In Brief – Walker Morris Legal Update – July 2018
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Directors’ duties: can a director be liable even[...]
Two recent cases in the High Court have explored the differences between de jure, […]
Two recent cases in the High Court have explored the differences between de jure, de facto and shadow directors and looked at when individuals, whether formally appointed as directors or not, can be held responsible for breach of their directors’ duties.
Classification of directors
Any director of a limited company should understand the duties that are imposed upon him by common law and the Companies Act 2006. Accepting the position of director should not be undertaken lightly or in ignorance of those duties and responsibilities. There are three types of director recognised under company law; a de jure director, a shadow director and a de facto director. An individual who is formally appointed to the position of director and whose appointment is registered at Companies House is said to be a ‘de jure‘ director.
Shadow directors
As referred to above, company law imposes a wide range of duties and responsibilities on company directors. These are coupled with penalties and sanctions for breach, and the possibility of disqualification from acting as a director under the Company Directors Disqualification Act 1986. The effectiveness of this regime would be greatly diminished if an individual could avoid liability by ensuring that he was never formally appointed as a director, while still being able to direct and instruct the appointed directors. Thus the statutory concept of a shadow director was created by section 741(2) of the Companies Act 1985 (and largely restated in section 251 of the Companies Act 2006) to help address this concern. The Companies Act 2006 provides that the term ‘shadow director’, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.
The name ‘shadow director’ suggests a background figure who deliberately conceals his real influence over the company’s directors. However, in Secretary of State for Trade and Industry v Deverell [2001] it was emphasised that it is not necessary for a shadow director to lurk in the shadows, though frequently he may. For example, in the case of a person resident abroad who owns all the shares in a company but chooses to operate it through a local board of directors, if he is exerting influence over the directors he could be classed as a shadow director. In Revenue and Customs Commissioners v Holland [2010], Lord Walker referred to a chief executive of a group of companies who openly gives directions to the board of a subsidiary on which he does not sit as potentially being a shadow director.
The concept has moved on from the time when a shadow director was commonly assumed to be a person with a dubious commercial reputation who needed to hide his association with the company from the public, and who often could not be formally appointed even if he wished to be because he had been disqualified from acting as a director.
It is important to note that, depending on the facts and circumstances, shadow directors can be subject to the same fiduciary duties as de jure directors. This will include, for example, liability for wrongful trading under section 214 of the Insolvency Act 1986. The term ‘director’ is widely defined by the Insolvency Act 1986 to include any person occupying the position of director, by whatever name called, and so references in section 214 to a director includes a shadow director and a de facto director.
De facto directors
In addition to de jure directors and shadow directors a third type of director exists, the de facto director which literally means a director ‘in fact’ (rather than ‘in law’). Up until the 1980s a de facto director was the term applied to someone who had purportedly been appointed as a director but whose appointment was defective in some way, or alternatively someone who had been validly appointed as a director, but later ceased to be one and yet continued to act as a director. These days, however, the definition of a de facto director has become more expansive. Since the Supreme Court decision in Revenue and Customs Commissioners v Holland [2010] it has been clear that there is no definitive single test for a de facto director and a person may be a de facto director even if there has been no invalid appointment. In that situation, the question is whether he has assumed responsibility to act as a director.
The court will in general have to determine the corporate governance structure of the company so as to decide in relation to the company’s business whether the person’s acts were directorial in nature. The court is required to look at what the person actually did and not any job title given to him. The question of whether or not a person is a de facto director is to be determined objectively and irrespective of his motivation or belief and relevant factors include:
- whether the company considered him to be a director and held him out as such
- whether third parties considered that he was a director.
Recent cases
The first recent case to look at the question of de facto directors is David Ingram (Liquidator of MSD Cash & Carry plc) v Mohinder Singh & Others [2018] where a liquidator applied for various orders following the liquidation of a family cash & carry business. The company had traded as a wholesale alcohol cash and carry business until 2010 when it sold most of its stock to an associated company which then began trading mainly in excess duty suspended products. The first respondent was the major shareholder and director until he resigned in June 2011. The third respondent had been a director, and the fourth respondent had been the company secretary. The second respondent, who was the first respondent’s son, had worked as a buyer for the company. One of the questions that the court had to answer was whether the second and fourth respondents were de facto directors of the company in liquidation.
The court held (following Revenue and Customs Commissioners v Holland [2010]) that the test for a de facto director was whether a person solely directed the affairs of a company, or acted on an equal footing with other directors, whether they had been held out by the company as a director, or whether they were part of the corporate governing structure. In the instant case, there had been no formal governing structure. The second respondent had assumed a role in the company sufficient to impose a fiduciary duty to the company and to make him responsible for misuse of its assets. He had acted on his own authority and he was one of the nerve centres from which activities of the company radiated.
