Employee, Worker, Self-Employed or Other?

In the case of Rainford v Dorset aquatics Ltd, R and his brother, B, were co-directors and 40/60 shareholders of Dorset Aquatics (the Company). R worked for the Company in a range of capacities, including as site manager at a longstanding landscaping project, and by taking responsibility for marketing and social media. R decided his own hours of work and was not under the control of B or anyone else at the company. There was no written contract governing R's employment status. Both R and B were each paid an equal ‘salary’, from which PAYE and NI deductions were made. They also received dividends based on their shareholdings.

A dispute arose in June 2018 and R brought claims in the Employment Tribunal (ET) for unfair dismissal, notice pay, unlawful deductions and holiday pay. The ET considered R's employment status as a preliminary issue.

What Was Taken Into Account?

The ET found that R was neither an employee nor a worker under section 230 Employment Rights Act 1996, taking into account:

• the difference in status between the brothers and the Company's employees
• the understanding between the brothers that they would both generate and execute enough work to sustain the Company
• the fact both brothers were free to do other work (and R indeed did sometimes work in his partner's hair salon)
• that there was a genuine right of substitution that R could have used for his site manager work, albeit the need never arose

R appealed to the EAT.

 There Is a Difference Between One's 'Role' and 'Employment Status'

The EAT dismissed the appeal, holding that:

• It is possible for individuals to be both a director/shareholder of a company, and an employee, a worker or a self-employed contractor of the company. The ET had not treated director/shareholder status as being mutually exclusive with employee status.
• However, it is not necessarily the case that working director/shareholders must also be categorised as either employees, workers, or as self-employed contractors under section 230(3). The simple fact of doing work for and receiving money from a company is not enough to conclude a director/shareholder must fall under one of these categories.
• In respect of the right of substitution the ET had found existed, the fact R never invoked this right did not preclude its existence.

Context and Documentation Are Key

We are used to categorising people who work for businesses as employees, workers or as self-employed. This case is a useful reminder of the fact that director/shareholders can perform work for a company without falling into any of these categories. From a practical perspective, it is always sensible to ensure appropriate documentation is in place that accurately reflects the reality of all working relationships in order to reduce the risk of such a dispute arising.

If you require more assistance deducing the terms of your employment status, please contact our Employment Law team, or complete the form below.