Mr C Goodman and Mrs A Goodman v Secretary of State For Business and Trade: 1401654/2024 and 1401655/2024

EMPLOYMENT TRIBUNALS

Case No 1401654/2024, 1401655/2024

Between

Mr C Goodman and Mrs A GoodmanClaimant

Secretary of State For Business and TradeRespondent

Before

Employment Judge Mr J S Burns

Mr C Goodman for claimant

Date 16 May 2025

JUDGMENT

The claims are dismissed.

REASONS

[1]I heard evidence from the First Claimant (C1). Mrs Goodman (C2) did not attend the hearing. The documents were in a bundle of 190 pages.

[2]The Claimants sought payment from the National Insurance Fund (the Fund) under the provisions of section 166/182 of the ERA 1996 following the voluntary liquidation of Anglo Freight UK Ltd (the company) on 13/7/23, claiming a redundancy payment, 1 month’s unpaid salary, 1 month’s unpaid notice and 20 days’ holiday.

[3]The Secretary of State sent a rejection letter to (C1) on 21/11/23 and advised him of his right to make a complaint to the Employment Tribunal. Per section 188 of the Act, (which applies to the claims for notice pay, salary and holiday pay) ET claims must be presented within a 3-month period after rejection of the claim by the Respondent. ACAS was notified of the claim on 1 July 2024. The ACAS certificate was issued on 5 July 2024. C1 presented his ET1 form on 15/7/24. C1’s claim is significantly out of time . I asked C1 for his reasons for delay and his answer was “ACAS took a long time to deal with the matter”. As appears from the dates on the ACAS certificate, ACAS got involved only once the primary period had long since expired. C1 has not shown that it was not reasonably practicable for him to present his claim in time. and according C1’s claim for these sums are outside the jurisdiction of the Tribunal. This does not apply to his claim for a redundancy payment, which is not subject to the same time limit. It is conceded by the Respondent that all of C2’s claims were brought in time (this being a consequence of the fact that she was sent a second rejection letter during the period of three months before her ET1 was presented - also on 15/7/24).

[4]In relation to all claims within jurisdiction the Respondent denied that the Claimants had been employees of the company and submitted that hence they were not entitled to such payments.

Findings of fact

[5]C1 set up the company on 17/12/2013 and the Claimants (who are husband and wife) were registered as directors. Each Claimant held 40% of the shares and the Claimants’ two adult children held 10 shares each.

[6]The company traded in freight forwarding.

[7]Before the company was incorporated C1 worked on his own account doing freight forwarding.

[8]No contract of employment between C1 and the company was produced in evidence. C1 said there had been a contract for him, in the same terms as the contract issued for C2, but he could not find it to send it in as evidence, despite being given time to locate it.

[9]C2s claimed contract was produced, but it was unsigned and undated. It also contains a number of anomalies. For example, C1 claimed that C2 had worked for the company as an employee since it was incorporated in 2013 until it went into liquidation in July 2023 but the contract states “Your employment begins on 6/4/20. No previous employment counts as part of your period of continuous employment”. Furthermore, the claimed contract appears on a letterhead showing a registered address for the company, which address in fact became the registered address only on 2/8/2020.

[10]In their online applications to the RPS for payments from the Fund, the Claimants stated that they had worked a fixed 35-hour week at a fixed wage rate, C1 stated on his director’s questionnaire that his contracted hours were 40 hours per week which was inconsistent with what he stated originally.

[11]P60s were produced showing each of the Claimants earning gross earnings in the year ending 5/4/2023 £11,908, in the year ending 5/4/2022 £22,800 and in the year ending 5/4/2021 £9,500. C1 explained that the figure for the year ending 5/4/22 was an exception which had something to do with balancing the directors’ loan accounts, but that in all other years their salaries shown for accountancy purposes would have been similar in amount to the years ending 5/4/21 and 5/4/2023, thus not attracting any liability to income tax or national insurance contributions.

[12]If the pay (£11908) shown on the P60s for the year ending 5/4/23 (the last salary year before the company went into liquidation) was divided by the weeks of the year (52) and by the number of hours (35) which C1 in his oral evidence claimed that each of the Claimants worked per week, then the Claimants would have been working at the rate of £6.54 per hour, which was considerably less than the national minimum wage rate of £9.50 per hour which would have applied during that year to them.

[13]Under the National Minimum Wage Regulations, company directors, as office holders, are not entitled to receive the NMW for the work they do as an office holder. They are entitled to set their own rate of remuneration. However, if they are also an employee, or a worker (as defined by Section 230 of the Act), then they must be paid the NMW for the work they do as an employee.

[14]Very limited payslips were produced but a claimed payslip for C1 for the month of 31/3/2023 was produced, showing a claimed payment to him that month of gross pay of £4308. This is over one third (in one month) of the whole annual gross salary (£11,908) shown in his P60 for the year ending 5/4/2023.

[15]Some company bank statements were produced for the period 1/6/22 to 1/8/22. These show very few payments to the Claimants marked as wages and no pattern of regular salary payments to either Claimant. They show numerous items of personal expenditure from the company account - for example C2 buying clothing.

[16]When asked about this C1 said that neither Claimant received regular salary payments from the company but various ad hoc payments were made to them (usually as directors’ loans or by way of them using the company bank account to make purchases for personal purposes) and then at the end of the year, accounting software would be applied to show on payslips and for accounting purposes only that during the year the minimum payments shown on the P60s had been paid to them as salaries.

[17]The Claimants had each claimed in the ET1s “1 month unpaid salary £1900, 1 month unpaid notice £1900 and 20 days holiday £1900”.

