they had before, save that now Mr Giesbrecht was the majority shareholder, and I am satisfied he was entitled to control through Stockval the board of directors and I am satisfied on the basis of the evidence of Dr Freedman and of two emails that I have seen that effectively he became the controller of the business, notwithstanding that Dr Freedman was, as I shall explain shortly, the Chief Executive and a substantial, but not a majority, shareholder.

1. On 21 December 2009 – that is, at the date of the share purchase agreement – the Claimant entered into a service agreement with the Respondent, whereby he was appointed as Chief Executive; there is no issue that he was an employee of the company at that stage. However, to put the matter neutrally, it would seem that the business did not flourish, and there were negotiations between the Claimant and Mr Giesbrecht whereby Mr Giesbrecht was in effect saying to the Claimant, "Move over; I am going to take a more visible role in the running of the business". There is a board minute dated 25 February 2010, signed by both the Claimant and Mr Giesbrecht, whereby it was agreed that the Claimant would cease to be the Chief Executive and would become known as "the founder" of the company, and Mr Giesbrecht would become the Chief Executive – the Claimant remained a director – and the service contract was replaced by a consultancy. The Claimant thereafter – and this was not the Claimant's choice, although he clearly agreed to become a consultant – received a salary plus the same commissions or what have you that he had received before, but now on the basis that he was not an employee. He was expected to render invoices, which he did, and so far as the Inland Revenue were concerned he was treated – whether correctly or not is besides the point – as being selfemployed; certainly, the Respondent company did not pay National Insurance or PAYE.

1. Sadly, notwithstanding the events of February 2010, the business still did not prosper. Relations between the Claimant and Mr Giesbrecht deteriorated, and the Claimant was dismissed on 28 August 2010. He had resigned as a director of the original company – that is, Career Energy Ltd – some time in January 2009. As I have said, the Respondent is currently in liquidation.

1. The Employment Tribunal decision, to which I now turn, sets out the law very briefly at paragraph 12, in which Judge Lewzey quoted section 230 of the Employment Rights Act and went on to say:

"The question of whether an individual is an employee is a question of fact for the Tribunal to decide. There have been a number of tests set out over the years and the current position is a multiple test which looks at control, organisation reality and mutuality of obligation. There are a large number of authorities including Carmichael v National Power [[1999] ICR 1226] and the recent case of James v Greenwich Borough Council [[2007] ICR 577] in which Elias J, as he then was, said that one should look at the surrounding factual matrix in making the determination."

1. Dr Freedman argued that his employment had been continuous, going right back to the days of when he carried on business as a sole trader through Career Energy Ltd and into Career Energy Consultancy Services Ltd, the current Respondent, and that consequently he had sufficiency of continuous employment to find the jurisdiction of the Tribunal and that, contrary to the finding of the Employment Judge, notwithstanding that he purported to be selfemployed in the consultancy agreement, the reality was that he remained an employee. I pause to note at this stage that the label that the parties choose to put on their agreement is a factor to be considered but far from determinative.

1. The Employment Judge drew attention to Regulations 2 and 3 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) and clearly had in mind that there has to be:

"A transfer of undertaking, business, or part of an undertaking or business situated immediately before the transfer in the United Kingdom to another person where there is a transfer of an economic entity which retains its identity."

1. The Employment Judge firstly considered whether Dr Freedman was an employee. As I have already said, she concluded that at the material time he was not. She says, "On 21 December 2009 there was a share purchase of 52% of the shares in the Respondent by Stockval […]", and she refers to the shareholders' agreement: "It was an agreement to purchase shares. It was not on its terms an agreement to purchase the business".

1. Pausing there for one moment, there is clear evidence that the Employment Judge has failed to note in the witness statement of Dr Freedman that the business was transferred; he says so in terms with the consent of the liquidator. It follows therefore that the decision of the Employment Judge cannot stand, and that there was in this case clearly a TUPE transfer. I note that the Official Receiver has not disputed that.

1. The question then arises as to whether the Employment Judge was correct in determining that as a result of the board minute and the Claimant becoming a consultant his contract of service was brought to an end. What she says is this:

"16. […] In doing this I have to look at the surrounding evidence. Dr Freedman ceased to be the Chief Executive from that date, although he was still a 48% shareholder. After that date invoices were rendered in the name of H Freedman Ltd, which was a company that was registered for VAT. The only provision in the agreement set out at page 119 and in the surrounding circumstances was for the payment of a fixed monthly fee plus commission on a basis which, because I do not have the email, I cannot expand on here.

17. Dr Freedman argues he was controlled. He refers to a number of emails. […]"

1. This was rejected by the Employment Judge: "There is no evidence that any control was exercised […]". One pauses for one moment to ask, what exactly was Dr Freedman doing? He was doing exactly the same as he had before he became a consultant, and he continued to work as before. The only difference appears to have been that the manner in which he was paid changed; he submitted invoices and was responsible for his own National Insurance and PAYE, and the Respondent ceased to be. The only change was that from then on it was quite clear that Mr Giesbrecht was taking a more assertive and active part in the business and was able to exercise control to the extent that he could alter the responsibilities of Dr Freedman, and indeed to dismiss him. It seems to me that the only conclusion to which the Employment Judge could properly have come, applying the test that she herself set out, was that he continued to be an employee, regardless of the label that he and Mr Giesbrecht had chosen to place on his employment (and I use that term in a neutral sense). It follows, in those circumstances, that the Employment Tribunal was wrong to conclude it had no jurisdiction. It seems to me that the questions that were before the Employment Tribunal should have been answered in the following way: (1) the Claimant was an employee at the material time, and (2) he had sufficient continuity of service by reason of a TUPE transfer.

1. It follows, therefore, that the Employment Tribunal had jurisdiction to entertain his claim for unfair dismissal and also for holiday pay, and that it was wrong to decline jurisdiction. In the circumstances, the case will have to be remitted to a different Employment Tribunal to decide whether on the factual merits the Claimant was unfairly dismissed and whether he is entitled to his holiday pay, and, if so, to determine the appropriate compensation. In light of the fact that the Official Receiver clearly has no interest in pursuing the proceedings, I assume that the hearing in the Employment Tribunal will be relatively brief and it may be possible to dispose of it by agreement with the Official Receiver.