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6-06-2014

We recently reported on the case of BIS v Knight UKEAT/0073/13/RN where C, who was the only shareholder and Managing Director of a company from the date of its incorporation until the day it ceased trading some 10 years later, was held to be entitled to a redundancy payment from the Insolvency Service even though she did not draw salary for the last two years. (More details here.) 

She had relied upon an unsigned contract of employment and various P60s to show she was an employee of the company.

The decision caused a degree of eyebrow raising among Insolvency Practitioners.

In a separate case of Ajar-Tec Ltd v Stack UKEAT 0293/13, an employment tribunal held that a director and shareholder, who performed part-time work for a company without pay for at least three years, was an "employee" and a "worker" for the purposes of the Employment Rights Act 1996.

The tribunal had implied a term that the individual should have been paid at a reasonable rate from a reasonable starting date. However, on appeal, the EAT's view was that it was necessary for the tribunal to determine whether there was an express or implied contract before going on to consider any implied remuneration terms.

The EAT therefore remitted the case to be heard by a different tribunal.

The key difference between this case and Knight seems to have been that in Knight, C was entitled to remuneration, she had an unsigned contract, she just never drew a salary, in order to assist her failing business.

It seems a pretty fine distinction given that she was the sole director and the sole shareholder and director and would have in effect drawn up her own contract of employment.

Sarah Rushton (srushton@moonbeever.com)

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information.

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