The liquidator succeeded in his claims that setting-off an amount owing to a director on his loan account against the value of assets transferred to the associated company had been a preference, that a credit note issued to the associated company was void, that two purported cash payments from the associated company remained outstanding, and that two de facto directors of the company were liable to account.
The second case to shine light on de facto directors and shadow directors and the distinction between the two is Instant Access Properties Limited (in Liquidation) v Mr Bradley John Rosser & Others [2018] EWHC 756. In this case the liquidators of Instant Access Properties Ltd (Company) brought an action for breach of fiduciary duty against certain individuals who, the liquidators claimed, were de facto and/or shadow directors of the Company. The breach was in relation to an alleged fraud on the creditors as a result of a commission-sharing arrangement with other companies in which those individuals had interests. The court was asked to determine whether Mr Moore and/or Mr Rosser were de facto directors or were shadow directors. If they were de facto directors, the court agreed that they owed the same duties to the company as would a de jure director. If they were shadow directors, there is a separate question as to whether they owed fiduciary duties to the Company and, if so, which duties.
It is clear that the question of whether a person is a de facto director or a shadow director depends upon the specific facts of each case. There does not appear to be a clear legal test to help the court decide whether a person is or is not a de facto or a shadow director. For the purpose of deciding that question, the judge said that it is necessary to focus on what the person actually did in relation to the company. Whilst in earlier cases, there were said to be clear distinctions between a de facto director and a shadow director, those distinctions have since been blurred and it is now possible to be simultaneously a de facto director and a shadow director.
Mr Justice Morgan examined the relevant case law and on the facts of the case found that the individuals were indeed shadow directors, at least in relation to some parts of the Company’s activities, but not de facto directors.
The judge held that, as shadow directors they owed a fiduciary duty to the Company however if they were to be found to have breached that fiduciary duty, they would not be liable to account for any loss arising from that breach since a de jure director in the same position could rely on section 1157 of the Companies Act 2006 to be relieved from such liability.
WM Comment
The above cases add some clarity to the distinction between de facto directors and shadow directors. In the case of an ordinary commercial lending, the likelihood of a lender being a shadow director of a borrower company may not be significant where that company is solvent and the relationship with the lender is on a relatively formal basis. However, where the company is in financial difficulties, or is deemed to be at risk of becoming so, the relationship between the parties will become closer. A particular area of risk for the lender is where it appoints someone to carry out a business review of the company and to work with the directors to try to restructure the company. If the directors are struggling, they may in turn look to the appointee for assistance and guidance (especially where the appointee is experienced at rescuing ailing businesses). However, the judge in Instant Access Properties referred to earlier case law in which it was said “A lender is entitled to keep a close eye on what is done with his money, and to impose conditions on his support for the company. This does not mean he is running the company or is emasculating the powers of the directors, even if (given their situation) the directors feel that they have little practical choice but to accede to his requests. Similarly with customers who may, because of their buying power, be able effectively to dictate conditions to their suppliers (or the other way around). In other words a position of influence (even a position of strong influence) is not necessarily a fiduciary position. To find otherwise would place a wholly unfair and unnatural burden on men of business.”
To minimise the risk of being a shadow director or a de facto director, a lender (and any individual engaged at the behest of a lender who does not intend to act as a director) would be well advised to take precautionary steps to avoid liability (for example for wrongful trading), including:
- stating clearly in writing at the outset, and subsequently confirming to the board of directors, that any views expressed are solely with a view to protecting the lender’s interests, and that it remains for the board to manage the company and make decisions
- if communicating the view that the lender will continue to support the company upon certain conditions being met, repeating the basis on which these conditions are given, ensuring that the conditions are not presented as instructions (ie it is up to the board to decide whether or not to accept these) and, where possible, suggesting that the board discusses the conditions and other requirements with the company’s professional advisers and then responds formally to the lender
- avoiding becoming a signatory of the company in any capacity or representing the company to any external authorities.

The Supreme Court delivers a ‘Straight Flush’ –[...]
The highest Court in the UK has confirmed (in a unanimous decision) that a plumber […]
The highest Court in the UK has confirmed (in a unanimous decision) that a plumber who worked for Pimlico Plumbers for 6 years, was a worker and not self-employed. Pimlico Plumbers had lost at each stage of the legal dispute leading up to the Supreme Court decision.
Even though the case was decided on its own facts, it is likely that the Supreme Court’s decision will have an influence on the other high-profile, ongoing legal disputes on worker status including those currently being appealed by Uber and Citysprint to the Court of Appeal and Employment Appeal Tribunal respectively (due to be heard later this year). It is frustrating that the decision does not set out over-arching principles or guidance for lower Courts to consider in cases of this nature, but it will put renewed pressure on the Government to take urgent steps to provide clarification on categorising workers and self-employed contractors.
