Decision

Confirmation of Decision for Enero Logistics Ltd

Published 23 November 2023

0.1 IN THE EASTERN TRAFFIC AREA

1. ENERO LOGISTICS LTD – OF1120295

1.1 CONFIRMATION OF THE TRAFFIC COMMISSIONER’S DECISION

2. Background

Enero Logistics Ltd holds a Standard International Goods Vehicle Operator’s Licence authorising 7 vehicles and 20 trailers. The Directors were Leszek Robert Lembicz and his daughter, Joanna Lembicz. She resigned shortly before the first hearing but was clearly still involved with the management. Anna Maria Kozlowska is now named as Transport Manager. The previous incumbent, Krysztof Wajrak resigned by email dated 10 March 2023.

There is one Operating Centre at Orchard House, Gosberton Road, Surfleet, Spalding PE11 4BG. Preventative Maintenance Inspections are said to be carried out by Southlincs Commercials Ltd and Truckrent Ltd at 6-weekly intervals. The audit also referred to a previous contractor, Autotruck Ltd. The inspection of GF62 EZA on 5 August 2022 apparently exceeded the interval, shortly after the last hearing.

The operator was previously at Public Inquiry on 22 June 2022, when I determined that there was a need for deterrent action so that the operator was clear that operations could not continue as before. This followed adverse findings under sections: 26(1)(b) – condition to notify within 28 days matters going to stable and effective establishment, repute, financial standing and Transport Manager, section 26(1)(e) – statement of intent as to who would be responsible for exercising effective and continuous management, to abide by the licence conditions, 26(1)(h) – material change in the availability of finance and the exercise of continuous and effective management. I took account of undertakings offered including:

• the operator will provide up to date original or copies (verified by the issuing bank or building society) of financial evidence in the name of the operator for the three-month period within 6 months of the date of the Public Inquiry. This must show that the operator has continued to meet the required level of available finance throughout the period by reference to an average balance, dependant on the rates applicable at that time. Rates to be found in the Senior Traffic Commissioner’s Statutory Document No. 2. Where originals are not available each statement must be stamped and authenticated by the bank/building society.

3. Hearing

The Public Inquiry was listed for 26 September 2023, in Tribunal Room 1 of the Office of the Traffic Commissioner in Cambridge. The operator was present in the form of the Director, Leszek Robert Lembicz. He was accompanied by his daughter, Joanna Lembicz. He was represented by Laura Hadzic, then of Backhouse Jones solicitors. It was necessary to reconvene the hearing on 16 November 2023 to allow opportunity for me to hear from Anna Maria Kozlowska, following evidence which was given by the operator at the first hearing. On that occasion, the operator and Transport Manager were represented by Mark Davies of Backhouse Jones.

4. Issues

The Public Inquiry was called at the request of the operators and following notice that I was considering grounds to intervene in respect of this licence and specifically by reference to the following sections of the Goods Vehicle (Licensing of Operators) Act:

• 26(1)(e) – failing to fulfil Statement to abide by conditions on the licence

• 26(1)(b) - to notify relevant changes.

• 26(1)(f) – undertaking at the previous Public Inquiry.

• 26(1)(h) – material change

• 27(1)(a) – good repute and financial standing.

• 28 – Disqualification.

Ms Kozlowska was called separately under cover dated 12 October 2023 to consider whether she had exercised effective and continuous management of the transport operation and due to any potential impact to her repute as Transport Manager, under section 27(1)(b) and Schedule 3.

The operator was initially directed to lodge evidence in support by 12 September 2023, including financial, maintenance and other compliance documentation. Satisfactory financial evidence including an overdraft was eventually received. However, even that financial evidence covering September and October continued to disclose large payments to WOM Recruitment Ltd and no obvious wages.

5. Summary of Evidence

The operator apparently failed to comply with the undertaking at paragraph 3 despite being afforded additional time.

The Office of the Traffic Commissioner emailed the operator as a reminder on 7 April 2023 (pages 135 to 136). Again, the operator failed to comply, and no response was received. It was then decided to serve the operator with formal notice as to the potential consequences of this failure, dated 23 May 2023 (pages 56 to 57).

