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Appeal No. UKEAT/0025/10/RN

EMPLOYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 9 April 2010

Before

HIS HONOUR JUDGE PUGSLEY

MR G LEWIS

MR H SINGH

THE SECRETARY OF STATE FOR BUSINESS INNOVATION & SKILLS (APPELLANT)

(1) MR S M HOWARD

(2) MS A HOWARD (RESPONDENTS)

Transcript of Proceedings

JUDGMENT

For the Appellant MR DANIEL LEWIS (of Counsel)
Instructed by:
The Treasury Solicitor
Employment Law Team
One Kemble Street
London
WC2B 4TS

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

This is an appeal from the refusal of the Employment Tribunal to make an order prohibiting the Respondents from being engaged with running an employment agency. The Employment Tribunal decision was in our view so flawed in its logic that we remitted the case to another Employment Tribunal.

1. Appeals to this Tribunal are only allowed if an issue of law is raised. It is inevitable that we deal with many, many cases where what is asserted to be an error of law on true analysis is no more than the aggrieved party not agreeing with the findings of fact made by the Tribunal below. In the case of Piglowska v Piglowski [1999] 1 WLR 1360 Lord Hoffmann delivered a stinging rebuke to the process whereby appeal courts really strive to substitute their own findings of fact when they have not heard the evidence by a myopic scrutiny of a decision to claim that the judge misdirected himself or herself. However, there is a residual category of case, very rare but this is one, where there is an error of law where a Tribunal's reasoning is such that it is outside the range of responses of a reasonable Tribunal to use the language of employment law, or it is a decision to which no reasonable Tribunal could have come on the evidence as they found it, which is the area of administrative law in the well known Wednesbury Corporation case.

1. We are much assisted by the excellent skeleton argument that we have had before us and we have come to the view, all of us, that this decision cannot stand, and if, one may say so, is fundamentally flawed. It is a proud feature of our legal system that courts do not just 'rubber stamp' a case because the Defendant in the case, civil case or Respondent in the Employment Tribunal does not attend.

1. Section 3A of the Employment Agencies Act provides that on an application by the Secretary of State, an Employment Tribunal may by order prohibit a person from carrying on or being concerned in the carrying on of any employment agency or employment business or any specified description of employment agent or employment business. A prohibition order should be made for the period beginning with the date of the order and ending on a specified date or on the happening of a specified event in either case not more than 10 years. Subsection 4 provides that subject to submission subsections 5 and 6, the Employment Tribunal shall not make a prohibition order in relation to any person unless it is satisfied he is on account of his conduct or for any other sufficient reason unsuitable to do what the order prohibits.

1. Subsection 5 and 6 deal with bodies corporate and partnership and subsection 7 states:

"….where an employment agency or employment business has been improperly conducted, each person who was carrying on, or concerned with the carrying on of, the agency or business at the time, shall be deemed to have been responsible for what happened unless he can show that it happened without his connivance or consent and was not attributable to any neglect on his part."

1. The prohibition order contained in the Act was created by the Deregulation and Contracting out Act 1994. Whereas prior to that, those carrying on business were required to be licensed, the new regime changed the regulatory procedures. There was no requirement to be licensed but there was this power to provide protection by making a prohibition. The Act implicitly acknowledges the vulnerability of job seekers and it acknowledges that those who might do so must be able to trust and repose trust in those who run such agencies of business.

1. The issues before the Employment Tribunal were straight forward:

(a) Had there been misconduct or any other reason to make the Respondents unsuitable to be involved in the employment business?

(b) If the answer to that was in the affirmative, what was the appropriate scope of the order and what was the appropriate duration of the order, bearing in mind the maximum prohibition is 10 years.

1. Both these Respondents were involved in the running and management of an employment agency and business, Hire Management Ltd (HML). HML was incorporated on 13 February 2001. Mrs Howard was registered as a Director as was her step-father, a Mr James Trotter. He resigned on 2 April, two or three months later. The Second Respondent was registered as a Director in her maiden name of Amanda Whybra. The registered Secretary was the Second Respondent in her previous married name, Amanda Nunney. She resigned this position in April 2001 and was replaced by the First Respondent.

