Whether or not an employment relationship exists depends on the facts and the court has suggested that relevant factors in determining the status of the parties include whether the parties have conducted themselves in a manner consistent with the existence of a contract of employment and whether the director was paid by the company. If the director was paid a salary this would suggest there was an employment relationship. If the director was paid by way of directors loan this could be evidence to the contrary.
The decision has wide ranging implications in a number of areas. In the context of insolvency, a director/shareholder who is an employee may be able to claim redundancy pay, notice pay and holiday pay from the National Insurance Fund. For a purchaser of a company in administration, it is important that the purchaser asks for a compromise agreement if it is unclear whether an employment relationship exists between the insolvent company and the director / shareholder because the purchase would trigger the transfer of all the insolvent company’s employment contracts to the buyer together with the liabilities attaching to them. In many cases it is unlikely that a purchaser would want to employ the former directors and shareholders of the insolvent company.
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