A response of 23 May 2023 (page 134) referred to an email of 22 December 2022. The audit was completed by the Road Haulage Association in December 2022, when Ms Kozlowska was not in post. The operator was said to be on target to achieve four laden roller brake tests per year. The audit identified an absence of auditing of the driver defect reporting system. It also identified that drivers are ‘employed’ through WOM Recruitment under a “Commercial Cooperation Agreement” dated 4 August 2022, i.e., shortly after the last Public Inquiry. The public record suggests a registered address in Newport, Wales. At the Public Inquiry on 22 June 2022, the operator gave an undertaking that all permanent drivers would be made employees and subject to PAYE and National Insurance contributions. The RHA audit refers to IR35 rules issued by HM Revenue and Customs but does not refer to the Upper Tribunal decision in 2019/54 Bridgestep Ltd & Tom Bridge, the Upper Tribunal referred to the practice of drivers classifying themselves as self-employed and the RHA issued factsheet. The operator was specifically referred to those requirements in the decision at the last Public Inquiry.

The operator was notified by email of 13 June 2023 (page 129) that the financial evidence was not sufficient as against the prescribed sum for financial standing. A further email of 13 June 2023:

“I would like to explain my financial situation at the end of last year and beginning of this year we have been experiencing significant number of repairs which have been very expensive.

After realising that we can’t go on like that for too long as the vehicles kept braking, we have decided to sell 4 of our vehicles in early January and March.
We decided that we will rent 3 trucks which we have done now, and we only pay rental fees for them and no repair costs, this situation has already helped us financially, because we do not have those high repair costs and going forward, we know we will be better financially.

 Please consider that it was hard for us during pandemic, Brexit, inflation as well as Ukraine and Russia War, where there wasn’t a lot of jobs as well as diesel prices went incredibly high. Inflation has had a big impact as everything has gone up in price.

We don’t require public inquiry because we are fulfilling financial standing requirement at the moment and we will maintain that in the future, that’s why I have offered to send you bank statement every month to prove my financial stability, but if this is the only way for me to keep my business running then I will request public inquiry.”

In addressing the circumstances of the pandemic, the Senior Traffic Commissioner issued a Contingency Statutory Document, which has now been withdrawn. That referred to a general discretion enjoyed by Traffic Commissioners during the relevant period:  

General Discretion

Proportionality lies at the heart of the jurisdiction and traffic commissioners are

well acquainted with the need to consider what is practicable for operators to deliver. As paragraph 24 of Statutory Document 10 advises: the legal principle of

proportionality requires a traffic commissioner when exercising a statutory function, to make decisions which are commensurate with the circumstances of each individual case and the purposes of the legislation.

There are two clear principles to be drawn from the case law: i) there must be a fair balance between the right of the operator and the interests which the licensing regime seeks to protect, and ii) that a fair balance can only be struck by having regard to what the regime is seeking to protect or achieve, the way in which it seeks to do that and the extent to which the operator can put forward relevant matters. That does not prevent operators from notifying the Office of the Traffic Commissioner of relevant changes, for instance in maintenance arrangements.

Each case must be dealt with on its own facts. As Statutory Document 10 indicates, a case may involve many variables including different variations of alleged breaches, negative and positive features. What appears on the face of the papers to be very serious may not in fact warrant severe regulatory action. Annex 4 cannot be used to predict the outcome of a public inquiry or give rise to a legitimate expectation. It allows for consistency by suggesting starting points for regulatory action. However, the presiding traffic commissioner retains discretion to move up or down from the suggested starting points.

What is physically possible may change during the course of the outbreak, but

the Office of the Traffic Commissioner has issued additional guidance to operators throughout the course of the restrictions to date:

https://www.gov.uk/government/publications/advice-heavy-goods-and-publicservice-vehicle-operators-covid-19

The Senior Traffic Commissioners directs that this must now form part of the decision-making process. In considering the positive and negative aspects of an operator’s approach during the lockdown and subsequent restrictions, traffic commissioners may also have regard to:

• the employment of effective management based on sound risk analysis for instance in the management of maintenance;

• a risk-based approach to the testing of vehicles in prioritising the inspection of older and/or historically problematic vehicles in the transition back to business as usual;

• the utilisation of online resources in order to ensure driver or maintenance training, including Driver CPC (as permitted within furlough provisions);

• proactive completion of a remote audit to support improvements during the Coronavirus restrictions;

• proactive completion of online Operator Licensing Awareness Training and/or Transport Manager CPC refresher training during the coronavirus restrictions;

• use of the operation or resources in support of the national effort to tackle the coronavirus.

The leading appeal case of 2012/017 NCF Leicester Ltd, explains the relevance of financial standing: “In order to satisfy the requirement laid down in Article 3(1)(c), an undertaking shall at all times be able to meet its financial obligations in the course of the annual accounting year” and “It is necessary for road transport undertakings to have a minimum financial standing to ensure their proper launching and administration”. In our view ‘administration,’ for the purposes of this Regulation, means the organisation and running of a haulage business which holds an operator’s licence. In particular the requirement is intended to ensure that vehicles can be operated safely because the operator can afford to maintain them promptly and properly. Section 13D requires sufficient finance to support proper maintenance, so the operator was directed to produce evidence of its compliance systems.

