Employee : Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld

Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld; Same v Howe: [2009] EWCA Civ 280

CA: Rix, Toulson, Rimer LJJ: 2 April 2009

In each of two separate cases, the director of an insolvent company, who was also a controlling shareholder, made a claim against the Secretary of State under section 182 of the Employment Rights Act 1996 for omney owed to him by the company.

In the first case, the claimant was the managing director of the company and worked as part of the sales team, having joined the company as a salesman in 1982.

The employment judge dismissed the claim on the basis that the claimant was not an employee within the meaning of section 230 of the 1996 Act, regarding as significant factors that the claimant had a 90% shareholding, had given personal guarantees in respect of the company's liabilities and had also made a personal loan to the company, while accepting that the claimant worked under what appeared to be a genuine contract of employment.

The Employment Appeal Tribunal allowed an appeal by the claimant, holding that the employment judge
had been wrong to include factors which did not reflect on the conduct  of the parties in the performance of the claimant's contract of employment.

In the second case, the claimant had started his business in 1979 and was originally the sole proprietor, taking 100% of the shares and becoming the sole director on the company's incorporation in December
2004. He was paid a weekly salary and made payments in respect of tax and national insurance as an employed person, while giving personal guarantees for the company's liabilities and providing his house as
security for a bank loan to the company.

The employment judge found that there was a genuine contract of employment between the claimant
and the company and that, accordingly, the claimant was an employee for the purposes of the 1996 Act.

The Employment Appeal Tribunal dismissed an appeal by the Secretary of State, at the Secretary of
State's request, so that the two cases could be heard on appeal together.

The Secretary of State appealed.

The Court of Appeal held:

There was no reason in principle why someone who was a director of a company and whose shareholding in the company gave him even total control of it could not also be an employee of the company. Whether or
not such a person was an employee was a question of fact which depended ultimately on what he had agreed with the company to do, whether he had done it and whether what he had agreed and done showed
that he had a contract of employment with the company. The only relevance of his status as a director and controlling shareholder was likely to be in the context of considering whether the contract he was
asserting was a sham rather than genuine, and in neither case under appeal was the company or the claimant's purported contract of employment categorised as a sham. On the facts, in each case the claimant was an employee of the company.

The appeals were dismissed.