The Employment Appeal Tribunal (EAT) has held in Rainford v Dorset Aquatics Ltd that just because the claimant provided services for which he was paid a salary, he did not necessarily fall into one of the categories of individuals identified under section 230(3) of the Employment Rights Act 1996 in terms of his employment status.
Bradley Rainford and his brother Ben were co-directors and shareholders of Dorset Aquatics Ltd. Bradley held 40 per cent of the shares, while Ben held the remaining 60 per cent. They were each paid the same monthly salary from which income tax and national insurance was deducted, but any dividends they received were based on their shareholdings.
The brothers decided between themselves how the work should be split, with Bradley working predominantly as site manager at a longstanding project. Bradley decided on his own hours of work and how he carried out the work. There was no written contract or documentary record clarifying his employment status, nor any evidence of any oral agreement between the parties.
After a dispute arose in June 2018, Bradley brought a number of tribunal claims. However, in order to adjudicate them, the tribunal had to decide first whether he fell into any of the categories under section 230(3) ERA.
Section 230(3) states that a worker is someone who either (a) works under a contract of employment; or (b) “any other contract … whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not … that of a client or customer of any profession or business undertaking carried on by the individual”. The latter is known as a “limb (b) worker”.
Rejecting the claim, the tribunal judge held that, as Bradley was not an employee or a worker for the purposes of section 230, his claims were unsustainable.
Bradley appealed on the basis that:
- Once the judge had found that he (Bradley) provided services for which he was paid a salary, the judge should then have found that he was either an employee or a limb (b) worker as the company was not his client or customer.
- The judge was wrong to imply a term allowing substitution, given that it was unlikely to happen in practice.
- The judge was wrong to treat Bradley’s status as a director and/or shareholder as being mutually exclusive with his status as an employee.
The EAT rejected Bradley’s appeal, holding that:
- Although directors and shareholders can also be employees or workers, it does not necessarily follow that, just because someone works for a company and receives money for that work, they must fall into one of the categories of individuals identified in section 230(3).
- When deciding what was and was not agreed between the parties in this kind of case, it was open to an employment tribunal to take into account views expressed by the parties themselves. As such, the employment judge in this case was entitled to find that Bradley had a right to substitute someone else to act as site manager in his place based on Ben’s evidence at the hearing that he would have had no problem with that, had the situation ever arisen.
- The EAT agreed that it would be an error of law to suggest that someone cannot be both an employee of a company and a director/shareholder, but held that the judge in this case had not done so. Although the level of Bradley’s control over the company and the fact that he shared in the risk were relevant to his status as a director/shareholder, as opposed to whether he was an employee or worker, they formed part of the “backdrop” which the judge was entitled to take into consideration.