We look at the key ‘need-to-know’ points for employers on this decision.
What were the basic facts?
Gary Smith worked for Pimlico Plumbers as a plumber and heating engineer for six years until 2011, when he suffered a heart attack. He then asked for a three-day week but this was rejected, his rented Pimlico Plumbers’ van was taken away and he was dismissed. Pimlico Plumbers disputed that he was sacked because he wanted to work fewer days.
Mr Smith had paid tax as a self-employed person and was vat registered but he claimed that he was, in fact, a worker and was therefore entitled to certain payments such as holiday and sick pay.
The first question for the Employment Tribunal to rule on was whether Mr Smith was a worker or self-employed (as the company claimed). This is because workers do not benefit from the full range of employment rights given to employees, but they are entitled to certain ‘worker’ protections such as holiday and sick pay.
What did the Supreme Court say?
Upholding previous decisions of the lower Courts, Lord Wilson said: “Although the contract did provide him with elements of operational and financial independence, Mr Smith’s services to the company’s customers were marketed through the company.
“More importantly, its terms enabled the company to exercise tight administrative control over him during his periods of work for it; to impose fierce conditions on when and how much it paid to him, which were described at one point as his wages; and to restrict his ability to compete with it for plumbing work following any termination of their relationship.
“The dominant feature of Mr Smith’s contracts with Pimlico was an obligation of personal performance.
“We hold that the tribunal was entitled to conclude that the company cannot be regarded as a client or customer of Mr Smith. So, Mr Smith wins the case and the [Employment] Tribunal can proceed to examine his claims as a worker.”
The ultimate deciding factor in this case was that Mr Smith had a lack of control over his work. For example, he was contractually obliged to do a minimum number of hours a week and he did not have the right to use a substitute if he was not available. Moreover, he wore a Pimlico Plumbers uniform, had a tracker in his Pimlico Plumbers’ branded van and carried a Pimlico Plumbers’ ID card. His contract referred to ‘wages’, ‘gross misconduct’ and ‘dismissal’.
The Court recognised that there were some factors in Mr Smith’s case that pointed towards self-employment (e.g. that he was vat-registered and paid tax as a self-employed person) but, ultimately, the overall contract with Pimlico Plumbers was inconsistent with him being a truly independent contractor.
It is fair to say that the owner of Pimlico Plumbers, Charlie Mullins, was outraged at the Court’s decision. He commented that the claim was an “exploitation” by a “highly-paid, highly-skilled man who used a loophole in current employment law to set himself up for a double pay-day.” He claimed that Mr Smith had been quite content to be self-employed (or at least until he wasn’t) because it meant he could earn more money than operating as an employee.
It is perhaps best not to be too cynical because the UK workplace is not a free market. For every case of a well-paid contractor ‘exploiting’ the system there will be someone struggling with long, badly-paid hours in the gig economy who doesn’t have the luxury to refuse work at will or to avoid unethical hirers who misuse gaps in the legal framework. Hirers who are, arguably, undermining those ethical companies that do stick to their legal obligations.
In any event, the reality is that whether Mr Smith (or anyone in his situation) is acting disingenuously or otherwise is almost entirely irrelevant to the Court’s legal analysis of their employment status.
What happens next?
As he has been found to be a worker, Mr Smith’s claim for compensation can now proceed and will be heard by the Employment Tribunal probably before the end of this year.
Will the Government now act to reform the law in this area?
The decision serves to highlight that the law on worker status remains in a huge state of confusion. Employers using self-employed contractors face significant challenges in properly categorising and structuring their workforce.
The Government issued a consultation under the ‘Good Work’ plan earlier this year. This was in response to the Taylor Review which considered the issue of employment status for people working in the gig economy. Many felt the consultation following the Review was a case of kicking the ball further down the tracks and we still do not know how the Government will proceed. Calls for action from employers and their representative bodies will only get louder in the wake of the Pimlico decision.
Frances O’Grady, general secretary of the TUC, has commented, “It’s time to end the Wild West in the gig economy”. Whichever way you look at it, few employers or *employees/*workers/*self-employed contractors (delete as applicable) would disagree with the overall sentiment that something needs to be done.
Walker Morris comment
In our view, the two factors that are more likely than anything else to eventually drive substantive reform in this area are that, a) the Government and HMRC are potentially losing tax revenue due to current mis-classification of workers/self-employed contractors and b) they know it and are already on to it.
