Tribunal Erred on Redundancy Claim by Sole Director, Rules EAT
The EAT found that the original tribunal erred in its assessment of a redundancy claim made by a director who was also the sole shareholder of the company.
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Employment Tribunal Ruling on Director's Redundancy Overturned
The Employment Appeal Tribunal (EAT) has overturned a decision regarding a redundancy payment claim, ruling that the original Employment Tribunal made an error in its assessment. The case, Secretary of State for Business and Trade v Mr Karpavicius and Prime Aquariums Ltd, concerned a claim for a statutory redundancy payment by Mr Karpavicius, the sole director and shareholder of Prime Aquariums Ltd, which is now dissolved.
Background of the Case
Mr Karpavicius, via Redundancy Claims UK, initially brought a claim for redundancy pay, wages, holiday pay, and notice money after Prime Aquariums Ltd entered creditors voluntary liquidation in December 2021. The Secretary of State contested the claim, arguing that Mr Karpavicius was not an employee of the company. The Employment Tribunal upheld the redundancy claim but dismissed the other claims as out of time, ordering the Secretary of State to pay £1,322.15.
Grounds of Appeal
The Secretary of State appealed, arguing that the tribunal erred in law by concluding that Mr Karpavicius was an employee. A key point of contention was the tribunal's assertion that Mr Karpavicius's role as the sole shareholder with complete control of the company was irrelevant in determining his employment status.
EAT Decision
His Honour Judge Auerbach, presiding over the EAT, found that the original tribunal had misdirected itself. The EAT referred to the guidance provided in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld and Howe [2009] EWCA Civ 280; [2009] ICR 1183, emphasising that while a controlling shareholding does not automatically preclude employee status, it is not necessarily wholly irrelevant.
The EAT stated that the tribunal's blanket statement that the sole shareholding and director's loan were "irrelevant" did not accurately reflect the nuances of the legal guidance. It noted that the control Mr Karpavicius exercised could form part of the backdrop against which other factors are assessed, especially in the absence of a written contract.
Remittal to Tribunal
Due to the error in law, the EAT upheld the appeal and remitted the case back to the Employment Tribunal for a fresh determination on the sole issue of whether Mr Karpavicius was an employee of Prime Aquariums Ltd. The EAT directed that a different judge hear the case. The original evidence can stand; however, the parties are able to make an application to present more evidence.
The tribunal's decision on the effective date of termination, remains valid, and will be relevant should the claimant be seen to have been an employee.
Read the entire judgement here: Secretary of State for Business and Trade v 1) Mr Karpavicius (Debarred) 2) Prime Aquariums Ltd (Dissolved) [2025] EAT 89
