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You are here: BAILII >> Databases >> United Kingdom Employment Appeal Tribunal >> Barrasso v New Look Retailers Ltd [2019] UKEAT 0079_19_2208 (22 August 2019) URL: https://www.bailii.org/uk/cases/UKEAT/2019/0079_19_0508.html Cite as: [2019] WLR(D) 619, [2019] UKEAT 79_19_2208, [2019] IRLR 1042, [2020] ICR 448, [2019] UKEAT 0079_19_2208 |
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| At the Tribunal | |
Judgment handed down 22 August 2019 |
Before
HER HONOUR JUDGE EADY QC
(SITTING ALONE)
| APPELLANT | |
| RESPONDENT |
Transcript of Proceedings
JUDGMENT
| For the Appellant | MR CHRISTOPHER MILSOM (of Counsel) Instructed by: Curzon Green Solicitors 40 Gracechurch Street London EC3V 0BT |
| For the Respondent | MR SPENCER KEEN(of Counsel) |
SUMMARY
JURISDICTIONAL POINTS - excluded employments – employee shareholder -
Section 205A Employment Rights Act 1996
In September 2015, the Claimant had entered into a section 205A employee shareholder agreement. It was agreed that this had met the requirements provided such that the Claimant thereby became an employee shareholder and was thus excluded from the statutory right to claim unfair dismissal or a redundancy payment. At the same time, however, the parties entered into a separate agreement ("the September 2015 deed") which gave him a contractual means of seeking equivalent remedies should he subsequently consider he had been unfairly dismissed or was entitled to a redundancy payment. In March 2017, the Claimant entered into a new service agreement with the Respondent, which included a "whole agreement" clause (clause 27.5) stating that it superseded all previous agreements between the parties dealing with the same matters, save for the contractual "reinstatement" of rights in the September 2015 deed. In February 2018, the Claimant was dismissed in circumstances that he regarded as unfair. The Respondent paid him a statutory redundancy payment and, in replying to his pre-action correspondence, did not seek to rely on the section 205A agreement until it entered its response in the ET proceedings. At a Preliminary Hearing, the ET found that the Claimant was an employee shareholder for the purposes of section 205A Employment Rights Act 1996 and was thus excluded from the right to claim unfair dismissal. The Claimant appealed.
Held: dismissing the appeal
The Claimant argued that section 205A must be construed purposively, in accordance with the restrictions on contracting out of statutory rights (under section 203) and consistently with his rights under the ECHR and other international instruments laying down a right not to be unjustifiably dismissed. Adopting that approach, he contended that the ET had erred in failing to require that the parties had affirmed the conditions laid down for section 205A to apply as at the date of the statutory contravention in issue (here, dismissal). He further argued that the March 2017 service agreement had superseded the section 205A agreement, evincing the parties' intention that the Claimant's statutory rights were reinstated.
It was not accepted that the Claimant's construction arguments were assisted by reference to section 203 ERA or by the provisions of the ECHR or other international instruments. A section 205A agreement did not fall to be considered under section 203; the Claimant had not demonstrated that any article under the ECHR was engaged; and UK law provided for protection from unjustified dismissal but the Claimant had contracted out of that protection (something not prohibited by any of the international provisions relied on). A purposive construction of section 205A meant no more than interpreting the exemption from statutory protection narrowly and ensuring strict compliance with the pre-conditions for employee shareholder status. In this case, it was common ground these were met when the Claimant entered into the section 205A agreement and the ET did not err in failing to require that the conditions laid down by section 205A were re-affirmed by the parties at the date of dismissal.
As for the effect of the March 2017 service agreement, although section 205A did not state how employee shareholder status might be lost, this might arise as a result of some subsequent inconsistent agreement between the parties. The question thus became one of construction of the March 2017 service agreement. In this regard, the ET had permissibly found that the factual background (the context in which it was construing the agreement) was not as the Claimant had contended: rather, the facts suggested that the parties' intention was that the only "reinstatement" of rights was by contract – as provided in the September 2015 deed. That position was not undermined by the parties' subsequent failure to reference the section 205A agreement when the Claimant was dismissed (something the ET had found arose from inadvertent error and was not reflective of any intention that the section 205A agreement no longer applied). The March 2017 service agreement did not supersede the section 205A agreement because it did not deal with the same matters. In any event, the express reservation in respect of the September 2015 deed made clear that the parties intended the Claimant's contractual rights to complain of unfair dismissal and redundancy would continue, something that was only consistent with the Claimant continuing to be an employee shareholder and thus excluded from the ability to pursue such claims under the statute.
HER HONOUR JUDGE EADY QC
Introduction
The Background
"205A Employee shareholders
(1) An individual who is or becomes an employee of a company is an "employee shareholder" if—
(a) the company and the individual agree that the individual is to be an employee shareholder,
(b) in consideration of that agreement, the company issues or allots to the individual fully paid up shares in the company, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000,
(c) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) ("the employee shares") (see subsection (5))…, and
(d) the individual gives no consideration other than by entering into the agreement.
(2) An employee who is an employee shareholder does not have—
…
(c) the right under section 94 not to be unfairly dismissed, or
(d) the right under section 135 to a redundancy payment.
…
(5) The statement referred to in subsection (1)(c) must—
(a) state that, as an employee shareholder, the individual would not have the rights specified in subsection (2),
(b) …,
(c) state whether any voting rights attach to the employee shares,
(d) state whether the employee shares carry any rights to dividends,
(e) state whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets,
(f) if the company has more than one class of shares and any of the rights referred to in paragraphs (c) to (e) attach to the employee shares, explain how those rights differ from the equivalent rights that attach to the shares in the largest class (or next largest class if the class which includes the employee shares is the largest),
(g) state whether the employee shares are redeemable and, if they are, at whose option,
(h) state whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are,
(i) state whether any of the requirements of sections 561 and 562 of the Companies Act 2006 are excluded in the case of the employee shares (existing shareholders' right of pre-emption), and
(j) state whether the employee shares are subject to drag-along rights or tag-along rights and, if they are, explain the effect of the shares being so subject.
