Personnel Today
  • Home
    • All PT content
    • Advertise
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Equality, diversity and inclusion
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • XpertHR
    • Learn more
    • Products
    • Pricing
    • Free trial
    • Subscribe
    • XpertHR USA
  • Webinars
  • OHW+

Personnel Today

Register
Log in
Personnel Today
  • Home
    • All PT content
    • Advertise
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Equality, diversity and inclusion
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • XpertHR
    • Learn more
    • Products
    • Pricing
    • Free trial
    • Subscribe
    • XpertHR USA
  • Webinars
  • OHW+

Employment lawCase law

Case of the week: Employment status of directors and shareholders: Nesbitt and Nesbitt v Secretary of State for Trade and Industry

by Personnel Today 15 Oct 2007
by Personnel Today 15 Oct 2007

Nesbitt and Nesbitt v Secretary of State for Trade and Industry

When is a director and shareholder also an employee? In Nesbitt and Nesbitt v Secretary of State for Trade and Industry the Employment Appeal Tribunal (EAT) said that, in deciding this question, tribunals must have regard to all the circumstances and not just the issue of control.

Facts

Mr and Mrs Nesbitt (the Nesbitts) were directors and together majority shareholders of APAC Computer Training Limited (APAC). The Nesbitts had written contracts of employment in the same form as the company’s employees and managed the business on a day-to-day basis. They were paid salaries commensurate with their positions, but did not receive directors’ fees or dividends.

In 2006, APAC became insolvent and the liquidator made the Nesbitts and the remaining employees redundant.

The Nesbitts applied to the Insolvency Service for redundancy payments and other arrears, which are payable to employees under the insolvency provisions of the Employment Rights Act 1996. It rejected their claims on the grounds that they were not employees.

A tribunal agreed on the basis that the Nesbitts were in control of APAC and had the power to prevent their own dismissals.

Decision

On appeal, the EAT said the tribunal had been wrong to treat the issue of control as the determining factor. The question of an individual’s control of a company in their capacity as a director and/or shareholder was just one factor that should be considered when determining whether that same individual is also an employee of the company. The fact that an individual is a majority shareholder and director of a company should not, in itself, lead a tribunal to decide that they are not an employee of that company, unless the tribunal finds that the company is a ‘mere simulacrum’ (something having merely the form or appearance of a certain thing, without possessing its substance or proper qualities) and as a result the employment contract between the company and the individual employee is a sham.

In this case, the EAT decided that the Nesbitts were employees of APAC. They had written contracts of employment in the same form as other employees, received salary rather than dividends or fees and, with some exceptions, the relationship had been conducted in a manner consistent with that of an employment relationship.

Key implications

This case is likely to be most significant for companies where the directors and controlling shareholders are heavily involved in day-to-day management activities and integrated with the rest of the workforce. Even then, it is probably the case that directors and majority shareholders will seek to exercise employment rights in only a narrow category of circumstances where the benefit to them as individuals outweighs the detriment to the company of doing so. Making a claim for a redundancy payment under the insolvency provisions is one such example. Another would be when control of the company passes out of the hands of the majority shareholder/employee (eg, following a share sale).

That said, it is still important to bear in mind the key message of this case that having theoretical control of the employing entity does not necessarily prevent an individual being an employee of that entity themselves. And, as this case demonstrates, there will be some circumstances where being a majority shareholder employee and/or a director does not give an individual absolute control over their own destiny.

Niki Walker, managing associate and Heather Mansbridge, associate, Addleshaw Goddard

Personnel Today
Personnel Today

Personnel Today articles are written by an expert team of award-winning journalists who have been covering HR and L&D for many years. Some of our content is attributed to "Personnel Today" for a number of reasons, including: when numerous authors are associated with writing or editing a piece; or when the author is unknown (particularly for older articles).

previous post
Mediaburst’s business continuity roadshow goes to IP07
next post
Amnesty uses wellbeing programme from Inner Physique

You may also like

Holiday pay changes: how entitlement will be simplified

26 May 2023

Bank holidays: six things employers need to know

26 May 2023

Non-compete clauses and proposed limits on their duration

12 May 2023

How are working time records changing in the...

12 May 2023

Changes to working time, TUPE and non-competes announced

10 May 2023

Government urged not to backtrack on Worker Protection...

2 May 2023

EU law bill set to stall as unions...

28 Apr 2023

High Court halts full nurses’ strike

27 Apr 2023

House of Lords setback for Strikes Bill

27 Apr 2023

Supreme Court hears Deliveroo collective bargaining case

25 Apr 2023

  • The HR Bundle: Your one-stop guide to building a successful global HR Department PROMOTED | Get your hands on Deel’s free HR bundle...Read more
  • The Benefits of an Employee Assistance Programme PROMOTED | EAPs support employees in a range of ways...Read more
  • Intergenerational working and how to manage up and down the generations PROMOTED | The benefits and challenges of intergenerational workplaces...Read more
  • Bereavement in the workplace: How training can help HR get it right PROMOTED | HR professionals play an essential role...Read more
  • UK workforce mental wellbeing needs PROMOTED | The mental wellbeing support employers are providing misses the mark...Read more

Personnel Today Jobs
 

Search Jobs

PERSONNEL TODAY

About us
Contact us
Browse all HR topics
Email newsletters
Content feeds
Cookies policy
Privacy policy
Terms and conditions

JOBS

Personnel Today Jobs
Post a job
Why advertise with us?

EVENTS & PRODUCTS

The Personnel Today Awards
The RAD Awards
Employee Benefits
Forum for Expatriate Management
OHW+
Whatmedia

ADVERTISING & PR

Advertising opportunities
Features list 2023

  • Facebook
  • Twitter
  • Instagram
  • Linkedin


© 2011 - 2023 DVV Media International Ltd

Personnel Today
  • Home
    • All PT content
    • Advertise
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Equality, diversity and inclusion
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • XpertHR
    • Learn more
    • Products
    • Pricing
    • Free trial
    • Subscribe
    • XpertHR USA
  • Webinars
  • OHW+