Why care
We are used to thinking of employment status disputes these days in the context of big corporations such as Uber or Deliveroo, but employment status disputes can and often do also arise in the context of small family-owned businesses. When relationships sour, informal arrangements can come back to bite, particularly if there is a lack of clarity about expectations and extent of involvement in the business. In Rainford v Dorset Aquatics, the Employment Appeal Tribunal (EAT) considered whether a director and 40% shareholder was an employee or worker of the company, finding he was neither.
Facts
The claimant and his brother were the shareholders and co-directors of the respondent company. Their company paid each one of them a "salary", subject to PAYE, plus annual dividends. There was no written employment contract or other agreement (such as an oral agreement) relating to employment status. The claimant left the business following a dispute and then brought various tribunal claims. An employment tribunal had to consider the preliminary issue of his employment status.
The employment tribunal found that there was no requirement for personal service from the claimant; the only sign of mutuality of obligation was an expectation that the brothers would bring in enough work to keep the company afloat. The claimant did not have set hours or a set holiday entitlement. He was able to take up other work if he wanted to. The claimant could have substituted someone else to perform his duties, although this never came up in practice.
Decision
The claimant appealed, arguing that the tribunal's decision was perverse. The EAT rejected the claimant's appeal, finding that the tribunal had been entitled to come to the conclusion it had come to. The tribunal had not made the mistake of assuming that being a director/shareholder necessarily ruled out someone being an employee but had taken into account a variety of factors. The EAT acknowledged that in some cases a director/shareholder may also be an employee. In the claimant's case the control and/or degree of risk inherent in being a director/shareholder only formed part of the "backdrop" and had not unduly influenced the judge’s decision.
Why the case matters
A director/shareholder will not necessarily be self-employed, just because they have a high degree of control and risk. Conversely, they will not necessarily be an employee or worker just by virtue of working for their company and receiving money from it. The situation is more nuanced, and an employment judge will need to take into account a wide range of factors to determine the true relationship. A distinguishing feature of this case is that the claimant did not have set hours, nor was his work under the direction and control of the company.
