Following on from Chris Hadrill’s post on the duties of directors at Direct 2 Lawyers we thought that it would be interesting to consider whether directors are employees or not for the purposes of the Employment Rights Act 1996 – effectively whether they’re entitled to bring a claim for unfair dismissal against their employer, the company.
- What is a director?
- What types of director are there?
- Can a director be an employee?
- Can a director of my company make a claim for unfair dismissal?
What is a director?
Each private company must have at least one director (s.154 Companies Act 2006) and every public company must have at least two. So, what is a director? Under s.250(1) of the Companies Act 2006 a director is any person who is occupying the position of director – regardless of the name that their position has. This therefore means that if someone is not referred to by name or position as a director but is in practice carrying out the duties and assuming the responsibilities of a director then they will probably be deemed to be a director.
What types of director are there?
There are seven different “types” of directors:
- Executive directors
- Non-executive directors
- The Chairman
- Shadow directors
- De facto directors
- Alternate directors
- Corporate directors
Can a director be an employee?
Whether a director can be an employee or not will depend upon whether he or she (for the sake of simplicity referred to as “he”) has a service contract with the company (whether this is express or implied). If the director does not have an express or implied service contract with the company then he is not an employee by virtue of his directorship. However, if he has a service contract with the company then he will be entitled to all of the appropriate protections afforded by employment law.
The crucial question is, therefore, whether the director has an express or implied service agreement. Whether the director has an express service agreement or not will normally be fairly obvious – there will usually have been an actual service agreement entered into by the director and the company. Executive directors are normally employed under service contracts and are therefore employees. Whether there is an implied service contract will depend upon the custom and practice of the arrangement between the director and the company.
Can a director of my company make a claim for unfair dismissal?
If a director of a company has a service contract with the company then he will be entitled to make a claim for unfair dismissal if he has been employed by the company for a sufficient period of time. If the director commenced employment with the company prior to April 2012 then he would be entitled to make a claim for unfair dismissal after one years’ employment with the company. However, for employees commencing employment in or after April 2012 the time period to qualify for unfair dismissal rights has been raised to two years. This makes it more difficult for a director to claim unfair dismissal as not only does he have to serve a longer period but under s.188 of the Companies Act 2006 he must obtain the prior consent of shareholders by ordinary resolution at a general meeting in order to obtain a service contract of more than two years.
If you are a director and think that you may have a claim for unfair dismissal against your company then please contact us. One of our employment law solicitors may be able to offer compromise agreement advice and negotiate a compromise agreement on your behalf or, alternatively, pursue an unfair dismissal claim on your behalf.
Read more: what should your compromise agreement solicitor do for you?
Direct 2 Lawyers offer specialist representation by unfair dismissal solicitors and employment law advice to employees and employers.
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