Hello. My name is Alice the Hajj. And can I welcome you to this data lore? Webinar on company directors on the inter relationship between them on modern employment law. Over the course of the next 25 minutes or so, it would be night on impossible for me to cover every avenue off the way in which employment law into links with someone being a company director. Therefore, what I'm planning to do is give you an overview. Ah, flavor, if you like off the various areas that might crop up in practice so that you can then carry out further research. Let me just touch upon the areas that I'm going to look at during this webinar. Firstly, the tricky question off whether a company director is in fact, an employee off that company. Then I'll assuming that they are in certain circumstances. I'll move on to look a bit at the terms that would be contained within a standard directors service contract. In other words, their contract of employment that engages them by the company. I'm going to spend a bit of time looking at the duties that directors owe to the company. Obviously, there are employment law related duties that may be governed by a contract of employment. But company directors, as many of you will know, are also under additional statutory duties that they owe to the companies for whom they are engaged on. I'll be spending a bit of time going through the main duties that directors oh, then a little bit on termination of office, because obviously there are certain circumstances in which a director's term of office is. The director comes to an end on how that into relates with their status as an employee of the company on then, finally, just to wrap up a few implications under the transfer of undertakings. Protection of employment regulations, obviously two p is hot stuff and always has been where companies change hands. What actually happens to the directors so that, in overview, is what I'm proposing to cover. Let's start then, with the tricky question of whether a director is employed by a company or not. Directors are, of course, officeholders. They aren't employees from from the very, very beginning on officeholder, as you, as you well know, is recognized in a slightly different way, for example, in the Equality Act, and it carries a different status to that of employees. The key question is whether the A director of a company actually satisfies the definition of employees contained within section 230 off the Employment Rights Act of 1996 on. For those of you who know your 1996 act, you will know that it is very broadly defined. An employee is someone who works under a contract off service or a contract of employment. And indeed, most companies, especially if they're adopting the table. A articles from the Companies Act. Most companies have the power to employ a director pursuant to some form of contract of employment on. In fact, in the majority of cases where directors are closely linked with the company where they are, for example, executive directors, most usually there is a contract of employment to be found. The question of whether a director is an employee or not can, of course, have a great practical on dim porton significance and consequence because obviously, if the director exists within the organization as an employee, they will acquire certain rights. For example, under the Employment Rights Act of 1996 they would acquire the right not to be unfairly dismissed. If they're simply a director on an officeholder, they would not acquire such a right. We know from the legislation the 1990 six act, that it is only employees on employees defined within the meaning of section 230 of the Employment Rights Act. It's only employees who acquire the right not to be unfairly dismissed so it can have importance in terms off employment rights. So how do we work out whether a director is an employee or not? Well, of course, in the majority of situations, it will be a very straightforward matter. The director will obviously be appointed pursuant to the articles of association of the company on did indeed, going hand in hand. With that, they will have some form of contract of employment, which makes it crystal clear that, in addition to holding the office of director, they are also on employees off the company on that, as I say, happens in the majority off cases. However, in some circumstances it can be the case that the landscape off, whether a director is an employee or not, becomes a little bit Willie on a little less clear on a times in litigation quite difficult to actually determine. For those of you who know your employment law, you'll know that the usual test where there is some doubt as to whether and on individual, is an employee of a company or not, is quite a complex test on. There has been a plethora off case law over many years, starting way back in 1968 with the infamous judgment of Mr Justice McKenna in ready mixed concrete on minister for work and pensions, but that this is a test for normal employee status that has developed over the last 50 or so years. It's not really of any great use when determining a director. Let's just look at that test that we would use in a normal case, as we know from the case law that has developed over the years. Firstly, were would look to see whether there was a degree of control is the individual or let's call him or her. The director is the individual under the control of the company. Second, the second question to ask would be weather. There was mutuality of obligation, in other words, is the director as an employee under a duty to perform services for the company. By virtue of the relationship Ondimba return is the company obliged under some form of contractual obligation to provide that director with work? If, of course, unemployment tribunal or court rules that there is no degree of control, then the individual cannot be an employee. If having been satisfied on control, it finds there is no mutuality of