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Rainford v Dorset Aquatics Limited

Employment Tribunal’s decision that a Director/Shareholder of a small family business was not a worker or employee pursuant to s.230 of the Employment Rights Act 1996 is upheld upon appeal

In Rainford v Dorset Aquatics Limited, the Claimant and his brother were 40/60 percent shareholders of the company as well as co-directors. The Claimant issued proceedings for unfair dismissal, amongst other claims, following a dispute having worked as a site manager and he was responsible for marketing and social media. The Claimant decided his own hours of work and was not under the control of his brother. There was also no written employment contract or any other document that would confirm his status. The Claimant and his brother were both however paid an equal ‘salary’, agreed between them, via PAYE and National insurance was also deducted on the advice of their accountants.

The Tribunal relied on witness evidence from the Claimant’s brother that he would have had no issue with the Claimant substituting someone else to complete the site manager work although this never happened in practice. Both brothers were also free to carry out work outside of the company too.

Although there was no reason in principle for a director and controlling shareholder not to be an employee, the Employment Appeal Tribunal found that despite the Tribunal not being referred to appropriate case law/authority regarding status, its conclusion that the Claimant was neither an employee nor a worker took into account the relevant factors (above) i.e. that the Claimant was not under the control of his brother and therefore there was no mutuality of obligation, he was free to set his own hours and do other work (regularly helping out in his girlfriend’s hairdressing business) and he could have substituted someone else to do his work.  The conclusion drawn was open to the tribunal on the facts so the decision was not perverse.

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