Could your shareholders be entitled to employee rights?

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Secretary of State for Business, Innovation and Skills v Knight UKEAT/0073/13


The Employment Appeals Tribunal considered whether a majority shareholder who had not received pay for two years could be an employee.


In this case, the issue was whether the Managing Director and Sole Shareholder was entitled to Statutory Redundancy Pay from the Insolvency Service under section 166 of ERA 1996, even though she had not received pay for a period of two years.

It is established in the case of Ready-Mixed Concrete [1968] 2 QB 497 that “there must be a wage or other remuneration” for there to be a contract of any kind.


In the case of Knight the Secretary of State argued that whilst there was a written contract of employment in existence, the terms did not reflect the reality of the situation, and when Ms Knight forfeited her right to collect a salary she varied the terms of her contract, and in doing so ended her employment status.


In dismissing the Secretary of State’s appeal the EAT found that Ms Knight would probably have taken a salary if the company was suddenly in a position to pay her, and as such there could not have been an agreement whereby her salary was no longer payable. Therefore, the entitlement to pay had not been varied even though this entitlement was not exercised.

This case does not change the law but it does stretch the factual matrix in which a “contract of employment” can be found, particularly when looking at the economic reality of the relationship.


This case could encourage “workers” to claim “employee” rights, or for contracting parties to claim benefits that might otherwise have been waived many years earlier by virtue of the parties’ course of conduct with one another.

If you have any questions concerning this article or any other employment matter please call Tom Clements, Solicitor on 01473 244 333, email or visit our website at




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Guest Sunday, 12 July 2020