Was a tribunal entitled to find that a director/shareholder of a small family business was not a worker/employee for the purposes of Section 230 Employment Rights Act 1996?

Yes, held the Employment Appeal Tribunal (EAT) in the case of Rainford v Dorset Aquatics Limited.

The Claimant and his brother were 40/60 shareholders and directors in a small family company. The Claimant complained of unfair dismissal, having worked as a site manager. There was no written employment contract or other record relating to his status. He was paid a salary from which PAYE and NI was deducted. The tribunal relied on evidence that the Claimant’s brother would have had no problem with the Claimant substituting someone else to do the site manager work.

There was no reason in principle for a director and controlling shareholder not to be an employee, as confirmed by the Court of Appeal in a separate case: Secretary of State v Neufeld and which set out the relevant considerations.

The EAT held that, although it was unfortunate that the tribunal had not been referred to this authority, its conclusion that the Claimant was not an employee or worker took into account the relevant factors and it was open to the tribunal on the facts, so the decision was not perverse.

This case does, however, highlight the absolute need to always take legal advice on employment status issues at the outset. We are experts on employment status at aiMac-hr and one of our team can help you get things right at the beginning of any business or master/servant relationship. The old adage “a stitch in time saves nine” really is very apt in this area; unless, of course, you are willing to accept potentially expensive and time consuming court claims.

At aiMac-hr we believe prevention is always better than cure!