Mrs M C Bennet and Mr D Clare v The Secretary of State for Business and Trade: 2411771/2023 and 2411772/2023

EMPLOYMENT TRIBUNALS

Case No 2411771/2023, 2411772/2023

Between

Mrs M C Bennet and Mr D ClareClaimant

The Secretary of State for Business and TradeRespondent

Before

Employment Judge Greer

In person for claimant

Mr Soni (instructed by counsel) for respondent

Date 24 January 2025

JUDGMENT

[1]The claimants were not an employees or workers of Top Drawer Components Limited at the relevant time. The claim for redundancy is therefore dismissed because the Tribunal does not have jurisdiction to determine it.

REASONS

[1]The Claimants have each claimed a redundancy payment from the Respondent in accordance with Section 166 of the Employment Rights Act 1996. The Respondent refused their applications. On 13th November 2023 they brought claims, in time, by providing a claim form to the Tribunal. The issue

[2]At the hearing before me, the parties agreed that a single issue falls to be determined in this case, namely, at the material time were the Claimants employees of Top Drawer Components Limited?

The hearing

[3]The hearing took place by way of a hybrid hearing. I joined the hearing from Alexandra House, Manchester. The other parties joined in from remote locations over the Cloud Video Platform. The Respondent was represented by Mr Soni. I am satisfied that the participants were able to see and hear each other throughout the hearing. I heard evidence from each Claimant. They were asked questions by Mr Soni.

[4]At the end of the hearing, I reserved my determination, there not being enough time remaining in the sitting day to provide reasons at the hearing. Both Claimants told me that they were content to receive written reasons.

[5]In reaching my decision, I have carefully considered the oral and documentary evidence, the closing submissions, and my record of proceedings. The fact that I have not referred to every document in the evidence bundle should not be taken to mean that I have not considered it.

[6]Where it has been necessary to make a finding of fact in respect of contested matters, I have done so by deciding which version of events is more likely, taking all of the evidence in the round.

The Facts

[7]As a general observation, I found the Claimants to be reliable witnesses whose oral evidence is entitled to significant weight, when taken in the round with the other evidence before the Tribunal. Whilst some of their claims were not corroborated by documentary evidence, I felt it appropriate to give them the benefit of the doubt.

[8]The Claimants are Mr David Clare (‘DC’) and Mrs Michelle Clare Bennett (‘MCB’). They are married to one another. They were directors of Top Drawer Components Limited (‘the company’), between their appointment in March 2015 and that company being dissolved on 15th April 2024. Winding up of the company commenced on 18th May 2023. The Company was in the business of manufacturing wooden components for furniture. It specialised in bespoke dovetail drawer boxes for high-end kitchens and bedrooms. The company employed between 8 and 10 employees during its time in business.

[9]The Company was a wholly owned subsidiary of Sanderhill Limited. That company was dissolved on 25th April 2024. Immediately before the winding up of Sanderhill Limited was commenced on 18th May 2023, the Claimants were the only shareholders and directors of Sanderhill Limited. Sanderhill Limited was a holding company for the assets of the company. It had no employees.

[10]On or around 25th April 2015 the Claimants signed written statements of employment. Although I have seen only one copy relating to MCB, I accept that it is most likely that both claimants signed identical or near identical written statements of employment. I accept that this is likely to be a standard document prepared by North Lancs Training Group, an Apprenticeship Training Provider which the company engaged to provide advice on matters of Human Resources.

[11]This document says that MCB’s employment with the company began on 25th March 2015. It sets out a job description. It says that the rate of pay is £6.70 per hour, to be paid weekly. The document says that MCB is to be employed to work for up to a maximum of 40 hours per week. The hours are to be worked flexibly, to be agreed with management. The document says that MCB is entitled to 28 days holiday per year, which includes statutory days. In respect of disciplinary procedures, the document refers to a company handbook.

[12]I accept that the Company did have a company handbook and I accept that MCB scanned the document and attempted to provide it to the Respondent, though no copy was before the Tribunal. I accept this because in her evidence before the Tribunal MCB provided a detailed, plausible description of having scanned the document manually.

