Director's constructive dismissal claim fails over tax and furlough irregularities
An employment tribunal dismissed a director's constructive dismissal claim after finding he was complicit in the company's failure to pay tax and National Insurance and abuse of the furlough scheme.
1 min read · Last updated 18 May 2026
Case details
- #director
- #furlough-abuse
- #tax-evasion
- #constructive-dismissal
- #whistleblowing
- #illegality
Key facts
- Mr Kempster was a director and full-time worker for the company from March 2018.
- No formal contract or agreed salary was documented; payments were irregular and often not made.
- The company failed to pay tax and National Insurance on Mr Kempster's earnings.
- Mr Kempster was placed on furlough and received payments while also working.
- Mr McDowell paid himself a large undisclosed consultancy fee of £68,880.
- The tribunal found Mr Kempster complicit in the tax and furlough irregularities.
Timeline
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Start of employment
Mr Kempster began working for The REC Horsham Limited as a director, investing £18,000. No written contract was made.
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Proposed salary change
Mr McDowell proposed a minimum salary of £11,850 per year for all directors, but this was not implemented.
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Last payment before furlough
Mr Kempster received his last payment in March 2019; no further payments until April 2020.
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First national lockdown
The UK entered lockdown; the company began using the furlough scheme.
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Furlough payments start
Mr Kempster received £2,500 net per month from April to June 2020 via furlough. Mr and Mrs McDowell also received furlough payments.
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Access to payroll
Mr Kempster obtained access to the payroll system and discovered the extent of payments and lack of tax deductions.
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First claim presented
Mr Kempster presented a claim for unlawful deduction from wages.
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Resignation
Mr Kempster resigned following a grievance outcome.
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Second claim presented
Mr Kempster presented a second claim including disability discrimination, constructive dismissal, and whistleblowing.
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Final hearing
The tribunal heard evidence on the illegality issue and dismissed all remaining claims.
The legal issue
The tribunal had to decide whether the director's claims should be dismissed because he was involved in the company's illegal activities, such as not paying tax and National Insurance and misusing the furlough scheme.
The outcome
The tribunal dismissed all remaining claims, including constructive unfair dismissal, disability discrimination, and whistleblowing, on the grounds of illegality.
The key reason was that the director was complicit in the company's failure to pay tax and National Insurance on his earnings and in the abuse of the furlough scheme. The tribunal found that he knew about these irregularities and continued to benefit from them.
No compensation was awarded as the claims were dismissed in their entirety.
Lessons & takeaways
- Employees who knowingly participate in illegal activities at work may lose the right to bring employment claims, including for unfair dismissal.
- Directors and workers should ensure that tax and National Insurance are properly deducted and paid, as complicity in non-payment can undermine legal protections.
- Accepting furlough payments while working can amount to abuse of the scheme and may be used as a defence by employers in tribunal claims.
- Having no written contract or agreed salary can create legal risks for both parties, especially when tax obligations are not met.
A director's claim derailed by illegality
This case shows how employment rights can be lost when a worker is involved in illegal activities. The director worked for The REC Horsham Limited from March 2018 but had no formal contract or agreed salary. Payments were irregular, and the company failed to pay tax and National Insurance on his earnings. During the pandemic, he was placed on furlough and received payments while continuing to work.
When he resigned after a grievance outcome, he brought claims for constructive unfair dismissal, disability discrimination, and whistleblowing. However, the tribunal found that he was complicit in the company's tax and furlough irregularities. He knew about the lack of tax deductions and the misuse of the furlough scheme but continued to benefit from them.
What the company could have done differently
The company's failure to operate payroll correctly and its abuse of the furlough scheme were central to the illegality defence. Had the company ensured proper tax and National Insurance payments and used the furlough scheme correctly, the director's claims might have been considered on their merits. Instead, the company's own illegal conduct provided a complete defence.
Why this matters for similar claims
This case is a stark reminder that employment tribunals will not reward workers who are complicit in illegal activities. Anyone considering bringing a claim should be aware that their own conduct will be scrutinised. If they have knowingly participated in tax evasion or fraud, their claims may be dismissed regardless of the employer's behaviour. It also highlights the importance of having clear written contracts and ensuring all payments are made through proper payroll channels.
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