News and Events

Employment status of director on insolvency of company

  • Posted

Thanks to Bonike Erinle of Farrar’s Building for preparing this case summary.

Can the owner of a company be regarded as an employee for purposes of a claim for a redundancy payment?

Yes, depending on the nature of the relationship between the individual and the company, held the Employment Appeal Tribunal in Secretary of State for BIS v Knight.

The Claimant had been the sole shareholder and Managing Director of a company from the date of its incorporation in 1991 until the day it ceased trading in 2011. In the last 2 years of the company's trading, the Claimant forfeited her salary so as to enable other employees and creditors to be paid and, subsequent to the company's insolvency, applied for a redundancy payment from the Insolvency Service.

The Tribunal received evidence to demonstrate that the Claimant had been engaged by her company by means of an unexecuted contract of employment, which set out a job description, stipulated working hours, stated a salary, provided for eligibility for bonuses and made provision for termination of the Claimant's contract of employment. The Claimant was also able to provide P60s which showed that she had been paid by the company (albeit in varying amounts, which fell below her contractual entitlement) as an employee.

In dismissing the Secretary of State's appeal against the judgment in the Claimant's favour, the EAT reiterated the point that whether or not an individual is an employee of a company is a question of fact. As such, it was not perverse of the Tribunal to find that: (i) the Claimant was an employee of the company; (ii) there was no lack of mutuality or of consideration, and; (iii) the Claimant had not discharged or varied her contract of employment by not taking salary for the last 2 years. The Claimant's entitlement to a redundancy payment of £7,296 from the Insolvency Service would therefore stand.