Employment Status, Control and Mutuality of Obligation - Guideline Ruling

There is no reason in principle why someone who is a shareholder and controlling director of a company cannot also be its employee. However, as an Employment Tribunal (ET) ruling made plain, the assessment of whether an employment relationship does or does not exist is a highly fact-sensitive exercise (Weiss v Miami Weiss Ltd (In Liquidation) and Another).

The case concerned a woman who was a director and sole shareholder of a hospitality company when it went into liquidation. She subsequently made a claim under the Employment Rights Act 1996 for statutory payments from the National Insurance Fund in respect of redundancy pay, arrears of wages and holiday pay. Her claim was, however, resisted by the Secretary of State for Business and Trade on the basis that she was not employed by the company.

Ruling on her claim, the ET noted that there were times during the early days of the business when she worked very long hours for which she often paid herself below the National Minimum Wage. However, her caring responsibilities for her two young children necessitated her engagement of a manager to run the business day to day during its last 18 months or so of trading. Although she continued to provide cover where necessary, she could effectively pick and choose her own hours, doing as much or as little work as she wanted to do.

The ET acknowledged that her position as the company's director and owner did not, as a matter of principle, preclude her from having employment status. She had, however, retained complete control of the business even after the manager's appointment. She continued to make all the important managerial decisions and had no one to answer to.

Whilst others who worked in the business had formal employment contracts, she did not. Unlike them, she did not have to clock in and out of work. She had no right to paid holidays or a pension and was not subject to the company's disciplinary and grievance procedures. She took a fixed monthly sum of money from the business irrespective of the number of hours she worked.

In rejecting her claim, the ET found that she was not subject to an implied contract of employment. On the particular facts of the case, her dealings with the company lacked the essential elements of control and mutuality of obligation without which it is all but impossible for an employment relationship to exist.