[13]Throughout their employment, the Claimants worked for less than the National Minimum Wage. I accept MCB’s evidence that the actual pay that she and DC received had no correlation with the hours that they worked. In the 3 years for which P60s were provided to the Tribunal MCB earned £11,170.03 gross, £12,570.00 gross and £11,522.50 gross. MCB earned £12,336.00 gross, £12,570.00 gross and £12,269.98 gross. In the absence of any evidence to the contrary, I accept that over the course of their involvement with the Company, the Claimants received no dividends, bonuses or loans from either the company or from Sanderhill Limited.

[14]The statement of employment particulars referred to 28 days of annual leave entitlement, though DC stated he rarely took holidays and typically forfeited any unused leave. There was no need for him to request leave or record his leave in the usual way because his leave coincided with days on which the workshop was closed. MCB said, and I accept, that she worked hours in accordance with business need. She gave an example of working 1 hour in certain weeks when business needs required it, and working from home on other occasions.

[15]The claimants worked hours significantly exceeding those set out in the written statement. Their evidence was that as the directors, they did not log their hours and did not receive additional compensation for working beyond the stated hours. DC accepted during his evidence that the provisions relating to working hours and pay in the written statement were on paper only and did not reflect the reality of his working life.

[16]I accept the claimants’ evidence that they prioritised the payment of other employees’ wages and, towards the end of the business, did not take any wage from the Company because the company could not afford to pay them. The claimants deferred their own salaries during periods of financial difficulty to ensure that the company’s obligations to other employees were met.

[17]I accept the Claimants’ evidence that the other people paid by the business were paid in accordance with the National Minimum Wage. They were permitted to take holidays and receive sick pay as outlined in their contracts. When the company went into insolvency, 2 of the company’s employees were eligible for redundancy payments.

[18]Although it was not in the papers before me, I accept that the company had a company handbook and that it contained a disciplinary and grievance policy. However, I find that it did not apply to the Claimants. MCB responded with incredulity when it was suggested that she could have raised a grievance at work. She said that if she had a problem at work, she would sort it out herself. If anyone had a problem with her, they could speak to ACAS. I find that this is an accurate description of how company discipline operated in practice.

[19]Following the winding up of the company, the claimants made claims to the Insolvency Service for a statutory redundancy payment. The claimant completed the relevant questionnaire to support their claims. On 27th July 2023 DC’s application for a Redundancy Payment was refused. On 31st July 2023 MCB’s application for a redundancy payment was refused. The Respondent’s decisions were set out in similar terms and stated that the decision maker believed that the Claimants were not employees

The Law

[20]Section 230 of the Employment Rights Act 1996 sets out the following: 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.

(3) In this Act worker (except in the phrases shop worker and betting worker) means an individual who has entered into or works under (or, where the employment has ceased, worked under) a) a contract of employment, or b) any other contract, whether express or implied and (if it is express) whether oral or in writing , whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual; and any reference to a worker’s contract shall be construed accordingly.

[21]Whether or not an individual has employment status has been the subject of a significant volume of case law. The respondent referred to a number of relevant authorities: Autoclenz Ltd v Belcher

[2011] ICR 1157

SC, Secretary of State v Neufeld and Howe

[2009] EWCA Civ 280

, Secretary of State v Knight [2013]

UKEAT/0073/13/RN

, Nethermere (St Neots) Ltd v Gardiner [1984] I.C.R 612; Eaton v Robert Eaton Ltd & SOS IRLR 83 [1988]; Fleming v SOS

[1997] IRLR 682

. In essence the irreducible minimum without which there can be no contract of employment comprises: mutuality of obligation; control; and personal service following Autoclenz Ltd v Belcher

[2011] ICR 1157

SC.