(6) Agreement between a company and an individual that the individual is to become an employee shareholder is of no effect unless, before the agreement is made—
(a) the individual, having been given the statement referred to in subsection (1)(c), receives advice from a relevant independent adviser as to the terms and effect of the proposed agreement, and
(b) seven days have passed since the day on which the individual receives the advice.
(7) Any reasonable costs incurred by the individual in obtaining the advice (whether or not the individual becomes an employee shareholder) which would, but for this subsection, have to be met by the individual are instead to be met by the company.
…
(9) The reference in subsection (2)(c) to unfair dismissal does not include a reference to a dismissal—
(a) which is required to be regarded as unfair for the purposes of Part 10 by a provision (whenever made) contained in or made under this or any other Act, or
(b) which amounts to a contravention of the Equality Act 2010.
(10) The reference in subsection (2)(c) to the right not to be unfairly dismissed does not include a reference to that right in a case where section 108(2) (health and safety cases) applies.
(11) The Secretary of State may by order amend subsection (1) so as to increase the sum for the time being specified there.
(12) The Secretary of State may by regulations provide that any agreement for a company to buy back from an individual the shares referred to in subsection (1)(b) in the event that the individual ceases to be an employee shareholder or ceases to be an employee must be on terms which meet the specified requirements.
(13) In this section—
"company" means—
(a) a company or overseas company (within the meaning, in each case, of the Companies Act 2006) which has a share capital, or
(b) a European Public Limited-Liability Company (or Societas Europaea) within the meaning of Council Regulation 2157/2001/EC of 8 October 2001 on the Statute for a European company;
"drag-along rights", in relation to shares in a company, means the right of the holders of a majority of the shares, where they are selling their shares, to require the holders of the minority to sell theirs;
"parent undertaking" has the same meaning as in the Companies Act 2006;
"relevant independent adviser" has the meaning that it has for the purposes of section 203(3)(c);
"tag-along rights", in relation to shares in a company, means the right of the holders of a minority of the shares to sell their shares, where the holders of the majority are selling theirs, on the same terms as those on which the holders of the majority are doing so.
(14) The reference in this section to the value of shares in a company is a reference to their market value within the meaning of the Taxation of Chargeable Gains Act 1992 (see sections 272 and 273 of that Act)."
"Stage 8 Shortly thereafter, the same individuals enter into contractual variations to their employment agreements to re-instate the statutory right given up when acquiring employee shareholder status."
"… as you will remember, during the Employee Shareholder Process you waived some of your statutory employment rights in order to fulfil the criteria for becoming employee shareholder. I am now pleased to enclose an up-to-date director's employment contract… which reinstates contractually the statutory employment rights that were previously waived. …"
It was further intended that the letter would be sent out with both a copy of the September 2015 deed and a new draft service agreement.
"This Agreement supersedes any previous written or oral Agreement between the parties in relation to the matters dealt with in it. This Agreement, along with the side letter dated 26 August 2015 reinstating certain contractual rights, contains the whole Agreement between the parties relating to the Employment at the date the agreement was entered into (except for those terms implied by law which cannot be executed by the Agreement of the parties). …"
The ET's Decision and Reasoning
The Appeal and the Claimant's Submissions in Support
(1) The ET erred in its construction of section 205A; in particular, in failing to hold that the requirements of this provision had to be met at the point of dismissal.
(2) The ET erred in concluding that the requirements of section 205A(1)(a) were met at the material time in this case.
(3) Further/alternatively, the ET erred in its approach to the question of rectification.
The Respondent's Case
Discussion and Conclusions
"(a) the company and the individual agree that the individual is to be an employee shareholder,
(b) in consideration of that agreement, the company issues or allots to the individual fully paid up shares in the company, or procures the issue or allotment to the individual of fully paid up shares in its parent undertaking, which have a value, on the day of issue or allotment, of no less than £2,000,
(c) the company gives the individual a written statement of the particulars of the status of employee shareholder and of the rights which attach to the shares referred to in paragraph (b) ("the employee shares") (see subsection (5)), and
(d) the individual gives no consideration other than by entering into the agreement.''
"(a) state that, as an employee shareholder, the individual would not have the above rights…
(b) specify the notice periods that would apply in the individual's case in relation to returning from leave;
(c) state whether any voting rights attach to the employee shares;
(d) state whether the employee shares carry any rights to dividends;
(e) state whether the employee shares would, if the company were wound up, confer any rights to participate in the distribution of any surplus assets;
(f) if the company has more than one class of shares and any of the rights referred to in (c) to (e) above attach to the employee shares, explain how those rights differ from the equivalent rights that attach to the shares in the largest class (or next largest class if the class which includes the employee shares is the largest);
(g) state whether the employee shares are redeemable and, if they are, at whose option;
(h) state whether there are any restrictions on the transferability of the employee shares and, if there are, what those restrictions are;
(i) state whether any of the requirements of sections 561 and 562 of the Companies Act 2006 are excluded in the case of the employee shares (existing shareholders' right of pre-emption), and
(j) state whether the employee shares are subject to drag-along rights or tag-along rights (defined in sub-s (13)) and, if they are, explain the effect of the shares being so subject."
"The Claimant, acting reasonably, should have been fully aware by the time that he signed the employee shareholder agreement that it was by means of a contractual referral to an expert (only) that the Respondent intended to 'reinstate' …" (ET para 25)