Claimant v Cullingford Carpets Ltd (In Administration)
Outcome
Individual claims
The tribunal found that the claimants were not employees within the meaning of s230 Employment Rights Act 1996. The employment contracts were a legal device to allow tax-efficient payment of directors' remuneration, not a genuine employment relationship.
Claim for notice pay failed because the tribunal determined the claimants were not employees but shareholders/directors in business on their own account, despite written contracts.
Claim for unpaid wages failed as the tribunal found no employment relationship existed. The payment structure (low salary plus dividends) was designed for tax efficiency, not reflecting genuine employment.
Holiday pay claim failed because claimants were not employees. The tribunal noted they regularly took less than full holiday entitlement, consistent with being in business on their own account rather than employees.
Protective awards claim failed as the claimants were found not to be employees of the first respondent but rather shareholders and directors.
Facts
The claimants operated a carpet business in partnership from 1978/1980 until 2005 when they incorporated and became directors and shareholders (37.5% each). They entered into written director's service agreements but were paid mostly through dividends with only a small salary (below NMW). The business went into administration in November 2023 after Mr Cullingford suffered a stroke and brain injury. They claimed employment-related payments from the Secretary of State on the basis they were employees.
Decision
The tribunal found neither claimant was an employee. The written contracts were a legal device to allow tax-efficient payment of directors' remuneration, not genuine employment relationships. Key factors included: payment below NMW, no real control over Mr Cullingford, no change in role from pre-incorporation partnership, personal guarantees given, and inability to distinguish between director and employee duties. All claims against the Secretary of State were dismissed.
Practical note
Written director's service agreements and PAYE salary payments do not automatically create employee status where the overall arrangement (particularly payment predominantly by dividend below NMW) indicates the individual remains a shareholder/director in business on their own account rather than a genuine employee.
Legal authorities cited
Statutes
Case details
- Case number
- 1400745/2024
- Decision date
- 15 May 2025
- Hearing type
- preliminary
- Hearing days
- 1
- Classification
- contested
Respondent
- Sector
- retail
- Represented
- No
Employment details
- Role
- Director
- Salary band
- Under £15,000
- Service
- 19 years
Claimant representation
- Represented
- Yes
- Rep type
- lay rep