My dip sampling of the maintenance records disclosed the following:

EA66 BFP

• 1 August 2023 – inspection (8 weeks prior to the first hearing) with a roller brake test, but: 46%, 25%, 18% with insufficient load on axles 2 and 3.

• 19 June 2023 – inspection with no evidence of a brake performance test.

• 9 May 2023 – inspection with a roller brake test, but: 41%, 24%, 13% with insufficient load on axle 3 and 22% imbalance on axle 1 and 21% on axle 2, with worn front and rear pads.

• 27 March 2023 – inspection with no evidence of a brake performance test.

• 2 March 2023 - inspection with a roller brake test, but: 45%, 25%, 21%.

Before the second hearing I was provided with updated bank statements and an overdraft agreement. I was presented with a “planner” with scheduled inspection dates to April 2024 and annual test and calibration dates beyond that. The bundle also enclosed inspection documentation:

• EA66 BFP - 23 October 2023, inspection by South Lincs Commercials Ltd - showing brake performance as N/A but with an attached roller brake test printout for the same day: 47%, 25%, 19%, with a 20% imbalance on the service brake for axle 3.

• KU21 FZB – 9 October 2023, inspection by Intercounty Truck and Van - brake performance: 45%, 29%, 22%, with printout attached.

• KU21 FZC – 23 October 2023, inspection by Intercounty Truck and Van - brake performance: 50%, 32%, 23%, with photograph of a printout attached.

• KU21 FZA – 9 October 2023, inspection by Intercounty Truck and Van - brake performance: 47%, 29%, 17%, with print out attached.

• EA66 BEO – 17 October 2023, inspection by South Lincs Commercials Ltd - showing brake performance as N/A but with an attached roller brake test printout for the same day: 48%, 25%, 18%, with a 60% imbalance on the service brake for axle 3. It also records issues with the cab mounting on near and offsides.

I noted the multiple bilingual weekly “vehicle daily check & defect report,” but none were signed as received. The defect box refers to a defect book. The four reports included suggested that bulbs are now being recorded. A gate-check of 3 drivers was logged on 3 November 2023. Relevant training was also logged. The drivers appeared to have allocated vehicles for that purpose.

The DVLA licence check schedule referred to Kita Andrzej, Grzeda Rafal, Gawronski Jarek, Lemczicz Leszek, Lembicz Bartosz, Michniewicz Jerzy, Pisarczyk Piotr, Roguski Grzegorz, Smolskij Andrej, Zawadzki Krzysztof, Buinovskij Grigorij, Lorentynowicz Rodrig, Staniak Zenon and Joanna Lembic. I was supplied with employment contracts for drivers Andrzej Kita, Bartosz Lembicz, Grigorij Buinovskij, G Roguski, Jaroslaw Gawronski, Jeizy Michniewicz, Krystof Zawadzki, Piotr Pisarcsyk, Rodryg Lorentowicz, with proof of PAYE deductions   for Messrs Zawadzki, B Lembicz, Michniewicz, Kita, Gawronski, Buinovskij, Roguski, Lorentowicz, Pisarczyk. Each totalling 9 employees.

I was provided with a signed Transport Manager contract dated 1 March 2023 and proof of her attendance at CPC refresher training on 18 and 19 September 2023. I noted the invoices.

Submissions prepared on behalf of the operator and Ms Kozlowska dated 9 November 2023, referred to the undertaking given at the Public Inquiry in June 2022. Mr Lembicz and Ms Kozlowska adopted the representations as part of their evidence. They confirmed that drivers who had previously provided their services through their own limited companies had simply been supplied through a driver agency, WOM Recruitment. The operator had the benefit of the adjournment to repeat the conversation following the previous Public Inquiry. The operator has now impressed on the drivers that the agency arrangement is not appropriate and has employed nine drivers. Two of the drivers have declined to become employees and have ceased working for Enero. Another two will leave the business shortly as a direct result.

