Claimant v Secretary of State for Business and Trade
Outcome
Individual claims
The tribunal found there was no genuine employment relationship at the time the company entered liquidation. The claimants were directors and 50% shareholders each with no written contract of employment, no supervision, not subject to disciplinary procedures, and no person who could take disciplinary action against them. They controlled their own remuneration and chose to pay themselves below the National Minimum Wage, which indicated they were acting as officeholders rather than employees.
Facts
Mr and Mrs Edgecombe were the sole directors and equal shareholders (50% each) of Pocketfold Invites Limited, which entered creditors voluntary liquidation on 6 September 2022. They claimed redundancy payments from the National Insurance Fund through the Redundancy Payments Service. They had no written employment contracts, paid themselves salaries below the National Minimum Wage (£8,784 annually), received substantial dividends (approximately £35,000-40,000 per year each), operated Directors' Loan Accounts, and provided personal guarantees. They were not subject to any supervision, guidance or disciplinary procedures and had complete control over their remuneration structure.
Decision
The tribunal found that the claimants were not employees at the relevant time (when the company entered liquidation). Despite being directors and shareholders not precluding employee status in principle, the tribunal concluded there was no genuine employment relationship. Key factors included: no written contracts, no supervision or disciplinary control, payment below National Minimum Wage indicating officeholder rather than employee status, control over timing and form of remuneration, and choosing the most tax-efficient payment structure. The claims for payment from the National Insurance Fund were dismissed.
Practical note
Company directors who are also controlling shareholders and who choose to pay themselves below the National Minimum Wage, exercise complete control over their remuneration, and have no supervision or disciplinary framework will likely be found to be officeholders rather than employees, making them ineligible for redundancy payments from the National Insurance Fund.
Legal authorities cited
Statutes
Case details
- Case number
- 1405799/2023
- Decision date
- 28 November 2024
- Hearing type
- preliminary
- Hearing days
- 1
- Classification
- contested
Respondent
- Sector
- central government
- Represented
- Yes
Employment details
- Role
- Director/Shareholder
- Salary band
- Under £15,000
Claimant representation
- Represented
- Yes
- Rep type
- lay rep