Secretary of State for Business and Trade v V Karpavicius (Debarred) & Anor

The Employment Appeal Tribunal held that the employment tribunal had erred in law when it treated the claimant's position as the sole director and 100% shareholder of the putative employer as necessarily "irrelevant" to the question whether he was an employee. The EAT applied and analysed the guidance in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld and Howe and related authorities (including Ready-Mixed Concrete and Clark) and emphasised that a controlling shareholding is "ordinarily" not decisive but can form part of the factual backdrop and may, in particular factual contexts (for example where there is no written contract), have significance.

The tribunal's finding that there was no sham contract and its factual findings about payslips, P60s, director's loans, occasional dividends, the claimant's duties and that he worked until 16 November 2021 were recorded. However, because the tribunal's general direction treated sole shareholding and director's loans as irrelevant without proper nuance, the EAT could not be sure the tribunal would have assessed the evidence in the same way if correctly directed. The EAT therefore allowed the appeal and remitted the single issue of employment status for rehearing before a different judge.

Background and parties: Prime Aquariums Ltd (the company) was incorporated in January 2016; the claimant, Mr Vida Karpavicius, was its sole director and shareholder. The company entered creditors' voluntary liquidation on 8 December 2021 and was dissolved in May 2023. The claimant brought tribunal claims, through an agent, for a statutory redundancy payment and other sums; the employment tribunal dismissed time-limited claims for wages, holiday pay and notice but upheld a statutory redundancy payment and ordered the Secretary of State to pay £1,322.15.

Procedural posture: The Secretary of State appealed to the EAT contending, principally, that the tribunal had erred in law by misdirecting itself on the relevance of the claimant's sole shareholding and director's loans to the question of employee status. The claimant did not participate in the EAT appeal (he had been debarred from taking part in the appeal proceedings), and the company did not participate.

Nature of the claim / relief sought: The claimant sought a statutory redundancy payment and, initially, unpaid wages, holiday pay and notice. The only live issue on appeal was whether the claimant was an "employee" within section 230 Employment Rights Act 1996 at the material date and therefore entitled to the redundancy payment.

Issues framed by the court:

• Whether the tribunal had correctly applied the legal principles governing the possibility that a sole director and sole shareholder may nonetheless be an employee (principally the guidance in Neufeld and Howe and the Ready-Mixed Concrete test);
• Whether the tribunal wrongly treated the claimant's 100% shareholding and director's loans as irrelevant; and
• Whether any such misdirection was material so as to require remittal.

Facts and tribunal findings: The tribunal found there was no written contract but no sham; the claimant had an oral agreement to "take care of the whole thing" and was paid by payslips (administered by a third party) and received P60s for 2019–2021, but did not always receive the payslip amounts or a regular salary. He made director's loans and received occasional dividends. He continued working until the company bank account closed on 16 November 2021.

Court’s reasoning and conclusion: The EAT reviewed Neufeld and Howe and related authorities and emphasised that a controlling shareholding does not of itself prevent a contract of employment, but it is not invariably irrelevant: it will usually be part of the backdrop and is "ordinarily" irrelevant but may have significance especially where there is no written contract and the tribunal must draw inferences from conduct. The EAT concluded the tribunal had misdirected itself by describing sole shareholding and director's loans as irrelevant without the required nuance. Because it was not possible to be satisfied that the error did not affect the tribunal's evaluation of the evidence, the EAT allowed the appeal and remitted the single issue of employment status for rehearing before a different judge. The remainder of the tribunal's decision (including the effective date of termination for limitation purposes) stands unless challenged further.

The appeal was allowed and the matter remitted for fresh determination of the single issue whether the claimant was an employee of Prime Aquariums Ltd. The EAT concluded that the tribunal had misdirected itself by treating a 100% shareholding and director's loans as necessarily irrelevant; given the absence of a full and properly directed evaluation of the evidence on that point, the EAT could not substitute its own findings and therefore remitted the issue to a fresh tribunal hearing.

Employment Tribunal (Reading) hearing 6 April 2023 before Employment Judge Shastri-Hurst: claims for wages/holiday/notice dismissed as out of time; statutory redundancy payment awarded. Appeal to Employment Appeal Tribunal (this judgment) [2025] EAT 89 (Case No: EA-2022-000679-AS).