obligation. Again, the court will make a finding that there can be no relationship of employment on then. The third stage, of course, is to look at all the other terms and conditions that govern, whether express or implied, or a Lauren writing that govern the relationship between the individual and the organization. On, therefore, applying that test to the director of a company. It doesn't really get us very far because invariably, if we look at control, the director is the one who is actually doing the controlling as the office holder. In most cases, there will be mutuality of obligation on one, then looks at all the other terms. Therefore, that standard test that we would apply in other arenas is of little use to us as a slaughters off course, those things are important. Whether the company exercises a degree of control over the director. Whether there is mutuality of obligation weather, the terms and conditions of engagement are consistent with a contract of service rather than a contract for services. These are all important things. But perhaps a better way to looking to looking at the director relationship with the company in terms of employment status is to focus more on what we call the integration test. Is it the case that the director in question is integrated in some way into the business and working for the business now here is usually where you see the divergence between executive directors on the one hand on non executive directors on the other. Because performing the integration test to determine employment status, you would usually find that a non executive director has that greater degree of distance between him or her on the workings of the company, whereas an executive director is more likely to be integrated farm or, if you like, into the mesh off the organization and is more likely to be found to be on employees over the years, many cases, usually involving redundancy payments you can think back almost 20 years now to Secretary of State for Trade and Industry and Barkin Secretary sectarians in bottle All those cases that focused on the question off whether a director as a shareholder could be an employee of the company for the purposes of claiming a redundancy payment on the law has now developed with stage where it is perfectly clear and obvious that a person who is the controlling shareholder in a company can also be on employees off that company. It doesn't happen in every state of affairs. You can't say that there is a blanket rule that the controlling shareholder as a director can be an employee when one can't put it is highly, is that. But what one can do is say, obviously, that if the circumstances are right, if there is integration, if there is some degree of mutuality of obligation, etcetera, etcetera, then that individual can, of course, be on employees. So let's assume for the moment that our director, who is the subject of this and I'm just gonna have a ah little slope of my morning coffee do forgive me. It's very good. The coffee here at 56 court. We've just gone into some form of new blend and this little poster in reception that tells you all about the the origin of the beans most most enlightening. Let's now move on Teoh the service contracts because, let's assume for the moment that we have a director who is also an employee of the company, that director is invariably engaged under what we call a service contract. On importantly, Section 227 off The Companies Act of 2006 sets out minimum requirements for that contract. That service contract for the director and section 227 defines a director service contract in two different ways. Firstly, it is a contract under which the director of the company undertakes personally to perform services for the company. That's issue Number one issue Number two is a contract under which services that a director of the company undertakes personally to perform are made available by 1/3 party to the company or to a subsidiary. This again incorporates modern developments in the way in which services are provided to companies over the last 20 years that some of you will recall the case of Hewlett Packard and Murphy, which del I think was the first case of appellate level that dealt with the issue off, whether the on intermediate third party between the individual and the company, whether that negated the relationship of employment or not. And as we see here in section 227 it's now the case and has been certainly since the Companies Act 2006 that if that intermediate relationship exists, in other words, there is 1/3 party between the director and the company. That does not necessarily negate the possibility of there being a valid A service contract. The service contracts themselves are subject to important rules. Firstly, under Section 288 of the Companies Act of 2000 and six, the company must keep available for inspection a copy of every directors service contract. I think the legislation goes on to say that those copies of the contracts must be kept at the registered office of the company, whether that is an office of the company itself, for a firm of accountants or lawyers or whoever, but the service contracts of every director have to be kept there. There are also for those of you who deal with companies listed on the stock exchange, which are obviously govern are governed by a set of rules called the listing rules. There are also some listing rule rules requirements for those company list cut companies listed on the stock exchange. They are quite voluminous and numerous on I haven't Got the Time in the course of this weapon are to go into them in detail. Safe to say that if you are dealing with a director or a company that is listed at the stock exchange, please do check the further requirements in addition to Section 288 that apply in the listing rules just to give you some examples of certain information regarding director service contracts has to be supplied. Teoh Rather exotic body called the