Mrs A Bullock v Steve Webb Models Ltd (In Creditors Voluntary Liquidation) and The Secretary of State for Business and Trade: 6023011/2024
EMPLOYMENT TRIBUNALS
Case No 6023011/2024
Between
Mrs A BullockClaimant1. Steve Webb Models Limited (In Creditors Voluntary Liquidation) 2. The Secretary of State for Business and TradeRespondent
Before
Employment Judge DennehyDate 7 May 2025
JUDGMENT
Pursuant to a public preliminary hearing It is the judgment of this Tribunal that the claimant was not an employee of the first respondent at the time of liquidation of the first respondent.
REASONS
[1]At the direction of the Tribunal, a public preliminary hearing took place today held by Cloud Video Platform (CVP) to determine the issue of the claimant’s status. That is whether she was at the time of the first respondent entering into voluntary liquidation an employee.[2]The claimant says that she is a director/sales assistant of the first respondent and is entitled to a redundancy payment and is seeking payment from the National Insurance Fund on the grounds that she was an employee of an insolvent company.[3]The first respondent has not filed any response and made no appearance at the hearing today.[4]The second respondent argues that the claimant was not an employee at the time of insolvency, did not have an employment contract either express or implied, no contract of employment existed; the claimant never received a full salary; she was a 50% shareholder; decisions were made about the business with her brother; she was one of two bosses; she made decisions re hiring and firing; there was no one senior to her; and she made a five thousand pound investment into the business.[5]The second respondent had provided a bundle of documents for today’s hearing of 203 pages. The claimant was sworn in and answered questions asked by Mr Soni and myself.[6]I was not addressed on the possibility that Mrs Bullock might be a worker, simply on the basis that she was either an employee or self-employed.
Findings of Fact
[7]The Tribunal decides on the facts by asking what is more likely than not to have occurred. I do our best to weigh the evidence I have read and heard and reach a decision on what was more likely to have occurred (not what did occur – no one will know this for sure even witnesses- we only judge on probabilities). Where a conflict of evidence arose, this was resolved on the balance of probabilities. The Tribunal has considered its assessment of the credibility of the witnesses and consistency of their evidence with the surrounding facts. Having considered the evidence, the Tribunal made the following findings of fact.
Background
[8]The claimant’s brother had started the business in 1987. The business was a specialist shop selling model radio-controlled devices such as planes and boats and spare parts. It later expanded taking orders via mail order and internet.[9]The claimant had begun working with her brother in 1993 and quickly became an equal partner in the business which was then operating as a partnership.[10]The claimant and her brother became directors in June 2003 when they converted the partnership into a private limited company. The claimant told me that there was no formal record of board meetings or decisions that had been taken by the directors, although sometimes they did record things in the diary, such as accountant meetings. All decisions would be made jointly. Although the claimant’s brother has been ill for some time, she still included him in decision making and sought his advice.[11]A recent theft which was substantial and over a long period of time, made by one employee is the claimant says what caused the business to be put into liquidation. The business had been trading for 37 years. The claimant told me that she found this very stressful and upsetting.[12]The first respondent entered into Creditors Voluntary Liquidation on 20 November 2024 and liquidators were appointed.[13]The claimant made an application to the Secretary of State for a redundancy payment on the grounds that she was an employee of the first respondent. This application was rejected by the Secretary of State on 17 December 2024 on the grounds that they do not accept that the claimant was an employee.[14]For the first respondent the claimant has an early conciliation certificate ref R320299/24/37 dated 23 December 204 and filed an ET1 on 23 December 2024. No ET3 has been received. The Tribunal wrote to the first respondent on 25 March 2025 advising that as no response had been filed by them, then judgement may be entered against the first respondent.[15]For the second respondent the claimant has an early conciliation certificate ref R320456/24/79 dated 23 December 204 and filed an ET1 on 23 December 2024. The claim was served by the Tribunal on 12 March 2025. The second respondent filed an ET3 and grounds of resistance on 14 March 2025.The second respondent says that the claimant was not an employee and never received a full contractual salary as she was paid under the national minimum wage. Contract of employment[16]At its busiest the business had 11 employees, and the claimant told me that the employees were all model enthusiasts and/or friends. The claimant had sought legal advice and had put contracts of employment in place for these employees. She told me that she wanted to ensure that everything was correct.[17]When I asked the claimant whether she had a contract of employment or written statement of terms she confirmed that she did not. She also confirmed that no oral agreement had been made regarding her terms.[18]The claimant also told me that she had never thought of organising a contract for herself. She told me that she thought that by having no contract of employment this gave her greater employment rights. Claimant’s role[19]The claimant identified herself as a director and in charge of the business alongside her brother. She said that all staff were aware that she was a director of the business. Even though they were 50% shareholders, the claimant says that she considered her brother more senior because he was older, had started the business on his own, and was brains behind the business because he knew everything about the products that they sold. I heard no evidence that suggested that her brother had more control or supervision over the claimant. She described herself as the “what if “ person. Her ET1 she describes herself as Director/Sales Assistant.