When is a controlling shareholder an employee? 

The Court  of  Appeal  has just held there is no reason in principle why a director and controlling shareholder cannot also be an employee in the case of Secretary of State for Business Enterprise and Regulatory Reform  v Neufeld  and  Howe  (2009) CA .

Both Mr Neufeld and Mr Howe were directors and controlling shareholders of companies which were insolvent.  The Court held that they could also be employees under contracts of employment even if they had each controlled a company.   The Secretary of State was appealing against the Employment Appeal Tribunal’s decision in April 2008 that Mr Neufeld was entitled as an employee to claim for redundancy money, notice pay and holiday pay owing to the date of insolvency of one of his companies.  Mr Howe’s case was heard at the same time.

Provided the contract of employment is genuine and was in force at the time of the company’s insolvency, the director/employee can claim under the Employment Rights Act 1996 from the Secretary of State for monies owed to him by the company.

The Court said there would need to be an investigation into the circumstances of the creation of the contract of employment in question to ensure that it is not a sham. The Court would also look at whether or not the company acted in accordance with the contract.  The contract must be in place at the time of the insolvency or though the court cast doubt on whether a five year old contract would be sufficient.