Ms Kozlowska sought to reassure me that she had been undertaking checks of drivers’ hours compliance and issuing infringement letters to the drivers during the period whilst they provided their services through limited companies as well as the subsequent arrangement with the driver agency. I was told that she visits the Operating Centre on a weekly basis to review documents and the effectiveness of systems. I was told that she checks on vehicle condition and that drivers are undertaking an effective walk round check. Reference was made to gate checks from 13 December 2022 onwards. These checks and communication with the maintenance contractor had apparently been left to Joanna Lembicz. I was referred to the various Annexes produced in the operator’s bundle. I noted the spreadsheet kept by Ms Kozlowska to record matters from drivers’ hours infringements and driver defect reportable with any action taken. The spreadsheet confirms warnings were issued to drivers whilst they were providing their services through the agency. Ms Koslowska assured me that she felt able to raise disciplinary concerns and to take action. I contrasted that with the level of influence exercised in response to the undertaking. Mr Lembicz told me that it was one of the drivers who identified the recruitment agency, which the other drivers opted to pursue. I was directed to the monthly driver licence checks, with recording of contact details, licence expiry dates, CPC dates, driver card expiry etc. I was satisfied that checks were taking place.

6. Determination

On the basis of the evidence, summarised above, I was satisfied that I should record the following adverse findings under section 26(1)(e) – a failure to fulfil its statement to abide by conditions on the licence, namely to notify relevant changes under section 26(1)(b); 26(1)(f) – a breach of the undertaking given at the previous Public Inquiry.

The approach adopted in 2022/246 Jay’s Vehicle Movers Ltd may have confused some operators. The purpose of the financial standing requirement was fully addressed in the leading case of 2012/017 NCF Leicester Ltd. The appellate Tribunal described the flexibility available to operators in its decision of 2011/022 Andrew Chatter, but also identified the need to ensure fairness to all operators. That is achieved through the consistent application of the Senior Traffic Commissioner’s Statutory Document, as per the provisions of sections 4C(1)(a) and (b) of the Public Passenger Vehicles Act 1981 and section 1(2) of the Goods Vehicles (Licensing of Operators) Act 1995. This operator benefited from the use of discretion as evidenced in the decision at the previous Public Inquiry. It failed to live up to the trust placed in it but, by the date of this hearing, had finally discharged the undertaking which it gave. I inevitably recorded an adverse finding under section 26(1)(h).

I am not here to do HMRC’s job, but I must follow Statutory Document No. 5, which summarises the position on employees. As recorded there, the First-Tier Tribunal (Tax) considered the employment status of drivers in TC/2015/03681 RS Dhillon and GP Dhillon Partnership v The Commissioners for her Majesty’s Revenue & Customs. HMRC acted on concerns that haulage operators were wrongly treating workers as self-employed or hiring workers through their own companies in ways that did not comply with tax laws and issued public guidance on its website. There has been some confusion with the IR35 off pay-roll rules. Businesses are responsible for deciding if the rules apply, if two or more of the following conditions apply: an annual turnover of more than £10.2 million, a balance sheet total of more than £5.1 million, more than 50 employees. Regardless of the size of transport business, it will be rare for someone to be genuinely self-employed unless they are an owner-driver.

IR35 is not a ‘defence’. HMRC is aware that some operators wrongly believe that anti-avoidance legislation does not apply and that HMRC cannot pursue workers, agents, and the operator. It is wrongly assumed that agency arrangements will not be scrutinised on behalf of Traffic Commissioners. That would be a mistake. Whilst the flexibility of temporary drivers allows operators to deal with sudden or seasonal increases in work or a shortage of staff due to turnover or resulting from absences, HMRC defines temporary employees as people that are contracted to a job for a limited period, and they are hired straight from the company or through a third-party agency that staffs for other companies. Even workers doing occasional work for a specific business (where the worker has to agree to terms and conditions to obtain the work, where the business provides the materials, tools, or equipment) can be subject to the deduction of tax and National Insurance contributions from their wages. Failure to comply with legal requirements can undermine the ability to hold an operator’s licence.

The publicly available guidance on the GOV.UK website advises that a person is an agency worker if they have a contract with an agency but work temporarily for a hirer. I quote: “You’re not an agency worker if you use an agency to find permanent or fixed-term employment.” The guidance offers the following bullets to assist in identifying an employee:

• They were required to work regularly unless they are on leave.

• They were required to do a minimum number of hours and expect to be paid for time worked.

• A manager or supervisor is responsible for their workload, saying when a piece of work should be finished and how it should be done.

• They could not send someone else to do their work.

• The operator’s disciplinary and grievance procedures applied.

• They started work at the Operating Centre.

• The operator provided the materials, tools, and equipment for their work.

• They only work for the operator.

Even where there is a legitimate agency arrangement, the 2010 Agency Regulations provided that, after a qualifying period of 12 weeks, the basic working and employment conditions (working time, overtime, breaks, rest periods for night work, holidays and pay) of temporary agency workers must be at least as beneficial as those that would apply if they had been recruited directly. Agencies also have a legal obligation to gather certain information before offering work to an agency worker. When the agency offers a worker an assignment, they must, at the same time give that worker details which include: the name of the hiring organisation and the nature of its business, the start date, how long the assignment is likely to be for, details of the position and type of work. Regulation 13A of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 requires all agency workers, who sign up to an employment business after 6 April 2020, to be given a ‘Key Information Document’.

