Emerging Markets Partnership (Europe) Ltd v Bachnak

This is an appeal by Emerging Markets Partnership (Europe) Limited (EMPEL), brought with the permission of this court, from the order of the employment appeal tribunal dated 25 March 2003, allowing an appeal by Mr Roman Bachnak from the decision of the employment tribunal at a preliminary hearing that he was not an employee within the meaning of the Employment Rights Act 1996. He was not therefore entitled to pursue his claim for unfair dismissal.

Although the question whether an applicant is an employee is a familiar one in employment tribunals, this case has some unusual features.

As the employment tribunal explained in its extended reasons sent to the parties on 17 July 2001-

There is no dispute that Mr Bachnak was employed by EMPEL as an investment officer, pursuant to the terms of an offer letter dated 3 June 1999 and confirmed by letter of 1 November 1999, until his employment was terminated by EMPEL’s letter dated 22 September 2000 with effect from 23 October 2000. He was paid a basic annual salary of £80,000 and a weekly rental allowance of £210 and the attached “Terms and Conditions of Employment October 1999” referred to a discretionary performance-related bonus.

The dispute concerns the legal effect of the arrangements entered into between the parties on 23 October 2000 as the result of post-termination discussions following the letter of 22 September. By then a special dispensation had been offered by the UK government for Slovak nationals to set up their own business in the UK. Mr Bachnak indicated that that was part of his future plans. He formed a one man company called Meyerowitz Bachnak (UK) Limited (MB). The termination letter of 22 September stated that EMPEL was prepared to offer him a short term consultancy engagement for specific assignments. The Managing Director and General Counsel of EMPEL, Mr John L Taylor, stated in his letter to Mr Bachnak dated 17 October 2000 that they were prepared to offer him, in what they believed to be “ a generous set of proposals,”

“…a new, limited scope, fixed term employment contract on the terms attached to give you time to resolve your immigration situation and we have introduced you to immigration specialists to help you in this respect. I have also offered to finance up to £1,000 towards the costs of an immigration specialist.

we are prepared to conclude the Advisory Agreement attached…”

On 23 October 2000 two agreements were entered into by EMPEL. The first was called an Advisory Agreement. The parties were MB (the Adviser) and three “Associated Companies” (the Funds) of EMPEL. The agreement related to the provision of advice, assistance and support for two particular investment opportunities identified in the offer letter, the work to be carried out by the Adviser acting through Mr Bachnak. A daily retainer of £380 was to be paid to the Adviser for each day on which Mr Bachnak worked on the initial investments, plus reimbursement of reasonable out-of-pocket expenses. The retainer was to be paid on presentation of an invoice by the Adviser. The agreement was for a fixed term from 24 October 2000 to 24 February 2001, but it could be terminated for unsatisfactory performance of the services. It was expressly agreed in clause 6 A. that the relationship created by the Advisory Agreement was that of an independent contractor and that nothing in that Agreement created a relationship of employer and employee between the Funds, the Fund Manager or EMPEL, on the one hand, and the Adviser or Mr Bachnak, on the other hand.

The second agreement was made between EMPEL and Mr Bachnak for “limited scope, fixed term employment” with EMPEL from 24 October 2000 to 24 February 2001. It required Mr Bachnak to give advice, assistance and support to EMPEL in connection with two specified investment opportunities. There was attached to the offer letter, which was signed and accepted by Mr Bachnak, a document entitled “The Terms and Conditions of Fixed Term Employment October 2000.” It stated that the terms were given to Mr Bachnak pursuant to section 1 Employment Rights Act 1996. It provided that he was to perform all acts duties and responsibilities and comply with such orders as may be designated; that he was to work from EMPEL’s offices at Portman Square; that he was to receive expenses from EMPEL; that EMPEL was entitled to set off against his remuneration any sums due to him from the company; that he was obliged to devote his full time and attention to his job duties and to act in the best interests of EMPEL and its Associated Companies; that the employment was liable to summary termination if his performance was determined to be unsatisfactory; and that his acceptance of the fixed term employment was in full and final settlement of all claims which he had against EMPEL or any Associated Company. There were other terms of the kind commonly found in a contract of service, but the Terms and Conditions did not contain any clauses providing for remuneration, bonus payments, annual leave, sick pay, pension benefits or restrictive covenants.