In what many consider to be an unashamedly audacious proposal to ‘pass the buck’ to employers, the Government has recently proposed putting the onus on private sector companies to determine whether their contractors are genuinely self-employed for tax treatment reasons. If this proposal is enacted, companies who mis-classify contractors as self-employed could bear liability for the resultant tax bill.
This is a system that has already been brought into force, despite significant objections, in the public sector.
What should employers do?
Employers who are concerned that they may have mis-classified their contractors or ‘gig workers’ as self-employed should seek legal advice. This is a key business risk and a well-conducted risk assessment/analysis will help to establish whether the company faces potential exposure and, if so, what can be done to mitigate this.
In most cases, it will be possible to create a practical plan of action to minimise future exposure and deal with any latent exposure. As always, forewarned is forearmed.
If you would like any advice on this article please contact David Smedley or Andrew Rayment.

Sharing economy and short-term lets: Another Airbnb breach
Walker Morris’ Housing Litigation & Management Partner, Karl Anders, provides up to date practical advice for […]
Walker Morris’ Housing Litigation & Management Partner, Karl Anders, provides up to date practical advice for property owners and lenders following further ‘Airbnb’ litigation.
Sharing economy
In the so-called sharing economy, owners (who are often individuals or small businesses) rent out to others something that they are not using themselves, usually via a third party website which operates a rating or review system. The idea is that the owner generates some income from its otherwise unused asset and the renter saves money by not having to purchase itself or to rent elsewhere from a more expensive supplier [1]. Whilst this might, at first glance, appear to be a ‘win win’ scenario for the owner and renter alike, the sharing economy can involve some controversial elements. In 2016 we reported on the case of Nemcova v Fairfield Rents Ltd [1], which highlighted legal and practical issues arising from the Airbnb short-term holiday/business lets model.
Ms Nemcova owned a leasehold flat in London. She was often absent herself and so, using a sharing economy reservation website, she advertised and let out her flat several times on a number of very short-term lets. Ms Nemcova’s lease did not contain any relevant prohibitions against sub-letting, short-term letting, holiday letting, business or commercial use, nor did it require that she occupied the flat herself or as her principal residence. Ms Nemcova therefore resisted her landlord’s assertion (made as a pre-cursor to a claim for possession via forfeiture of the lease), that she was in breach of her covenant not to use the flat for any purpose whatsoever other than “as a private residence”.
Following a strict contractual interpretation exercise, the Upper Tribunal (Lands Chamber) (UT) held that, whilst the lease covenant did not require that the flat be used as the private residence of the leaseholder or any occupier (as a person may have more than one private residence at any one time), it did nevertheless require that the occupier for the time being must use the flat as his or her private residence. The UT decided that, when a person occupied for a matter of a few days only (such as during short-term business/holiday lets), that was not use as a private residence and so it constituted a breach of the lease. Ms Nemcova’s lease was, therefore, vulnerable to forfeiture.
Another Airbnb breach
Walker Morris is seeing an increased awareness on the part of landlords in respect of Airbnb user, along with an increased appetite to pursue enforcement of lease covenants if the leaseholder/borrower fails to remedy the breach.
The issue has come before the courts again recently, in the case of Bermondsey Exchange Freeholders Ltd v Ninos Koumetto (trustee in bankruptcy of Kevin Geoghehan Conway) [2], which was heard on 1 May 2018.
In that case the leasehold owner, Mr Conway, let out his flat via Airbnb and similar sharing economy websites. The landlord was a company in which all of the flat owners in the building held a share (a common arrangement in many multi-let residential properties). The landlord company (i.e. the other flat owners in the building) was concerned that Mr Conway’s short-term lets could lead to nuisance, security issues and have a detrimental impact on the sense of community within the building.
Unlike in the Nemcova case (where the landlord sought forfeiture/repossession), the landlord in this case sought an injunction to restrain Mr Conway from using the flat for Airbnb-type lets. A District Judge in the County Court and then His Honour Judge Luba QC on appeal both found for the landlord and awarded the requested injunction.
The injunction was also endorsed with a ‘penal notice’ i.e. to make it clear that if Mr Conway failed to comply, he would be in contempt of court and could face a fine, imprisonment or seizure of assets. In the Conway case the appeal judge confirmed that:
- Airbnb-type lettings amounted to a breach of a lease covenant which prohibits subletting or licensing or sharing or parting with possession or permitting any company or person to occupy except by means of an assignment or underletting with landlord’s consent (the Prohibition)
- use of the flat for such lettings was not residential use, but use for commercial hire, which amounted to a breach of the residential user covenant [3].
(The argument was not raised in this case, but it is possible that Mr Conway’s use might also have amounted to a breach of planning laws applicable to the property, and therefore also a breach the compliance with laws covenant in his lease.)
