In my last three blogs I have dealt with the question of employment status and its consequences for different types of legal claim. For my latest blog I was going to deal with a completely different subject but, just before Christmas, there was a very interesting judgment from the Employment Appeal Tribunal about employment status in the case of Rainford v Dorset Aquatics Limited
, which provides a helpful reminder of the importance of the facts in individual cases and also that it is possible to be an employee for the purposes of taxation whilst not being so for purposes of employment law.
R was a director and shareholder of Dorset Aquatics and also claimed to be an employee. R’s case appeared to be a strong one: there was no doubt that he worked for, and had received income from, Dorset Aquatics. His income for this work was partly taxed under Schedule E as employee income. Despite this, the Tribunal decided that, on the facts, R was not an employee or a worker of Dorset Aquatics.
R and his brother B were co-Directors and the only Shareholders of Dorset Aquatics. R worked for Dorset Aquatics in various capacities including working on its marketing and social media profiles. He also worked in his partner’s hair salon which was unrelated to Dorset Aquatics.
Importantly, there was no express contract between R and Dorset Aquatics (or his brother) which dealt with his status in the company. The brothers nonetheless paid themselves a “salary” which was subject to PAYE and NIC. This was done on the advice of the Dorset Aquatics’ Accountants for tax reasons. The brothers also received dividends which were paid at the end of each financial year.
The brothers fell out and R brought claims for unfair dismissal, notice pay, unlawful deductions from pay and holiday pay. As a result, his employment status needed to be determined by the Tribunal. R had to show that he was at least a “worker” to make the claims for notice pay, unlawful deductions and holiday pay. He needed to show that he was an employee to make a claim for unfair dismissal. He failed to do either.
The Judge took into account the following matters in particular:
1. There was no written agreement about R’s status;
2. That there was a clear difference in status between the brothers on one hand and Dorset Aquatics’ other employees. Indeed, R complained to his brother B that B’s poor treatment of him made him feel like an “employee”;
3. There was an expectation between R and B that both would generate and execute enough work to keep Dorset Aquatics going;
4. They were both free to do other work outside Dorset Aquatics;
5. (as we have seen) R sometimes worked with his partner in a hair saloon;
6. (accepting B’s evidence at the hearing) B would have no problem with R substituting himself for someone else to do his work even though that had never happened in practice. This is despite the fact that there was no substitution clause to rely on because, of course, there was no written agreement at all.
On appeal, R argued that, because the Judge had found that he had provided services to Dorset Aquatics in return for a salary and that the arrangement was not a sham, the Judge should have found him to be an employee and/or a worker.
R’s appeal failed. It was confirmed that the mere fact someone is in receipt of a salary which is subject to Schedule E tax, does not necessarily mean that person is an employee or worker or the purposes of employment law as opposed to tax law.
Despite the number of cases over recent years giving guidance about worker status, each case remains very fact sensitive. In this case it was clear that R’s appeal was partly unsuccessful because the appeal court was unwilling to interfere with the findings of fact of the Employment Judge. This is despite the fact that the Employment Judge did not appear to have been referred by the parties to much of the relevant case law. The case therefore also confirms the importance of ensuring that all relevant facts and case law are before the Employment Judge when the case is first heard.
DMH Stallard’s Employment
Group is able to assist with issues similar to the ones in this article. Please contact Stephen ten Hove by email
or by phone on 020 7822 1518 for further information and advice in this area.