1. As well as being involved in the running of HML and registered as the Company Secretary, the First Respondent was at the same time employed by two companies. One was ERA Technology Ltd and during his employment with that company, ERA, the First Respondent used his position to enlist the recruitment services of HML. The allegation was that the Respondent caused invoices to be raised for advertising costs greatly in excess of the amount actually incurred, claimed expenses that were not incurred and invoiced for placing candidates with ERA notwithstanding the fact they were placed by Mr Howard in his role at the ERA. The ERA have said they would not have used the services of HML had they known of the First Respondent's connection with HML.

1. The First Respondent was also employed by Railtrack for three years commencing on 2 September 2002. He was employed as a recruitment manager and was required to fill positions for the West Coast modernisation project. On the commencement of his employment, the First Respondent signed the contract in which he agreed not to hold any other trade business or other occupation while employed by them. During the First Respondent's three years of employment, HML submitted invoices to Railtrack for a total value of £1m for placing contractors and staff. On occasions it was alleged that HML did on occasion raise invoices for staff recruitment where the staff member had actually not taken the place and false mileage expense claims were made by both Respondents.

1. There were criminal proceedings in which the Respondents were charged with thirteen offences, two of which related to fraudulent trading and breach of s458 of the Companies Act 1985 and the remaining 11 which related to false accounting, that there being a statutory offence under s1A of the Theft Act 1968. The Respondents pleaded guilty to two counts of false accounting and were convicted on those counts, the remaining counts were ordered to remain on the file. The sentence in both was as follows: the First Respondent was sentenced to 18 months imprisonment on 4 April 2008 and was subject to a compensation and confiscation order to the tune of approximately £65,000. The Second Respondent was sentenced to 40 weeks imprisonment, suspended for 24 months, unpaid work for 240 hours and a compensation and confiscation order in the same amount as the First Respondent.

1. The matter came before the Employment Tribunal and they set out at various stages their findings of fact. They found that in the course of his employment with ERA the First Respondent engaged HML to undertake advertising and other duties on behalf of the ERA. He did not disclose his interest in HML to ERA contrary to the express terms of his contract of employment. Secondly, he invoiced ERA for those services in grossly excessive sums totalling in excess of £40,000. These invoices were approved for payment by the First Respondent as an employee of ERA. Thirdly, the Second Respondent was certainly concerned with the management of HML which had no other employees, and was responsible for all its accounting and administrative functions save for the assistance of a qualified accountant in independent practice. Fourthly, in the course of that employment with Network Rail, the Respondent engaged the services of HML to provide temporary workers being agency workers or are candidates for permanent positions with Network Rail. This was contrary to an express term in his contract of employment as well as a declaration of conflict of interest which he was required but failed to sign. Between September 2002 and September 2005, HML submitted 150 invoices to Network Rail for sums exceeding £1.2m for services provided by HML.

1. In the First Respondent's capacity of recruitment manager he approved those invoices on behalf of Network Rail for payments to HML. The Second Respondent as before was entirely responsible for the administrative and accounting functions of HML, by which those invoices were generated. The First and Second Respondents also claimed expenses from Network Rail to which they were not entitled but they were authorised for payment by the First Respondent.

1. Now, the Tribunal reached a not altogether surprising decision that both Respondents were thoroughly dishonest and had substantially enriched themselves. It is thereafter what happened in their reasoning that causes us concern. They acknowledged that the purpose of legislation was protective, the Act acknowledged that the vulnerability of job seekers and those who might use the services of employment agencies. The Tribunal at paragraph 10.2 noted that a prohibition order did not have any impact on a Respondent earning a living in any other sort of endeavour, it just precluded them from employment agency employment business. It accepted that the offences could hardly be described as opportunistic, they were part of a scheme continuing over an extended period, and that the Respondents had gone to considerable lengths to conceal their wrongdoing.

1. The Tribunal then went on to make certain findings of fact set out at paragraph 14 onwards. We have some difficulty in following the logic of the Tribunal from paragraph 21 onwards. In paragraph 21 they say they accepted that both Respondents had been thoroughly dishonest; they accepted they substantially unjustly enriched themselves, however it appeared to the Tribunal that the wrongdoing arose directly from the First Respondent taking employment in which he placed himself in a conflict with HML rather than from the manner in which HML conducted its business. The Tribunal thought it significant that the criminal court thought it necessary to bar the Respondents from acting as an officer or director of a company for only 5 years. The Applicant's case is that such a sentence was more draconian because it prevented the Respondents in engaging in entrepreneurial activity at all, whereas the prohibition sought by the Applicant only sought to bar the Respondents from a particular field of business. The Tribunal did not accept the submission. It concluded the Respondents are not prevented from entering any field of business, they are simply unable to do so using a limited company.

