Connolly v Sellers Arenascene Ltd

A controlling shareholding does not automatically prevent an individual from being an employee. Under the Employment Rights Act 1996, status depends on all relevant circumstances. The shareholding may be significant, but the tribunal must also examine whether the service contract is genuine, the degree of company control, the corporate structure and the parties’ actual conduct. A tribunal’s finding that a business was transferred through interrelated transactions is primarily factual and should not be disturbed where the evidence was properly evaluated.

The respondent had managed a group of companies in which he held a controlling shareholding. An industrial tribunal held that he had not been an employee before April 1992 and therefore lacked the qualifying service required for an unfair-dismissal claim. It nevertheless found, in the alternative, that the part of the undertaking in which he worked had transferred to the appellant through a series of transactions.

The Employment Appeal Tribunal allowed the respondent’s appeal on employment status and dismissed the appellant’s cross-appeal on the transfer issue. The appellant appealed, challenging both the conclusion that the respondent was an employee and the finding of a relevant transfer.

Lord Justice Pill delivered the leading judgment. Lord Justice Chadwick and Mr Justice Wright agreed. The appeal was dismissed.

1. Employee status. Whether a controlling shareholder is an employee for the purposes of section 230(1) of the Employment Rights Act 1996 is a question to be determined by all relevant facts. A controlling shareholding is significant and may sometimes be decisive, but it is not an automatic bar and must not be treated as determinative without considering the wider circumstances. The approach in Buchan [1997] IRLR 80 could not be applied as a simple controlling-shareholding rule. The approach in Bottrill [1999] ICR 592 was applied.
2. Genuine contract and employment relationship. The tribunal must first consider whether the service agreement is genuine rather than a sham. It must then decide whether the agreement created an employer-employee relationship, considering matters such as the company’s contractual control, its board and constitution, rights concerning dismissal or personal interests, and the parties’ actual conduct. The service agreement was genuine. The tribunal’s emphasis on the respondent’s control, entrepreneurial ability, shareholding interest and importance to the business improperly excluded other relevant factors. The only legitimate conclusion on the material before the court was that he was an employee.
3. Remittal. Pill LJ added, obiter, that remitting the employment-status issue would have been unjust after more than eight years of litigation, particularly because the point had been raised late and the court had sufficient findings and material to decide it.
4. Transfer issue. The tribunal was entitled to find that the corporate hospitality business had transferred and that the transactions between June and September 1992 were interrelated and achieved a relevant transfer under the Transfer of Undertakings (Protection of Employment) Regulations 1981. These were essentially questions of fact. The evidence had been set out and evaluated, and appellate interference was unwarranted. The appeal was dismissed with costs.

• Court of Appeal: On 2 February 2001, dismissed the appellant’s appeal and upheld the Employment Appeal Tribunal’s conclusions.
• Employment Appeal Tribunal: On 14 September 1999, allowed the respondent’s appeal on employee status and dismissed the appellant’s cross-appeal on the transfer finding.
• Industrial tribunal: On 6 March 1998, held that the respondent lacked the required continuous service because his employment began in April 1992. It found alternatively that the relevant undertaking had transferred and that the dismissal would have been automatically unfair if the qualifying period existed.
• Earlier proceedings: An Employment Appeal Tribunal decision of 16 February 1995 was followed by a Court of Appeal order on 17 January 1997 remitting the matter for rehearing before a freshly constituted industrial tribunal.