UK: England and Wales: shareholders as employees - guidance provided by the Court of Appeal

The Court of Appeal has today given judgment in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld & Anor [2009] EWCA Civ 280. This decision has been keenly awaited because of the guidance it provides about the circumstances in which a shareholder can be regarded as an employee of a company for the purposes of Section 182 of the Employment Rights Act 1996. It is the leading case in this area. Rimer LJ, delivering the court's opinion, outlined various principles beginning with the following (at para. [80]):

There is no reason in principle why someone who is a shareholder and director of a company cannot also be an employee of the company under a contract of employment. There is also no reason in principle why someone whose shareholding in the company gives him control of it – even total control (as in Lee's case) – cannot be an employee. In short, a person whose economic interest in a company and its business means that he is in practice properly to be regarded as their "owner" can also be an employee of the company. It will, in particular, be no answer to his claim to be such an employee to argue that: (i) the extent of his control of the company means that the control condition of a contract of employment cannot be satisfied; or (ii) that the practical control he has over his own destiny – including that he cannot be dismissed from his employment except with his consent – has the effect in law that he cannot be an employee at all. Point (i) is answered by Lee's case [Lee v. Lee's Air Farming Ltd [1961] AC 12], which decided that the relevant control is in the company; point (ii) is answered by this court's rejection in Bottrill of the reasoning in Buchan".

Update (3 April 2009): The ICLR, as part of its WLR(D) service, has provided a summary of Neufeld - click here.