[18]C1 was unable to explain coherently how he had calculated the figure of £1900 per month and agreed that it was wrong and inconsistent with the £11908 shown on the P60s for the year ending 5/4/23. He was unable to suggest what the correct figure was.

[19]The same quantum problem pertains to the claim for holiday pay. In addition, it was explained by C1 that the claim was under the contract and included holiday pay carried forward from the 2022 holiday year which ended on 31/12/2022. If the claimed written contract produced for C2 was genuine, carrying forward was expressly prohibited by the words “We do not permit holidays to be carried forward…” which appear in that document.

[20]The same quantum problem pertains to the claim for notice pay. In addition, if the Claimants had been working for the company since December 2013, their claims should not have been for 4 weeks only but for the 9 weeks’ notice pay to which they would have been entitled both as a statutory right, and under the terms of the claimed written contract in the case of C2.

[21]The Claimants had stated in their questionnaires that they were not subject to any supervision or guidance. In submissions C1 stated that every week the Board of Directors met to discuss the work for the following week. “The Board” however consisted in the Claimants and their two adult children who held the minority shareholdings given them by their parents.

[22]C2 failed to disclose in her questionnaire that since 5/1/23 she has been a director working in another company of his called Alianza Global Logistics Services Ltd. When asked whether she had any other business responsibilities she had answered “No”.

The law

[23]Section 230 of ERA 1996 Act, provides as follows; 230 Employees, workers etc.(1) In this Act employee means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.

(2) In this Act contract of employment means a contract of service or apprenticeship, whether express or implied, and (if it is express) whether oral or in writing.

[24]The essential requirements for a genuine contract of employment were summarised by MacKenna J. in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance 1968 2 QB 497 ; The servant agrees, expressly or impliedly, that in the performance of that service he will be subject to the others control in a sufficient degree to make that other master; and; The other provisions of the contract are consistent with its being a contract of service.

[25]In Autoclenz Ltd v Belcher

[2011] ICR 1157

SC, the Supreme Court held that “Where there is a dispute as to the genuineness of a written term in an employment contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. All the relevant evidence must be examined, including: the written term itself, read in the context of the whole agreement.”

[26]There is no single test for determining whether an individual is an employee within the meaning of section 230(1). Each case depends on its own facts. There is however, an irreducible minimum without which there can be no contract of employment. That minimum comprises; Mutuality of obligation an obligation on the employer to provide work and on the employee to accept and perform the work offered; Control ..that ultimate authority over the purported employee in the performance of his or her work must rest with the employer; and Personal service; ie that the employee must be obliged to perform the work personally, subject to a limited power of delegation

[27]In Eaton v Robert Eaton Ltd & SOS IRLR 83 [1988], the EAT held that a director of a company is normally the holder of an office, not an employee and evidence is therefore required to establish that the director was in fact employed . Factors include whether there was an express contract of employment or a board minute or written memorandum constituting an agreement to employ the person as a director and whether he was under the control of a board of directors.

[28]In Rajah v Secretary of State

EAT/125/95

, the EAT ruled that the relevant date for the purposes of deciding whether the Secretary of State is liable to make payments out of the National Insurance Fund to employees of an insolvency company, is the date at which the company became insolvent, not the position as it was two years ago, five years or ten years previously

[29]In Secretary of State v Neufeld and Howe

[2009] EWCA Civ 280

), the CA held that whether or not a shareholder/director is an employee of the company is ultimately a question of fact. A shareholder (including a controlling shareholder) and director can be an employee of the company, but the putative contract must be genuine not a sham and it must amount to a contract of employment not a contract for services. To establish employee status a claimant needs to prove more than mere appointment as director. The underlying facts must be examined including such matters as whether he has been paid directors fees or salary and what work he was actually doing. A written service agreement may be insufficient. In cases where the putative employee asserts the existence of an employment contract, it will be for him to prove it.

Conclusion

[30]The claimed salaries were just figures chosen for tax-avoidance reasons, and had no bearing on or real correlation to the hours actually worked or such monies as were actually paid to the Claimants. The payments made to the Claimants by the company were ad hoc, irregular and not in a pattern which showed a genuine contractual salary paid at agreed intervals such as a genuine employee would require and be entitled to.

[31]Neither of the Claimants would have been content to work as salaried employees for the very low pay referred to in P60s, even if it had been paid which, on the evidence, happened very seldom.

[32]If the Claimants had worked the claimed hours for the purported annual sums shown in the P60s then for every year (other than in the year ending 5/4/2022), that would have been an unlawful arrangement for employees in the UK, as it would have breached the NMW laws.

[33]There was no mutuality of obligation. As there was no lawful salary and there were no proper salary payments, it is not shown that any work done by the Claimants was pursuant to a real contractual obligation due by the Claimants to the company. Equally, the company was under no real obligation to pay the Claimants salaries and did not do so in any recognisable manner.

[34]Neither Claimant was controlled by the company in their work. The Board was just a family group with the Claimants in control. The reality of the situation was that they were an equal husband and wife team trading through the company which they controlled for their own benefit as shareholders and were using as a tax-efficient vehicle to avoid paying any tax or contributions to the Fund which they are now claiming against.

[35]By their applications to the Fund and in their ET1 claims, the Claimants are asking the Respondent to pay purported sums for salary and holidays which they as directors failed to cause the company while it was trading, to pay to them properly or at all.

[36]The claimed written contract/s relied on did not in fact correlate with how the parties conducted themselves in practice and was/were a sham.

[37]Neither Claimant has discharged the burden of proof to show that they were an employee of the company when it went into liquidation.

[38]Hence the company was not liable to pay either of them the payments which they have claimed and the Respondent is not liable to pay them out of the Fund.