[20]The claimant’s role she told me was anything that needed doing. She served customers, answered phones, tidying up etc. she said everyone helped and did “what was best for the business”.[21]The activities that the claimant took on alone were an annual meeting with the accountant and paying the wages. Although she told me a team approach was taken with regards to all major decisions, she acknowledged that she and her brother had the ultimate say, that is they were in control no one else.[22]There was a manager in charge of the everyday running of the business. If the manager was absent, then the claimant would take over his duties for that time.[23]The claimant told me that the company did have a Staff Handbook although she was not that familiar with it, but she was confident that this would have contained any relevant policies such as grievance and disciplinary. The claimant said that she had never been disciplined but had been involved in the dismissal of other employees.[24]The claimant told me that there was a process for verbal and written warnings in place, but they rarely needed to be used.[25]All holidays were recorded in the dairy. Only one member of staff was allowed to be out of the business at a time.[26]The claimant had only had one period of sickness, and it was a long time ago and she claimed statutory sick pay for this. If she was unable to do her role than the manager or her brother would take over her duties. Salary and Dividends[27]There is no dispute that the claimant carried out work and received a monthly wage from the first respondent. The claimant received these monies regardless of how many hours she worked. The wage was subject to national insurance and tax. The claimant confirmed that she had previously worked 40 hours and this reduced to 30 hours in 2023.The second respondent says this is less than the national minimum wage. The claimant told me that this arrangement was put in place on the advice of the first respondent’s accountant.[28]The claimant also received a monthly dividend, and she completed an annual tax return. This was paid regardless of the hours worked. The dividend was agreed with her brother. The claimant’s brother stopped receiving a dividend in 2022. The claimant’s dividend stopped in June 2023 due to the financial state of the business and the claimant from then on received an increased monthly wage to reflect what she would have received via the dividend.[29]The Law Employment Rights Act 1996 (“ERA”) S 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. (4)In this Act “employer”, in relation to an employee or a worker, means the person by whom the employee or worker is (or, where the employment has ceased, was) employed. (5)In this Act “employment”— (a)in relation to an employee, means (except for the purposes of section 171) employment under a contract of employment, and (b)in relation to a worker, means employment under his contract; and “employed” shall be construed accordingly.[30]Whether the claimant is an employee is a question of fact for the Tribunal to decide and in cases such as this one where there is no written contract of employment or record it is through the claimant’s oral evidence given today that I have to find the relevant facts.[31]In terms of employee status, the case of Ready Mixed Concrete v Minister of Pensions and National Insurance [1968] 2QB497 specifies that there must firstly be personal service and secondly that there must be a sufficient degree of control to make a servant and master arrangement exist. There must be a wage or other kind of remuneration. There must also be an irreducible minimum of obligation on each side to create a contract of service. The employer must be obliged to provide work and the employee to accept it when it is provided.[32]With respect to the employee status of a director the directly relevant case law is Clark v Clark Construction Initiatives Ltd [2008] ICR 635 (EAT Elias J), Secretary of State v Neufeld [2009] EWCA Civ 280 and Dugdale v DDE Law Ltd (unreported EAT, HHJ Richardson) and I considered these.[33]The more recent case in of Rainford v Dorset Aquatics Ltd UKEAT/0126/20/BA, summarised the principles in the following terms:(i) there is no reason in principle why someone who is a shareholder and director of a company cannot also be an employee, even if that person has total control over the company;(ii) whether the shareholder/director is an employee is a question of fact for the Tribunal;(iii) in cases where matters have been dealt with informally it may be a difficult question as to whether the correct inference is that the shareholder/director was truly an employee;(iv) in considering the issue it will be necessary in particular to consider how the parties have conducted themselves, what they have actually done and how they have been paid;(v) where the conduct of the parties is inconsistent with the existence of a contract of employment or is in some areas not governed by such contract, this will be an important factor pointing away from a finding that the shareholder/director is an employee; (i) the lack of any written employment contract or other record is likely to be an important consideration.[34]In terms of worker status an individual is a worker where they are engaged under a contract, and they perform the work personally and the first respondent is not a client or customer of the business. There are several other authorities on this question which I have considered.[35]I also considered the case law submitted by Mr Soni from which the following factors are drawn to be indicative of employee status:[36]Mutual obligations – I considered whether the first respondent was under an obligation to give work and whether the claimant had to make herself available for it. On the claimant’s own evidence, she said that she would do whatever was needed for the good of the business. As a director of the first respondent the claimant is bound by fiduciary duties to act in the company’s best interest, such as promoting the company’s success, exercising independent judgment and avoiding conflicts of interest. She says that she would follow the managers request to do certain tasks, if he asked her, but admitted that ultimately it was her and her brother who had the final say in things, as to what was required and when and this was I find more in line with the status of a director rather than as an employee.