The question of whether a company's majority shareholder can also be an employee of the same company has come before the courts on a number of occasions, often in the context of an insolvent business and a claim being made to the National Insurance Fund.

Those pushing their claims as employees point to the fact that they pay their PAYE and national insurance in the same way as other employees and work full time for the business and so should therefore be entitled to the same protection as other employees.

Against this it is argued (typically by the state) that it is impossible to regard a major shareholder as an employee when that person is ultimately able to exercise his powers as shareholder to determine every question around his employment. For example controlling shareholders determine their own rates of pay and duties and, most importantly, whether they continue to work for the company or not. In effect, such persons cannot meaningfully make a claim for unfair or wrongful dismissal against the company, as the wrongs for which they would complain couldn't have happened without their own consent – i.e. they are answerable only to themselves and therefore incapable of being dismissed.

Following some conflicting decisions in the courts in this area, the Court of Appeal recently sought to give fresh guidance and clarification on these issues in Secretary of State for Business Enterprise and Regulatory Reform v Richard Neufeld and Keith Howe. The Court concluded there is no hard and fast rule that automatically precludes majority shareholders (or even 100% shareholders) from being employees. Whether or not such a shareholder/director is an employee is a question of fact in each case and the court will look at a number of factors (including how the individual is paid and whether the parties have conducted themselves in a manner consistent with the existence of an employment contract).

This case by case approach as to the employment status of majority shareholders means that purchasers of a business may not be able to properly assess the risk of its owners pursuing unfair/wrongful dismissal claims against them if they failed to take them on. In such circumstances it would therefore be prudent to seek a full compromise of any potential claims before the acquisition takes place.