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Director Held to be an Employee and Awarded Compensation under Unfair Dismissals Acts

Facts: The Complainant was one of two original directors of the Respondent, Tile & Wood Factory Outlet (Limerick) Limited, along with her husband when the company was set up on 21st April 2016 as a single-member company. The Complainant and her husband separated in August 2019 and commenced family court proceedings in May 2020. Their son was appointed as a director in November 2020.

The Complainant was terminated by removal from the Board of Directors on 29th September 2021, by way of an ordinary resolution pursuant to Section 146 Companies Act 2014. She was paid until 21st October 2021. The Complainant submitted that she was not only a director but also an employee and that her termination amounted to an unfair dismissal. The Respondent submitted that she was only ever a director and that she was not covered by the Unfair Dismissals Acts.

On 22nd June 2021, the Respondent sent the Complainant a letter requesting her attendance at a disciplinary investigation to discuss allegations of misappropriation of company funds. The Complainant was informed that she would be suspended with full pay until the investigation process was concluded. She was also informed that the “outcome of this process may ultimately result in the imposition of the disciplinary sanction up to and including dismissal.” The Complainant wrote on 1st July 2021 seeking details in relation to the authority of the Respondent to carry out a disciplinary investigation in circumstances where they were co-directors. In the same letter, she also sought a copy of her Contract of Employment and Job Specification, the date that the disciplinary policy was rolled out and by whom, a copy of the Board Resolution validating the policy and procedure, and full details in relation to the authority her husband had to roll out the disciplinary investigation in these circumstances. The Respondent never responded to the Complainant and instead sent her a notice of the resolution to remove her as a director by letter dated 19th August 2021 and was invited to put in representations on the resolution. The Complainant did not put in a representation and, by letter dated 19th October 2021, the Complainant was advised that the resolution had passed and the Complainant had accordingly ceased to be a director of the Company. Her pay cased on 22nd October 2021.

The Respondent raised the preliminary issue that the Complainant was not covered by the Unfair Dismissals Acts as she was not an employee of the Respondent.

Decision: The Adjudication Officer, Ewa Sobanska, decided that the Complainant was in fact an employee and was at all times treated as an employee. The correspondence issued to the Complainant in relation to the investigation was itself indicative of an employee-employer relationship. In addition to this, it was held that there was mutuality of obligation between the parties at all times and satisfied many other characteristics of employment set out by the Code of Practice on Determining Employment Status.

In relation to the Respondent’s claim that the Complainant was Class S PRSI, the Adjudication Officer noted that the determinations of a person’s employments status made by the Department of Social Protection, the Workplace Relations Commission (“WRC”) or the Office of the Revenue Commissioners are not binding on each other. Therefore, the Complainant’s status in relation to PRSI contributions did not weigh on the classification of her employment status.

However, it was held that the five main factors in establishing the difference between “Contract of Service” and “Contract for Services” must be considered. These are Mutuality of Obligation, Substitution, the Enterprise Test, Integration, and Control. The Adjudication Officer found that the employment relationship satisfied all of these elements. The Respondent undertook to provide the Complainant with work and the Complainant undertook to personally perform that work in consideration of remuneration, the Respondent had sufficient control over the Complainant’s time working, the Complainant was an integral part of the business. The Complainant was therefore engaged at all material times by the Respondent under a contract of service. She was the only director that appeared on the roster.

On the substantive issue at hand, after the Complainant was deemed to be an employee, the Adjudication Officer held that the dismissal was unfair under the Unfair Dismissals Acts. She noted that the burden of proof lies with the Respondent in proving that proper procedures were followed, and that this was not discharged. It was noted that the role of the Adjudication Officer is to determine whether a reasonable employer would have acted in the manner in which the impugned employer did. It was found that the Respondent failed to follow any clear procedures whatsoever in coming to the decision to dismiss the Complainant. Given the lack of procedures, the Adjudication Officer said that she was not in a position to determine if dismissal was a reasonable response in the circumstances. The Complainant was subsequently found to have been unfairly dismissed.

Re-instatement and re-engagement were held not to be appropriate remedies in the circumstances. The remaining option was compensation for loss suffered. The Complainant’s weekly wage was €500 net. However, the Complainant had not obtained alternative employment since her dismissal and had failed to show sufficient attempts to mitigate her loss to meet her obligation under the Unfair Dismissals Act. Therefore, the Adjudication Officer reduced the amount of compensation and awarded the Complainant €20,000.

Takeaway for the Employers: Employers should note that the roles of director and employee are not mutually exclusive. If a director satisfies the characteristics of a Contract of Services, they are entitled to the same protections as an employee.

Link  –  https://www.workplacerelations.ie/en/cases/2023/may/adj-00037806.html

Authors – Anne O’Connell and Hannah Smullen

31 May 2023

Anne O’Connell Solicitors

19-22 Lower Baggot Street, Dublin 2


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