England and Wales: Controlling shareholders as employees

It is well established that a controlling shareholder can be regarded as an employee of the company. The Privy Council, in an appeal from New Zealand, confirmed this position in Lee v Lee's Air Farming [1961] AC 12 (about which see the London University External LLB company law guide (2006), available here).

In Clark v Clark Construction Initiatives Ltd. [2008] UKEAT 0225_07_2902, Elias J. (the president of the Employment Appeal Tribunal) identified three circumstances where it may be legitimate not to give effect to an alleged contract of employment between a company and a controlling shareholder:

(1) where the company is a sham;
(2) where the contract is entered for an ulterior purpose (e.g., to secure a statutory payment from the Secretary of State); and
(3) where the parties do not in fact conduct their relationship in accordance with the contract.

Elias J. also identified, at para. [98], eight (non-exhaustive) factors for Tribunals to consider when determining whether to give effect to a contract of employment.