Director Shareholders - Employees, Workers or Self Employed?

Director Shareholders - Employees, Workers or Self Employed?

A recent decision taken by the Employment Appeal Tribunal (EAT) considered the employment status of a director and shareholder of a company.

The case provided a useful reminder of the different positions that people can have in a business, highlighting that directors and shareholders of a company can perform duties and tasks for a business without falling into the employee and employer relationship.

The Claimant, and his brother were co-directors and shareholders of the Respondent.

The Claimant worked as a site manager and as a head of the marketing team for the Respondent; for whom he was also actively involved in decision making. The Claimant did not have a written contract of employment, he set his own working hours and was solely in control of his work.

In 2018, the Claimant brought a claim for unfair dismissal, notice pay, unlawful deductions and holiday pay. However, as a preliminary issue, the Employment Tribunal found it did not have jurisdiction to hear the claim as the Claimant was neither an employee nor a worker

The Claimant appealed to the EAT on the basis that a salary was being paid to him in exchange for his services to the business - but the EAT upheld the Employment Tribunal's decision.

The EAT found that whilst a director and/or shareholder can also be an employee, it should not automatically be assumed they are.

The appeal was then rejected on the basis of the Claimant's right of substitution and because his status as a director and shareholder was mutually exclusive with status as an employee.

Whilst we are used to categorising individuals who work for businesses as employees, workers or as self-employed, this case is a useful reminder of the fact that directors and shareholders can perform work for a company without falling into any of these categories.

What are the legal considerations?

An employee is an individual who works under a contract of employment, which can be either expressly agreed or implied.

A three-stage test highlights the main characteristics that should be considered when determining whether an individual is an employer or worker:
1. Personal Service: Is the individual required to provide their services personally or do they have the right to provide a substitute to carry out the work in their place?
2. Mutual Obligation: Is the business obligated to provide the individual with work in return for pay, which the individual is obliged to accept?
3. Control: Does the business exercise control over the way in which the individual carries out the work?

From a practical perspective, it is always sensible to ensure appropriate documentation is in place that accurately reflects the reality of all working relationships in order to reduce the risk of such a dispute arising.

If you have any queries about this, or another other employment or HR matter, please do not hesitate to contact our Employment and HR Team.

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