Mr Bachnak began proceedings for unfair dismissal, unlawful deduction from wages and breach of contract on 27 April 2001 following EMPEL’s letters terminating both agreements. Mr Bachnak had been required on 31 January 2001 to attend a disciplinary hearing with EMPEL on 1 February, but he failed to do so. In a letter to Mr Bachnak dated 1 February 2001 EMPEL alleged that he had fundamentally breached the agreement which he had with the company. In a separate letter to MB on the same date the Advisory Agreement was terminated by EMPEL, on behalf of the Funds, with immediate effect, in purported acceptance of repudiatory breach on the part of MB and Mr Bachnak.

It appears from the findings of the employment tribunal, which heard oral evidence from Mr Bachnak and Mr Taylor, that Mr Bachnak had continued to attend the offices of EMPEL while the agreements were in force and that “while he had previously been paid through PAYE, his future remuneration from the Fund was paid upon the submission of an invoice by the Applicant from his company.”

The conclusion of the tribunal that Mr Bachnak had no contract with EMPEL was explained by an unacceptably scanty and completely unconvincing chain of reasoning. The reasons needs to be quoted in full in order to understand the criticisms made of them by Mr Bruce Carr in his submissions on behalf of Mr Bachnak..

The tribunal cited the case of Express & Echo Publications Ltd v. Tanton [1999] IRLR 367 for the proposition that the tribunal should first establish as a fact the terms of the agreement and then consider whether any of the terms were inherently inconsistent with the existence of a contract of employment in order to determine whether the contract was a contract of service or a contract for services. The tribunal continued:

In the judgment delivered on 25 March 2003 by HHJ Burke QC on behalf of the appeal tribunal it was held that the decision of the employment tribunal could not stand and that, as the outcome of the preliminary issue was dependent on the evidence of the parties as well as the consideration of the documents, the matter would have to be remitted for re-determination by a fresh tribunal.

After a thorough consideration of the facts, the authorities and the rival submissions, the appeal tribunal identified the error of law in the decision. It pointed out that the employment tribunal did not hold that the contract of employment document was a sham and it failed to explain what it meant by describing it as “drawn up to deal with general housekeeping matters” and as “a documentary trail” reiterating obligations Mr Bachnak was already under and was being paid for. The relevant document spelt out a large number of terms and conditions which were consistent with a contract of employment, even though they did not include provisions as to remuneration.

The appeal tribunal concluded that the employment tribunal had misconstrued and misunderstood the nature and terms of the contract of employment apparently concluded by the offer letter and the Terms and Conditions document. The error lay in the fact that

Mr David Bean QC accepted that the two agreements entered into on 23 October 2000 were a composite arrangement in the sense that they had to be considered together. Both were obviously part of a package deal between the parties. His main point, made by reference to the authorities, principally Ready Mixed Concrete [1968] 2 QB 497 at 515, was that a necessary condition for the existence of a contract of service was that a person would provide his own work in consideration of a wage or other remuneration. Otherwise there would be no consideration and, without consideration, there would be no contract of any kind. That was the irreducible minimum of mutual obligation required to create a contract of service.

Mr Bean submitted that the employment tribunal made no error of law in holding that, as the Terms and Conditions in this case had no provision for payment of a wage or other remuneration, there was no contract of any kind between Mr Bachnak and EMPEL. It did not become a contract of employment simply by being described as such. The Advisory Agreement was clearly a contract for services between MB and EMPEL. It was made as a result of the option taken by Mr Bachnak to preserve his right to remain in the UK by setting up his own business in the UK, using the medium of a service company (MB) rather a direct contract between Mr Bachnak and EMPEL. This meant that Mr Bachnak was an employee of that company, not of EMPEL, the client company: see, for example, the tax implications of such an arrangement discussed in Professional Contractors' Group v. IRC [2002] STC 165. After 23 October 2000 Mr Bachnak was providing his services to EMPEL pursuant to the Advisory Agreement with MB, not pursuant to a contract of employment with EMPEL. The employment tribunal had reached the right decision. If it had not, then Mr Bean pointed out that a real question would arise as to what loss Mr Bachnak would be able to prove, even if he established a case of unfair dismissal.

