| The case of Nesbitt and Another v Secretary of | | | | on the basis that they were not employees within |
| State for Trade and Industry [2007] involved joint | | | | the meaning of the 1996 Act. Their challenge to that |
| shareholder claimants who had contracts of | | | | decision was rejected by the employment tribunal. |
| employment with their company. The claimants were | | | | The tribunal held, inter alia, that they could not have |
| husband and wife. In February 1985, the second | | | | been employees of the company because they |
| claimant incorporated a company as the vehicle for a | | | | were, in practice, in total overall control of the |
| new business providing IT training services to | | | | company and thus able to prevent their own |
| businesses and public bodies. In March 1986, the first | | | | dismissals. The claimants appealed. |
| claimant joined her in the business. From that date | | | | The principal issue that fell to be determined by the |
| onwards, the share capital of the company consisted | | | | court was whether the tribunal had erred in treating |
| of 1,000 issued shares, 529 of which were held by | | | | the fact of control as determinative of the question |
| the second claimant, and 470 of which were held by | | | | of whether the claimants had been employed by the |
| the first claimant. One share was held by F, the | | | | company. The appeal was allowed. |
| second claimant's mother. | | | | In the instant case, the tribunal had erred in treating |
| All three were members of the board. At its height, | | | | the fact of control as determinative. It was merely |
| the company had 20 employees working from four | | | | one of the many relevant factors that fell to be |
| offices. From the outset the claimants had written | | | | considered when determining the question of |
| contracts of employment with the company. Those | | | | whether the claimants had been employed by the |
| contracts were in the same form as entered into | | | | company. The claimants had proper employment |
| with its first employees. The claimants were also paid | | | | contracts, and those contracts were equivalent to |
| salaries proportionate to their roles as the senior | | | | those issued to the other initial employees. They also |
| managers of the business. They did not receive | | | | received their remuneration by way of salary. The |
| directors' fees or dividends. | | | | fact of control aside, there were no other factors |
| The company was managed on a day-to-day basis | | | | pointing away from employee status. In such |
| mostly by the claimants, although eventually a | | | | circumstances, when considering the facts found by |
| project manager was employed. Most management | | | | the tribunal, the only conclusion properly open to the |
| decisions were taken fairly informally, board meetings | | | | tribunal had been that the claimants were employees |
| were held every six months, and additional meetings | | | | of the company. Accordingly, the claim would be |
| were convened when required. | | | | remitted to the tribunal for a determination of the |
| Unfortunately during 2006 the company became | | | | sums due to the claimants. |
| insolvent. On the 3rd of July 2006, the remaining | | | | If you require further information please contact us |
| employees, including the claimants, were made | | | | at or Visit |
| redundant by the liquidator. Subsequently, the | | | | © RT COOPERS, 2007. This Briefing Note does |
| claimants applied to the insolvency service for | | | | not provide a comprehensive or complete statement |
| redundancy payments and other arrears owed to | | | | of the law relating to the issues discussed nor does it |
| them, pursuant to sections 166 to 168 and 182 to | | | | constitute legal advice. It is intended only to highlight |
| 186 of the Employment Rights Act 1996 (the | | | | general issues. Specialist legal advice should always be |
| insolvency provisions). | | | | sought in relation to particular circumstances. |
| Their claims were rejected by the insolvency service | | | | |