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EAT find a director and shareholder of a company was not an employee or worker

A claimant who was a 40% shareholder and co-director of a company, and who received payments described as a “salary”, left the business following a dispute and subsequently brought various tribunal claims. A preliminary issue arose as to the claimant’s employment status.

The employment judge found that apart from an expectation that the claimant would generate enough work to keep the company going, there was no mutuality of obligation. The claimant set his own hours and holidays, and was free to do other work. The judge also found the claimant was not required to provide a personal service, as the claimant could provide a substitute to carry out his work, even though this was never done in practice. The claimant appealed against the tribunal’s decision, arguing that since he worked for a salary, and the arrangement was not a sham, his status must be that of an employee or a worker.

However, the EAT rejected the claimant’s arguments on three grounds. Firstly, just because a person who is a director and shareholder works for a company and receives payments, this does not automatically give them a certain status, such as worker, employee or self-employed. Secondly, the judge was entitled to find the claimant had a right to substitution, even though the substitution never arose in practice. Thirdly, whilst it would be incorrect to specify that a director and shareholder cannot be an employee, the claimant’s level of control over the company, and the fact he shared with his brother the risk as to the company’s success, was not enough to significantly influence the judge’s decision. Therefore, it was held the claimant was not an employee or a worker of the company.