Although every case will turn on its own individual facts and the wording of the particular lease covenants, this case is significant because: the Prohibition is a clause which is often found in residential leases. In addition, the designation of this type of user as commercial rather than residential will have a wide reaching effect due to the frequency of residential user clauses in such leases.
Practical advice
The Conway and the Nemcova cases together demonstrate both an increasing awareness on the part of landlords to the fact that Airbnb/sharing economy lets are likely to be unlawful and a willingness on the part of the courts to enforce covenants to prevent such use. Whether that enforcement takes the form of an injunction or (perhaps of even more concern) the pursuit of forfeiture and repossession, is likely to depend on the individual landlord’s preference.
Loss of the leasehold asset is obviously of paramount concern for any leaseholder, but it is also a real issue for lenders who risk losing their security. Landlords, tenants, lenders and legal representatives alike should note the following traps and tips.
Freehold deeds; leases; residential letting/management regulations; mortgage conditions; home insurance policies; planning laws, residential letting legislation and the terms of and conditions of sharing economy reservation services are all likely to contain covenants and requirements that are likely to impact upon a party’s ability to lawfully proceed with an Airbnb-type letting.
- lease covenants to watch out for, in particular, include:
- not to be used for trade or business;not to cause or permit any nuisance;the compliance with laws provision (especially any compliance with planning laws provision)
- not to sublet or otherwise share or part with possession (other than by way of a permitted assured shorthold tenancy and/or with the landlord’s consent)
- to maintain adequate insurance at all times (this covenant will be breached if the relevant home insurance policy does not cover use of the property under a short-term let)
- to be used as a private residence only
- an unlawful subletting could leave the host vulnerable to complaints; compensation claims; injunctive sanctions; payment of landlord’s costs; loss of their asset as a result of lease forfeiture or breach of mortgage conditions; void insurance policies; and poor reviewer ratings and/or removal from the letting platform
- a failure to properly consider and manage all risks associated with high occupier turn-over and repeated short-term lets could also cause nuisance for other occupiers of multi-let buildings and deterioration of the property, with high repair and maintenance costs
- a lack of proper understanding of relevant residential lettings regulations and legislation could also mean that a host puts occupiers at risk (for example, if proper safeguards are not put in place, such as gas safety and electrical certificates) and/or could leave the host with problems or even criminal sanctions if occupiers do not pay or vacate the premises when they should [4].
WM Comment
We are seeing more cases of this nature arising. Whether you are a landlord concerned about the use to which your tenant is putting your property, or you are a lender who feels on the ‘back foot’ as your security is threatened by your borrower’s breach, the best advice is to contact a Housing Litigation expert, who will be able to explain your options and to help you protect your interests.
For further information or advice, please contact Karl Anders or any member of Walker Morris’ Housing Litigation & Management Department.
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[1] [2016] UKUT 303 (LC)
[2] 1 May 2018, Unreported – judgment can be accessed here (scroll down – p. 1 is blank, judgment begins on p. 2)
[3] which, in this case, read “Not to use or permit the use of the Demised Premises or any part thereof otherwise than as a residential flat with the occupation of one family only”
[4] for example, the Criminal Law Act 1977 and the Protection from Eviction Act 1977 could come into play here

Landlord’s threats of legal action amounted to harassment[...]
The recent Court of Appeal decision in Metropolitan Housing Trust Ltd v Worthington (1) and […]
The recent Court of Appeal decision in Metropolitan Housing Trust Ltd v Worthington (1) and Parkin (2) [1] alerts landlords to the risk of their dealings with tenants amounting to unlawful harassment. Housing Management and Litigation expert Karl Anders explains and offers practical advice, which will be of particular interest for social housing providers and landlords of multi-let properties.
Multiple tenants, multiple grievances
Having multiple tenants in the same vicinity can often lead to the landlord having to mediate neighbour disputes and deal with tenants’ grievances. Deciding how best to proceed in such cases, particularly when cases touch on sensitive issues and where tensions are high can be very difficult. Landlords can often find themselves between a rock and a hard place when trying to manage tenants’ competing views and interests. The recent case of Metropolitan v Worthington and Parkin highlights just how carefully a landlord must tread.
Metropolitan v Worthington and Parkin
Mr Worthington and Ms Parkin were tenants of the Metropolitan Housing Trust (the Trust). They had complained of anti-social behaviour in the local area. Mr Worthington therefore formed a residents group, and Ms Parkin was given permission to install CCTV, to collect evidence of anti-social behaviour. However some of the Trust’s other tenants took exception to Mr Worthington’s and Ms Parkin’s actions and complained to the Trust that they were causing a nuisance, invading the privacy of other residents and even taking inappropriate photographs of children. On receipt of such complaints, the Trust and its solicitors, over a course of correspondence to Mr Worthington and Ms Parkin, repeated those allegations and made threats of legal action, including threats of injunctions to restrain their alleged breaches of the terms of their tenancies and threats of possession action. In fact, no legal action was ever taken and the complaints against Mr Worthington and Ms Parkin were found to be baseless.