Not even the skilful advocacy of Mr Bean has persuaded me that this poorly reasoned decision of the employment tribunal can stand. As pointed out by the appeal tribunal, the decision that there was no contract between EMPEL and Mr Bachnak failed properly to address the obvious fact, which is central to the determination of Mr Bachnak’s relationship with EMPEL, that the two contemporaneous agreements made between the related parties need to be read together. Although separately documented, they did not stand-alone, could co-exist and should be considered together. Indeed, it would be a surprising result, if neither side is alleging that either of the agreements was a sham, that only one of them was intended by the parties to create contractual relations.

The combined effect of the documents must be ascertained by construing their provisions in the context of all the surrounding circumstances, in particular (a) the link, which existed from 1999, between Mr Bachnak’s right to remain in the UK and his employment by EMPEL; and (b) the link between the arrangements made in October 2000 for MB under the Advisory Agreement and for Mr Bachnak’s own contract with EMPEL. The employment tribunal erred in law in failing to conduct this exercise.

I would add that, in my judgment, the absence of an express reference to the form or level of monetary payments to Mr Bachnak in the Terms and Conditions of Fixed Term Employment is not in itself fatal to the existence of a contract of service between EMPEL and Mr Bachnak: the evidence of the parties about the circumstances surrounding the transaction may identify the consideration for the work to be done by Mr Bachnak, either outside the express Terms and Conditions or possibly in some other form than payments of money made direct to Mr Bachnak personally.

At one point Mr Carr, encouraged, I think, by the unenthusiastic reception of the court to some of Mr Bean’s submissions, was tempted to ask for leave to cross appeal out of time in order to obtain a decision from this court that Mr Bachnak was an employee of EMPEL. His application was strongly opposed by Mr Bean on substantial grounds. On second thoughts Mr Carr, rightly in my view, decided not to pursue his application, accepting that, if the appeal were dismissed, the right course was the remission order made by the appeal tribunal.

I would dismiss the appeal. It will be a matter for the consideration of the Tribunal Chairman whether the unfair dismissal claim should now proceed directly to a full hearing, at which all the issues, including the status of Mr Bachnak, could be determined without additional delays.

I agree that this appeal should be dismissed for the reasons given by Mummery LJ. I agree that the determination of the employment tribunal was inadequately reasoned and that it cannot stand. I agree with the Employment Appeal Tribunal that the central deficiency was the employment tribunal’s failure to consider and analyse, in all the circumstances, the combined effect of the two agreements entered into on 23^rd October 2000, which Mummery LJ describes in paragraphs 6 and 7 of his judgment. Mr Bean QC, on behalf of the appellants, accepted that the two agreements have to be considered together. He did not persuade me that the fact that the second of these agreements, that between EMPEL and Mr Bachnak, contained no provision for remuneration or other payments necessarily meant that there was no contract of service between the parties. That question turns on an analysis, partly factual, which the employment tribunal did not properly undertake.

I was initially attracted by Mr Carr’s suggestion that this court might itself carry out the analysis, on the evidence available to the employment tribunal, so as to determine the preliminary issue. This would have required the court to entertain and grant a very late application, made for the first time during the hearing of the appeal, for permission to file and serve a respondent’s notice. On reflection, I was persuaded that this would not have been appropriate or fair. Mr Carr sensibly withdrew the application. I agree, therefore, that the case should be remitted to a differently constituted employment tribunal.

This will, however, take further time. There is an obvious risk of yet further delay, if the employment tribunal restricts itself to a rehearing of the preliminary issue. Sensible though it may have been to embark on a preliminary issue originally, it may now be preferable if the parties invite the employment tribunal to proceed to a full hearing.

I agree that the appeal should be dismissed for the reasons given by Mummery LJ.

The agreement not being a sham, it is clear that the parties intended to enter into a contract of service. Whether they put into effect that intention depends on an analysis of the circumstances as a whole conspicuously missing from the reasoning of the employment tribunal. I agree with Mummery LJ that in circumstances which led, amongst other things, to the tribunal finding that MB was a one-man company, the absence of an express reference to the form or level of monetary payments to Mr Bachnak in the Terms and Conditions of Fixed Term Employment is not in itself fatal to his claim.