Co-founder director held not to be an employee despite 30 years of PAYE payments
A director and 45% shareholder who received a fixed monthly PAYE payment for over 30 years was found not to be an employee or worker. The tribunal ruled it had no jurisdiction over his unfair dismissal claim, but his age discrimination claim can proceed as an office holder.
1 min read · Last updated 18 May 2026
Case details
- #director-shareholder
- #no-employment-contract
- #nominal-paye
- #control-absence
- #personal-service-absence
- #office-holder
- #age-discrimination
Key facts
- Mr Beadle and Mr Tomlins co-founded the company in 1988 as directors and 50/50 shareholders.
- Mr Beadle had no written contract of employment and was responsible for issuing contracts to other employees.
- He received a fixed nominal PAYE payment of £624 per month regardless of hours worked or absence.
- From 2015, Mr Beadle worked very little, mainly from home, and was not subject to the company's staff handbook or control.
- He could appoint an alternate director under the Articles of Association, indicating no requirement of personal service.
- The tribunal found he was not an employee or worker under ERA 1996 but was an office holder under s.49 Equality Act 2010.
Timeline
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Company founded
Mr Beadle and Mr Tomlins set up Capital Computer Care Ltd as directors and shareholders.
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Peak turnover
Company turnover reached £1.8 million with about 80 employees.
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Shareholders' agreement
Mr Beadle and Mr Tomlins entered into a shareholders' agreement after business decline.
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Work from home
Mr Beadle began working entirely from home, doing minimal work.
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Share restructuring
Each granted 5% 'C' shares to David Usher; Mr Beadle and Mr Tomlins held 45% each.
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Email about tax efficiency
Discussions about moving to PAYE for tax efficiency, noting Mr Beadle was of retirement age.
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Email on PAYE costs
Mr Beadle expressed concerns about cashflow if PAYE increased.
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Furlough
Mr Beadle was furloughed based on his nominal PAYE amount during the pandemic.
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Removal as director
Mr Beadle was removed as a director by Mr Tomlins and Mr Usher with immediate effect.
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Preliminary hearing
One-day hearing to determine employment status and jurisdiction.
The legal issue
The tribunal had to decide whether a director and shareholder who received a nominal PAYE salary but had no written contract, worked minimal hours from home, and was not subject to company policies, was an employee, worker, or office holder for the purposes of bringing employment claims.
The outcome
The tribunal decided that the claimant was not an employee or worker under the Employment Rights Act 1996, so his claims for unfair dismissal, wrongful dismissal, and holiday pay were dismissed for lack of jurisdiction.
However, the tribunal found that he held an 'office' under section 49 of the Equality Act 2010, meaning his age discrimination claim can proceed to a full hearing.
No compensation was awarded at this stage as this was a preliminary hearing on status.
Lessons & takeaways
- Having a PAYE payment does not automatically make you an employee – the tribunal looks at the reality of the working relationship, including control and personal service.
- Directors and shareholders who do not have a written contract and are not subject to company policies may find they are not employees, even after many years.
- If you are a director and want employment rights, ensure you have a formal contract of employment and that your working arrangements reflect an employer-employee relationship.
- Even if you are not an employee, you may still be protected from discrimination as an office holder under the Equality Act 2010.
When a director is not an employee
This case highlights a common trap for company founders: being a director and shareholder, even one who receives a regular PAYE payment, does not guarantee employment status. The claimant had been with the company since its founding in 1988, but the tribunal found that the reality of his working arrangements meant he was never an employee.
The key factors were the absence of a written contract, the lack of control exercised over him, and the fact that he could appoint an alternate director – showing personal service was not required. He worked minimal hours from home after 2015, yet his PAYE remained unchanged at £624 per month. The tribunal concluded this was a nominal arrangement for tax purposes, not a true employment relationship.
What the company could have done differently
Capital Computer Care Ltd could have avoided this dispute by ensuring that all directors who performed work had proper written contracts of employment. The fact that the claimant himself issued contracts to other employees but never had one himself was a clear red flag. If the company had intended him to be an employee, it should have subjected him to the same policies and control as other staff.
Why this matters for similar claims
For anyone in a similar position – a director or shareholder who receives a salary but operates with significant autonomy – this decision is a warning. Employment rights such as unfair dismissal and holiday pay depend on being an employee or worker. Without a contract and evidence of control and personal service, those rights may not exist, no matter how long the relationship has lasted.
However, the decision also shows that discrimination protection can be broader. The claimant's age discrimination claim survived because the Equality Act 2010 covers office holders, which includes directors. This means that even if you are not an employee, you may still be protected from discrimination by your company.
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