Wages were not a pre requisite for employment status

In the recent case of Secretary of State for Business, Innovation and Skills v Knight UKEAT/0073/13, the EAT considered whether a managing director and sole shareholder who had not received salary for two years could be an employee and therefore entitled to a redundancy payment from the Insolvency Service under section 166 of ERA 1996.

In this case Knight had signed a contract of employment when she started with the company, which entitled her to a salary of £20k per annum, however she had chosen to forego this in an attempt to keep the company afloat.

The EAT held that she remained entitled to a redundancy payment from the Insolvency Service.

In finding that she was an employee, the EAT accepted that there is no lack of mutuality or an absence of consideration when an employee does not seek payment of wages. This means this decision is still in line with Ready-Mixed Concrete (South East) Ltd v the Minister of Pensions and National Insurance [1968] 2 QB 497 (which sets out the key factors for establishing employment status).

1. An agreement exists to provide the servant’s own work or skill in the performance of service for the master (“personal service”) in return for a wage or remuneration.
2. There is control of the servant by the master (“control”).
3. The other provisions are consistent with a contract of service.

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