Case law: controlling shareholder can also be employee

By: Anthony Mullinder

Date: 19 June 2009

Business owners or controlling shareholders can also enjoy the benefits of being employees, as confirmed by a recent landmark ruling in the Court of Appeal.

In this case, a businessman was a majority shareholder in his company, with two co-directors and a number of employees. He had a contract of employment, and he performed his day-to-day duties in accordance with the contract. When the company went into receivership, an employment tribunal ruled that he was not entitled to receive a payment from the National Insurance Fund, on the basis that his position as a majority shareholder was not consistent with the required employee status.

The businessman’s appeal to the Employment Appeal Tribunal (EAT) succeeded. The Secretary of State for Business, Enterprise and Regulatory Reform appealed to the Court of Appeal against the finding that the businessman had employee status, and the court confirmed the EAT’s ruling. It conducted a comprehensive review of the existing case law in this area, and largely approved a decision of the EAT from early 2008.

The court said that there is no reason, in principle, why someone who is a shareholder and director of a company cannot also be an employee of the company under a contract of employment. There is also no reason, in principle, why someone whose shareholding in the company gives him control of it cannot be an employee. It will not be possible to argue, in particular, that (1) the extent of his control of the company means that the control condition of a contract of employment cannot be satisfied, or (2) the practical control he has over his own destiny (including that he cannot be dismissed from his employment, except with his consent) means that he cannot be an employee.

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