The aftermath was that Mr Worthington and Ms Parkin successfully sued the Trust on the basis that its course of correspondence amounted to unlawful harassment pursuant to section 1 of the Protection from Harassment Act 1997.
The Court of Appeal found that the Trust had properly failed to supervise its employees dealing with the matter; that it had failed to carry out adequate investigation of the complaints made against Mr Worthington and Ms Parkin; and that the Trust’s conduct and correspondence had crossed the line into oppressive, unreasonable or unacceptable conduct and was therefore harassment. The Trust was therefore liable to pay damages of over £4,000 to each claimant, as well as incurring legal costs and potential reputational damage.
Practical advice
This case emphasises the importance of properly investigating complaints and grievances before landlords take any steps against tenants – this will include sending correspondence and/or making threats of legal action.
If landlords are to avoid or defeat claims of harassment, they must be able to demonstrate the adequacy of investigations undertaken; the fact that evidence obtained in that process has been properly considered and assessed; and the reasonableness of their action taken in response. Ideally, landlords should only take any steps once they are fully satisfied that any complaints made can be substantiated and corroborated and the language used in correspondence is also of importance.
The case also emphasises the importance of employee training and supervision, as well as the need to have clear policies and procedures in place for the full and proper investigation of and response to tenants’/residents’ complaints, including the interview of alleged perpetrators as well as complainants. As a matter of good practice, landlords should also keep full written records of all complaints made; investigations undertaken; consideration of, and conclusions drawn from, evidence obtained; and any steps taken as a result.
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[1] [2018] EWCA Civ 1125

A ‘Bright Line’ decision – Court of Appeal[...]
The Court of Appeal has issued its decision in Royal Mencap Society and Tomlinson-Blake ruling […]
The Court of Appeal has issued its decision in Royal Mencap Society and Tomlinson-Blake ruling that carers who work sleep-in shifts at a client’s residence and who are ‘on call’ are not entitled to the National Minimum Wage for periods whilst they are asleep.
Facts
Ms Tomlinson-Blake was employed by Mencap as a carer for autistic adults. Her usual work pattern involved working a day shift at the men’s house until 10 p.m. and then working the following morning shift from 7 a.m. Those hours were part of her salaried hours and she received adequate pay for them. In addition, the claimant was required to carry out a sleep-in shift between 10 p.m. and 7 a.m. for which she received a flat rate of £22.35 together with one hour’s pay of £6.70, making a total payment for that nine-hour sleep-in of £29.05.
The precise scope of the claimant’s duties during a sleep-in shift were considered in detail by the original Employment Tribunal. No specific tasks were allocated to the claimant to perform during that shift, but she was obliged to remain at the men’s house throughout this shift and to keep a ‘listening ear’ out during the night in case her support was needed. She was expected to intervene where necessary to deal with incidents that might require her intervention (if one of the men became unwell or distressed) or to respond to requests for help. The Tribunal had emphasised that deciding whether to intervene required an exercise of her professional judgment, based on her knowledge of the residents.
In practice, the need for Ms Tomlinson-Blake to intervene was real but infrequent. The Tribunal found that there were only six occasions over the preceding 16 months when the claimant had to get up to intervene during the sleep-in hours. If nothing needed to be done during her sleep-in shift, the claimant was entitled to sleep throughout. She was provided with her own bedroom in the house, together with shared bathing and washing facilities. The evidence was that it was positively expected that she should get a good night’s sleep, since, depending on the shift pattern, she might have to work the following day.
Ms Tomlinson-Blake’s claim, supported by the union Unison, was that she was entitled to have all hours of her sleep-in shift hours (including those when she was asleep) paid at the National Minimum Wage (NMW).
Her case was upheld by the Employment Tribunal and Mencap appealed to the Employment Appeal Tribunal, unsuccessfully. On the back of this decision, in April 2017, Mencap began paying the NMW for every hour of a sleep-in shift. It also appealed to the Court of Appeal arguing that the decision was wrong and, apart from anything else, it could simply not afford to meet the potential financial exposure to back-payment claims from sleep-in carers.
The Court of Appeal decision
The social care sector has awaited the Court of Appeal’s decision with bated breath given the enormous potential liability for the sector (estimated to be £400m). The wait was over on 13 July 2018 when it issued its decision upholding Mencap’s appeal and roundly rejecting the EAT’s previous reasoning.