Mr Lembicz admitted that no information regarding the length of assignment had been provided. The qualifying period had not been considered, nor has the requirements for the Key Information Document. This was an arrangement made at the insistence of the drivers to avoid PAYE and National Insurance contributions. At the first hearing, the Director, through his daughter, actually went as far as to suggest that the agency arrangement had been adopted so that the operator did not have to pay the drivers when they were taking their breaks. Ms Hadzic suggested that I should simply vary the undertaking for the benefit of the operator and its drivers.

I was not persuaded and could not ignore the Senior Traffic Commissioner’s alert to the impact on the level playing field within the transport industries, which underpins compliance. I directed the operator to the Tribunal decision in Bridgestep, where it referred to a conscious decision to enter into an arrangement with the company’s drivers which was highly questionable if not a sham. The reasons for doing so were anti-competitive being as they were, concerned solely with the cost of employing the drivers and by reducing that cost, gaining a competitive advantage over other compliant operators. The Tribunal went on to describe most operators making the right decision to employ their drivers, paying national insurance, pension contributions, holiday and sickness entitlement. However, the consequence was that the company and Transport Manager felt unable to give any instruction to drivers whether it be in relation to route planning or otherwise and consequently, were unable to have continuous and effective management of the transport operation.

Agency arrangements should not be abused. I noted that Drivers Andrej Smolski and Zenon Staniak had already left and that Krystof Zawadski and Jeizy Michniewicz had apparently felt unable to comply with the terms of the undertaking or HMRC guidance. The Health and Safety at Work Act 1974, imposes duties on employers to protect the health and safety of both employees and non-employees who might be affected by the activities. A key consideration for my jurisdiction is whether a driver is familiar with an operation or its processes, or is there an additional risk to the business, other road users and to infrastructure. It is for both the employment agency and operator to ensure that a driver is given an adequate induction before starting work for a client. On the evidence, I was satisfied that there had been efforts to manage the drivers. This was not a case where there was no control, despite the attempt by drivers to dictate the employment status. That said, Ms Koslovska needs to take direct managerial responsibility for the maintenance contractors and drivers. I issued a warning to that effect and accepted the following undertakings, to be attached to the operator’s licence:

• 21 days for the Transport Manager to confirm what action has been taken to explain the imbalance in the brake testing of EA66 BEO on 17 October 2023.

• Proof of attendance at brake testing training (on the expectations of an effective brake testing regime and understanding the print outs) to be provided to the Office of the Traffic Commissioner in Cambridge by 31 January 2024.

I was referred to the contracts in place which have eventually been put in place. However, as was acknowledged, the breach of an undertaking given directly to a Traffic Commissioner and at Public Inquiry, is a serious matter, which may impact on the ability to hold an operator’s licence. The Upper Tribunal decision in 2009/225 Priority Freight Ltd sets a question: how likely is it that this operator will, in future, operate in compliance with the operator’s licensing regime? Such a breach undermines the trust which can be placed in an operator and which is the foundation of the licence grant. That is all the more acute where the operator is found to have used a device in an attempt to gain a commercial advantage through the retention of drivers. I rejected the suggestion from Mr Lembicz that he was confused. The wording of the undertaking, which he gave, could not have been clearer. This conduct falls squarely within the definition of SERIOUS to SEVERE, for the purposes of regulatory intervention. Other operators would be well-advised to take warning from this case.

I was able to weigh into the balance actions which mean that drivers are now employed and under the control of the operator. I was also able to place weight on the systems for compliance, which were described in evidence. Nevertheless, the operator’s repute was severely tarnished by these events, as was the fitness of the sole Director. As the Upper Tribunal identified in 2019/025 John Stuart Strachan t/a Strachan Haulage: “one of the aims of the regime is deterrence, both for the appellant and for operators as a whole, who might be tempted to flout the system”. The relevance of deterrence was further confirmed in the leading case of 2022/227 Lineage UK Transport Ltd. I determined that I must take deterrent action to make clear to this operator and others who might be tempted to adopt a similar device, that this type of behaviour undermines the licensing system as a whole and will not be tolerated. Having taken evidence on the impact of such intervention, I curtailed the operator’s licence to 5 vehicles with the operator reducing trailer authority to 10, with effect from 23:45 today. That will have a direct and almost immediate material impact, but the operator retains the ability to operate. There can be no repeat.

6.1 R Turfitt

Traffic Commissioner

16 November 2023