1. The Tribunal thought it significant that a pre-sentence report provided to the Crown assessed the risk of either Respondent of re-offending as being very low. The Tribunal noted that the Secretary of State had power to prevent them running an employment agency or business and they had perpetrated a fraud whilst running one in the past. It was contended that was sufficient to meet the test posed by s34A of the Act. For the reasons set out in their decision the Tribunal did not accept that submission. It concluded that there was nothing inherent in the employment agency or employment business that made the particular conduct of which the Respondents were guilty such rendered them unsuitable concerned in an agency business. That misconduct could have arisen in almost any field of endeavour. Having considered all the matters placed before them by the parties, the Tribunal concluded that the Applicant has failed to discharge the burden of proving on a balance of probabilities that either of the Respondents on account of their misconduct or other sufficient reason are unsuitable to do what the order might prohibit in respect of an employment agency business.

1. Quite simply, this is so beyond the range of reasonable responses as a decision. In all sorts of areas, courts have to look at imposing conditions or prohibitions; the life prisoner being released on parole; to imposing an injunction on a violent partner, or imposing an ASBO order on a disorderly offender. No member of the Parole Board or any judge or magistrate is naïve enough to think that because they prohibit certain types of conduct, to take the simplest example, a violent former partner going within 200 yards of his ex-partner's house, that they think they are or can ever provide a comprehensive cover. Of course they cannot. The Parole Board carefully deliberates where a person released should live and what jobs they may or may not do. Similarly, in the areas of sexual offending there are elaborate prohibitions. In general terms, people who are convicted of sexual offending are not allowed to take certain forms of employment, to join certain voluntary associations concerned with young people, and to be resident where there are unsupervised young people. The fact that a court cannot ultimately prevent the violent partner, normally male, from terrifying his vulnerable ex-partner, does not mean that you should not take such steps as it can. We accept the argument that the form of offending is inherently and intrinsically connected with the Respondents running an employment agency. Moreover, we cannot accept a distinction. The fact that the hirers of employment in this particular case were the victims, does not also mean that one can ignore the vulnerable job seekers either. It is outside the process of judicial discretion to draw artificial distinctions. These two had acted dishonestly, and the fact that the victims of their fraud and false accounting, may have been hirers, does not mean that a Tribunal should ignore the risk they pose to job seekers.

1. Dishonesty is a seamless web. It is impossible to isolate little patches. If an employee fiddles his expenses he will be dismissed. An employer I suspect does not take the view, 'oh he only fiddled his expenses so I can leave him to deal with the counting up the petty cash.' In our view, the grounds of appeal are well justified in this case. We just think that out of an excessive concern for the Respondents the Tribunal unfortunately misunderstood that the basis of this legislation is protective. People are not sent to prison or given a suspended sentence lightly. This was fraudulent activity. On the findings of the Tribunal, it was not opportunistic, there were attempts to cover their tracks. The fact that the criminal courts made an order to be disqualified from being a director is a serious matter, because it affects many, many areas of entrepreneurial activity.

1. We propose to allow this appeal and remit it to a differently constituted Employment Tribunal. We do that for the following reasons. We think that in due course a decision on this will be promulgated and that the Respondents have got to appreciate that if they want to avoid a Tribunal making a prohibition on them, it will materially assist them if they actually go to that hearing. They did not go to the first hearing. They have not appeared here, they have sent a letter, indicating that one of them has a birthday. They have set forward various objections. Conflict of interest may not itself be a criminal offence but is often powerful evidence of a criminal offence. They were convicted of false accounting and an element of dishonesty is a prerequisite ingredient of that offence.

1. We regret that we cannot deal with this ourselves. We do not want to add needless expense but we consider the Respondents ought to have an opportunity, which they have conspicuously failed to take to go to the Employment Tribunal and give their account. They did not appear below, they have not appeared here though they have written a submission and we think that is the fairest course for everyone concerned. We therefore allow the appeal and direct it goes before a differently constituted Tribunal for a reconsideration of the issues.