It held that care workers doing sleep-in shifts are only entitled to the NMW when they are required, because they need to undertake a specific activity, to actually be awake.
The assertions that Ms Tomlinson-Blake was expected to keep a ‘listening ear’ open during her sleep time and use professional judgment as to whether she was needed to intervene in any disturbances did not persuade the Court. The Court ruled that every sleep-in worker must keep a listening ear open but that it does not, by itself, constitute performing a specific activity. It noted that in Ms Tomlinson-Blake’s case, she had only been required to wake up and intervene on six occasions over the preceding 16 months.
Available for work rather than actually working
The Court of Appeal’s view is that sleep-in workers (whilst they are sleeping) are ‘available for work’ rather than actually ‘working’. It held that the correct interpretation of the NMW Regulations is that the only time that counts for NMW purposes is the time when the worker is required to be awake for the purposes of working.
A ‘bright line’ approach
The Court of Appeal adopted what it referred to as a “bright line” approach that it found to be missing from previous case law authorities on the issue. Basically, this involved focusing above all else on what Parliament’s original intention was when drafting the NMW Regulations and sleep-in exception. It said, “It would not be a natural use of language, in a context which distinguishes between (actually) working and being available for work, to describe someone as “working” when they are positively expected to be asleep throughout all or most of the relevant period.”
How much does this decision depend on its individual facts?
It is very important to note that this decision does not go so far as to give employers complete carte blanche to say that NMW is not payable for a sleep-in shift because each case will still need to be decided on its facts.
The Court of Appeal said, “I quite accept that the distinctions [between the previous authorities and this case] are subtle, but they are in my view sufficient to justify a difference in outcome: it must be borne in mind that the decision which side of the line dividing “actual work” from “availability for work” a given case falls is factual in character, and in marginal cases different tribunals might well assess very similar facts differently.”
The Court said that its judgment is limited to the facts of sleep-in workers who are “contractually obliged to spend the night at or near their workplace on the basis that they are expected to sleep for all or most of the period but may be woken if required to undertake some specific activity”.
As the facts of not all sleep-in cases are the same, there will always need to be an assessment in each case.
Is this the final word?
Unison, who represented Ms Tomlinson-Blake, has issued a press release stating that it is considering an appeal to the Supreme Court. If this happens, we may not have a definitive answer for some time.
Walker Morris comment
This decision is good news for the social care sector who will be hoping that Unison do not appeal and that the Court of Appeal’s decision will be the final word. An appeal would need to be lodged within 28 days, so we should have an answer to that point fairly soon.
Many employers signed up to the Government’s Social Care Compliance Scheme (SCCS) which enables employers to repay money owed to workers by March 2019 without any HMRC penalty. It now remains to be seen whether the Government dissolves the scheme. Mencap have commented on their website that there now seems little point in the SCCS continuing.
Many care employers (including Mencap) had already begun paying NMW for the full duration of sleep-in shifts after the EAT issued its decision in 2017. Mencap has stated that it does not intend to reverse this practice and it is hard to see how they would be able to do so lawfully.
This is a highly charged political issue and Mencap is calling for the Government to legislate for better pay for care workers and to ensure that sleep-ins are paid at a ‘higher rate’.
There are a number of questions yet to be answered that we hope to have some clarity on over the next few months, including:
- Will HMRC alter its ongoing enforcement activities?
- What will happen regarding HMRC penalties for underpayments based on what was previously understood to be the correct legal position?
We will issue further updates as the position becomes clearer.
If you have any queries please contact David Smedley or Andrew Rayment.

Walker Morris announces flagship office move to accommodate[...]
Law firm acquires 76,000 sq ft of reconfigured and renovated Grade A office space at […]
Law firm acquires 76,000 sq ft of reconfigured and renovated Grade A office space at 33 Wellington street
Leading law firm, Walker Morris, is to relocate to 33 Wellington Street, Leeds – a move that will be the largest professional services relocation in the city for almost 15 years.
The building is undergoing a comprehensive £10 million refurbishment to provide a premium working environment for Walker Morris with significantly improved sustainability credentials.
Walker Morris, which was advised by specialist property consultancy Fox Lloyd Jones, will move from its current locations split across two buildings on King Street into 76,000 sq. ft. of fully renovated, Grade A office space at the heart of the Leeds business district in summer 2019. Once complete, the relocation will see all 500 of Walker Morris’ staff together under one roof, underlining the Firm’s position as the largest single site law firm outside London.