[22]The respondent referred to case law specifically relating to the issue of the employment status of director/shareholders including Rainforest v Dorset Aquatics Ltd EA-2020-000123-BA,

UKEAT/0126/20/BA

; Dugdale v DDE Law Limited

UKEAT/0169/16/LA

; Rajah v Secretary of State –

EAT/125/95

. The authorities are clear that there is no reason in principle why a director and shareholder cannot also be an employee under a contract of employment. In Secretary of State for Trade and Industry v Bottrill

1999 ICR 592

, CA, it was noted that being a controlling shareholding did not necessarily mean having day-to-day control over the company.

[23]Following the decision in Secretary of State v Neufeld and Howe

[2009] EWCA Civ 280

whether or not a shareholder/director is an employee of the company is ultimately a question of fact. Relevant considerations include whether there exists a genuine contract of employment and whether the contract of employment is a sham. The court stated that the fact that a controlling shareholder/director does not draw her own salary could point against the existence of a contract if remuneration had been irregular.

[24]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 insolvent 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.

[25]In Nesbitt and anor v Secretary of State for Trade and Industry

2007 IRLR 847

, EAT, The EAT did commented that if it had been obliged to consider who had ‘real’ control of the company, it would have taken into account the fact that the claimants in the instant case were married and together held 99.99 per cent of the shares. As a general rule, the employment status of every individual should be considered separately. However, the EAT considered that where de facto control of a company derives from a relationship with another person (in this case a spouse), even though that other individual may hold less than 50 per cent of the total number of shares, it is necessary to look at the voting power of both individuals.

Conclusions

[26]The claimants were the directors of the company. They were joint shareholders of the company’s parent company. No one else had a controlling interest in either the company or its parent company. Their status as directors and shareholders of the parent company does not prohibit them from having employment status. However, their status forms one of the factors that the Tribunal can take into account. The burden of proof is on the claimants to prove that they have employment status.

[27]I begin by considering whether the written statement of employment which has been provided to the Tribunal accurately reflects the relationship between the Claimants and the Company. I find that the document is not a true reflection of the claimed employment relationship. DC and MCB accepted as much before me in respect of the hours to be worked, the rate of pay and the disciplinary procedure. The document therefore does not assist the Tribunal in determining the claimants’ status.

[28]On the one hand, the claimants clearly undertook work for the company, including significant contributions to its day-to-day operations. There is no indication that the claimants delegated their roles, satisfying the requirement for personal service. As DC said in his evidence, he lived and breathed the company and often worked through illness to ensure the company’s survival. There can be no doubt that the Claimants worked exceptionally hard in their roles as company directors.

[29]On the other hand, the claimants were not guaranteed regular pay, as their remuneration fluctuated based on the company’s financial health. As MCB said in her evidence before me, there was no correlation between the number of hours worked and the amount of pay that they would receive. DC recognised that his priority was to ensure that other workers were paid and he forfeited his own pay to pay others. DC said he was offended at the suggestion that he would be entitled to overtime or sick pay. Each claimant worked well in excess of the 40 hours set out in the statement of employment and they were not paid for their time. In reality, their pay was below the national minimum wage. This points strongly to them working as office holders as company directors and not as employees of the company. As DC said in his evidence before the Tribunal when asked about why he did not seek payment for his time, “we were the company”.

[30]Significantly, others in the business did have a contracts of employment which reflected key terms which applied to them, for example in relation to pay, holidays and sick pay.

[31]The Claimants exercised ultimate control over the company as directors and shareholders, determining their own working hours, tasks, and remuneration. They decided when they worked, how they worked, and whether they would be paid. To this extent, they shared the financial risk of the company’s fortunes. There was no suggestion of supervision or accountability to another party within the company, as disciplinary and grievance procedures did not apply to them in practice.

[32]Drawing these considerations together, whilst the claimants provided personal service to the company, the lack of mutuality of obligation, the high degree of control they exercised over the company, the irregularity of their pay, and their dual roles as directors and shareholders weigh strongly against the existence of an employment relationship under Section 230 of the Employment Rights Act 1996.

[33]The burden of proof is on the claimants to show that they had employment status and they have not done so. The factors before the Tribunal point away from employment status at the time that the company became insolvent. The Tribunal finds that the Claimants were not employees and therefore they are not eligible for statutory redundancy payments.