[37]Personal Service – if the claimant was unable to do her role, she said other employees would take over the tasks she did and the question of whether she could have provided a substitute has never arisen. As there was no contractual agreement into which any right of substitution could be implied and due to the family nature of the business, I find that the claimant was required to perform the work personally.[38]Control and supervision– Although the claimant told me that she would do whatever needed to be done or what the manager asked her to do, I found no evidence to demonstrate that the claimant was under any other person’s control, and she chose to take on functions and tasks as they were in the best interests of the business. Although she had to advise others about her holidays and complied with a general practice of only one person off at a time, she did not have to seek anyone else’s permission to take time off. There was, in reality no one superior to her in the business.[39]The claimant told me that she had never been disciplined and when I questioned the claimant on what would happen if the need for her to be disciplined arose, she advised that the manager or her brother would have had “a word” with her. I found no evidence that she considered that the disciplinary policy applied to her.[40]I find that the claimant retained significant control over her own work and as such a servant and master arrangement did not exist, nor was she subject to the business disciplinary policy. Additionally, she was the one who hired employees, put employment contracts in place and was involved in employee’s dismissal, albeit with the support of local solicitors.[41]The claimant had been involved in the business and became an equal partner shortly after she joined in 1993. She told me that she was aware that she had been appointed as a director in 2003 and although she had organised 11 employment contracts for other employees, had access to and knew how to get legal advice on employment law, she never tried to formalise her own position, other than as a statutory director.[42]The claimant acknowledged that she could have worked for someone else part time but said she never would have done that.[43]Pay and Benefits -the claimant was paid a regular amount monthly in the form of wages and dividends. This was done, she says on the advice of an accountant. She was not enrolled in the company pension scheme, had no private medical insurance, company car or bonus, but did have a mobile phone paid for by the business. She regularly wore a business branded sweatshirt if she was working in the shop. I have given little significant regarding pay and benefits as these were constructed as these were in place for tax reasons on the advice of an accountant.[44]Integration – I find that the claimant was well integrated into the business and worked 40 hours a week until the shop hours were reduced to 30 hours more recently. Although she sometimes performed duties similar to the manager she acknowledged that the manager was not the boss of her and that she was his boss. The claimant was involved in the business daily and described the workplace as unique and nowhere else was like it, because everyone was enthusiastic and friendly and had grown up with each other. As the business was owned by a sister and brother it would expected that the claimant was well integrated, and I have attached little weight to this.[45]Facilities and equipment – the claimant had the use of a mobile phone which was funded by the company. This is not unusual for either directors or employees to have such a benefit.[46]Financial Risk – I find that the claimant had taken a financial risk in the first respondent not only when she became a shareholder but when she invested £5,000.00. I find that an ordinary employee would not have done this. I have not placed any weight on the fact that she would have prospered had the company succeeded.[47]Taxation – whilst the lower payment of wages was subject to National Insurance and tax via PAYE, the dividend was not and the claimant via her accountant was responsible for tax on the dividends and she told me that she had completed an annual tax return.[48]Description – the claimant was aware and accepted that she was a director and identified herself as a director to others within and outside of the business.
Summary
[49]The fact that the claimant carried out work for the company and received money from the first respondent does not mean that one of the three categories S230 ERA must exist. It is possible for the working directors to organise their relationship without individual contracts of employment.[50]The Supreme Court in Uber v Aslam [2021] UKSC 5 found that the primary underlying question in cases concerning employment status is one of statutory rather than contractual interpretation and the relevant statutory purpose of the ERA “is the protection of workers who are vulnerable because they are in a relationship of subordination and dependence”. A touchstone of such subordination and dependence is the degree of control exercised by the employer over the individual concerned. I find that there was no one with control over the claimant, rather she was one of the joint owners.[51]The EAT said in Rainford v Dorset Aquatics stated that a lack of any written contract or other record is likely to be an important consideration. This was a case with two brothers 40/60 shareholders /directors who worked in the business and the EAT upheld the Tribunal’s decision that the brothers were not employees.[52]One of the factors I considered was the lack of written contract of employment when the claimant had organised 11 contracts for other employees. She told me more than once when giving evidence today that she had thought she had more legal rights by not having a contract.[53]The factors that point to the claimant not being an employee were: she was a 50% shareholder, she invested in the company, thus taking a financial risk, she was not under anyone else’s control or supervision, there was no mutuality of obligations, liaised with solicitors and accountants and knew how to seek advice, yet chose not to consider written terms, service contract or employment contract for herself. These factors outweighed those did point to her being an employee.[54]I do have sympathy for the claimant and the circumstances she now finds herself in, but I cannot let my sympathy sway my decision. I have found that upon listening to the evidence today on balance that she does not fall into the category of employee of the first respondent and her claim against the second respondent is not well founded and fails.