Malcolm Simpson, incoming Managing Partner of Walker Morris, commented:
“This is a very exciting time for the firm. Walker Morris is a fantastic firm, with the best people, superb clients and a great future. The move is a significant investment by the partners and underlines the confidence we have in our future growth plans for the firm. We are also investing heavily in our IT infrastructure, and the overall aim is to inspire our staff, and enable them to work more collaboratively and effectively; whether they are in the office, working remotely at home, with clients or on the move.”
Paul Fox, director of Fox Lloyd Jones, added:
“As well as being the biggest professional relocation in Leeds in over a decade, this move delivers Walker Morris a rarely available self-contained HQ building off market, and has also enabled our team to input and influence the design and layout of the building to be delivered, which makes it feel bespoke and unique.”
“The building’s high profile location in the West End of the city where development and office take-up is soaring; and its accessibility to the amenities of Wellington Place, makes it a great platform for growth for the business.”
The relocation commitment comes on the back of a major workplace analysis exercise by Walker Morris in consultation with its employees, to explore ways in which they can work together, both now and in the future, to use space more efficiently, and deliver innovative client services. The result is that the new Wellington Street offices have been designed to provide an agile working environment; with a hybrid of open, private and meeting areas; which will engender collaboration, and support flexible and seamless team working for the Firm’s multidisciplinary client teams.
When complete, the refurbished building will also feature a floor to ceiling glass façade to the offices, and a unique south facing outdoor courtyard area, which the Firm sees as a great and unique asset to be used for both client and employee events. The move will be underpinned by a number of ongoing IT infrastructure investments, all of which have been preceded by a multimillion pound investment in a new practice management system during 2017.
Walker Morris has a distinctive strategy, operating from a single site centre of excellence in Leeds from which it services its national and international client base. The Firm has retained a dominant footprint within the region and is consistently ranked by Experian as one of the most active corporate law firms. At the same time the Firm has invested in developing national leading specialist teams enabling it to win over 70 per cent of its work from outside the region, including 20 per cent from clients based overseas.
The property, which was bought by Knight Frank Investment Management for Lancashire County Council Pension Fund from MEPC in 2010 for £20 million, was occupied by PWC for 20 years before PWC moved to new headquarters in the city at Central Square in October 2016.
Eamon Fox, Partner and Head of Office Agency at global property consultancy Knight Frank in Leeds, who advised KFIM, commented:
“This is one of the most significant office deals in Leeds during the past 12 months. The property is a flagship office building in a superb city centre location and it is fitting it will be now be home to one of Yorkshire’s finest law firms.”
John Styles of Knight Frank Investment Management explained:
“We are delighted to have collaborated with Walker Morris on this pre-let which significantly de-risks the refurbishment project for the Fund, will generate an attractive investment return and will create a very secure long term asset. The refurbishment is consistent with the Fund’s investment return objectives and also its Environmental, Social and Governance policy which promotes the re-positioning of property assets as opposed to wholesale re-development.”
Construction work on the Wellington Street property has started through appointed contractor GMi Construction and it is expected that building will be handed over to Walker Morris for internal fit-out in early 2019. Fox Lloyd Jones is retained to project manage the internal delivery phase and internal design workshops are ongoing.

Walker Morris wins PA Hub ‘Team of the[...]
PAs and secretaries recognised for outstanding contribution to the firm The PAs and secretaries at […]
PAs and secretaries recognised for outstanding contribution to the firm
The PAs and secretaries at Walker Morris have been awarded the PA Hub’s ‘Team of the Year Award’ in recognition of their outstanding team work and invaluable service to the business.
Now in their 4th year, the Yorkshire PA Hub Awards aim to recognise the amazing job that PAs and secretaries do and the support they provide to their companies every day.
BBC Sports presenter Tanya Arnold presented the awards, with Ann Hiatt, Executive Business Partner and Chief of Staff to Eric Schmidt (Executive Chairman) at Google as guest speaker.
The Walker Morris Team was recognised for its ability to work as a team to share workloads and passion to make a positive contribution to the firm. Many of the team play an active role on the Firm’s various committees such as the employee forum, social committee and charity committee and have been instrumental in supporting the successful implementation of a number of firm-wide major IT infrastructure projects.
“We all work really well as a team and we’re always helping each other both within our team and other departments.” – Walker Morris PA
Malcolm Simpson, Managing Partner at Walker Morris added:
“Our PAs and secretaries play a vital role in supporting our business and ensuring the smooth operation of the Firm. They are often a driving force in encouraging a collaborative ethos and are an essential part of the team. I’m delighted that they have been recognised at the PA Hub awards. Congratulations to all the team.”
Marion Lowrence, founder of the PA Hub commented:
“We are delighted to see the PAs of Yorkshire being rewarded for their hard work. The judges commented that the Walker Morris PA team really stood out in their nomination as showing true team spirit and they liked how they work together and support each other to make things happen and be successful.”