Claimant v Secretary of State for Business and Trade
Outcome
Individual claims
Tribunal found claimant was not an employee within the meaning of s230 ERA 1996 but rather the sole shareholder and director. The arrangement to pay via PAYE at the income tax threshold was not determinative of employment status. Critical factors against employment were: payment below national minimum wage, decision not to pay himself salary for final two months, and absence of genuine control.
As claimant was found not to be an employee, but the sole director and shareholder operating through his own company, he had no entitlement to notice pay. There was no genuine employment contract.
The claim for unpaid wages failed because the tribunal determined there was no contract of employment. The claimant as sole director had chosen not to pay himself a salary in the final two months. The consistent payment below national minimum wage was incompatible with genuine employment status.
Holiday pay claim failed as the tribunal found no employment relationship existed. The claimant was determined to be an office holder (director) rather than an employee, and therefore had no statutory entitlement to holiday pay.
Facts
The claimant was a painter and decorator who incorporated his business in 2004. He was the sole shareholder and director of the company. On his accountant's advice, he paid himself a salary via PAYE at or around the income tax/NI threshold (£12,588 in his final year), well below national minimum wage for his 47-hour week (effective rate £5.09/hour). He withdrew additional funds marked as 'wages' and had a director's loan account. The company entered creditors' voluntary liquidation after accounting irregularities were discovered. The claimant claimed he was an employee and sought payments from the Secretary of State under insolvency provisions.
Decision
The tribunal dismissed all claims, finding the claimant was not an employee within s230 ERA 1996. While the irreducible minimum elements of personal service and mutuality were present, the tribunal found decisive contra-indicators: payment consistently below NMW (incompatible with genuine employment), the claimant's decision not to pay himself for the final two months, absence of written contract, and lack of genuine control. The arrangement to pay via PAYE was merely a tax efficiency measure on accountant's advice, not evidence of genuine employment.
Practical note
Payment via PAYE and receipt of payslips does not establish employee status for a sole director/shareholder; tribunals will look to substance over form, and payment below national minimum wage is a strong indicator that the relationship is one of office-holder rather than employee.
Legal authorities cited
Statutes
Case details
- Case number
- 1405175/2023
- Decision date
- 19 April 2024
- Hearing type
- preliminary
- Hearing days
- 1
- Classification
- contested
Respondent
- Sector
- central government
- Represented
- Yes
- Rep type
- solicitor
Employment details
- Role
- Painter and decorator / Director
- Salary band
- Under £15,000
- Service
- 19 years
Claimant representation
- Represented
- No