Regulator Information Service or R I. S on. In terms of that information, what has to be supplied well, any time a new director is appointed, they would risk would have to be notified of that any time a director resigned, they would need to be informed of that. Any changes to the role is the director's role changing on on a practical basis from day to day. Whether that director has taken on other directorships, because again, the r I s will need to know about that any liquidations in which the director has been involved on, of course, because the nature of listed companies makes them far more public than private companies. Any public criticisms that have been made about that particular director that air in the public domain, all of that information in relation to the director and his or her service contract would need to be communicated to the Regulatory Information Service. Can I now move on to on area off company law and indeed, intertwined with employment law? That is of great importance, that is to say, the statutory duties that are commonly or duties that are owed by directors to companies. Clearly, if a director is an employee of a company, there will be certain duties that the director owns by virtue of the contract of employment. There are always such duty set out. But because directors are office holders, there is a plethora off duties with which they have to comply when discharging their duties. For a company. Firstly and most importantly, a director has a duty to act within his or her powers. In other words, whatever authority is conveyed to the director by virtue of any service contract or by virtue of the articles off associational memorandum of a company, the director cannot go beyond the scope of those powers that are set out in the contract or in those company documents. If a director does nine times out of 10 it can be a matter of misconduct that can be dealt with by the company in the usual way by potentially taking disciplinary action against the company. But of course, it would also be a breach of duty. Andi, when directors are in breach of duties, the shareholders, the company is a whole contain action against that Director directors must be very careful to identify with some care the powers that they have on, as I say most of the time, it will be set out in black and white in documentary form on. They should always abide by that. The second duty I want to talk about is an important one. I suppose it it would go hand in hand with a director's duty of fidelity or an employee's duty of Fidelity on that is the duty to promote the success off the company. It's no use a a director taking up office and not having the best interests of the company at heart oil directors when they take up office. One of their duties is to ensure that the company is a success. I guess what I'm saying is they don't deliberately run it into the ground for their own ends on means. Although this duty is an important one, it's not. One is usually breached in practice, save in usually fraudulent circumstances. But all directors need to promote the success of the company going forward at once. They are appointed one of the next duties. This, of course, the duty to exercise independent judgment. Now this is important because sometimes there can be a conflict between what the director wants to do for the company. But by the same time, directors need to exercise independent judgment and take an objective view of things rather than going hammer and tongs in favor of the company. The position off being an officeholder, that status of officeholder on the existence off this duty means that all directors, from time to time in the decisions that they take on they way. They, the way they run the company, need to take a step back on exercise, a degree of independence, a degree of objectivity to ensure that the company is being run properly again. If they don't do that, the company, whether in general meeting or through the shareholders, has the ability to take action against the director. If it is felt that in certain circumstances they have not exercised their independent judgment, then probably the most important one, while they're all important. But I think the most important one that people talk about is the director's duty to exercise a lot. Reasonable care, skill and diligence, in other words, to carry out the role of director properly using cad skill, diligence, etcetera. It's no use a director coming on board to accompany on being a total waste of space that gets us nowhere on. Indeed, in the majority of cases, any director who does know exercise, reasonable care and skill and diligence is usually removed from office fairly quickly again. It's a raft of case law, which you can look up after this webinar. There's no time for me to deal with in the course of this session. But there's a raft of case law dealing with the various intricacies off where a director might have breached their duty of reasonable care that skill and diligence directors are also under a duty to avoid conflicts of interest. One tends to find conflicts of interest arising where they have different directors will have their fingers in a number of pies. It's relatively straightforward. Where a director is a director of only one company, there's the potential for conflicts of interest. But of course, if you have ah, director who has a number of directorships, they need to take care that each of those directors directorships are not in conflict with one or the other again. This is a matter for the individual that the individual has to take care that they can be not the shred over an allegation that there is any bias one way or the other. Another juicy is the duty not to accept benefits from third parties. I quite like this one. This is, of course, trying to deal with with bribes or things like that, rather always a topical matter. A company should be run properly. It should not be the case that directors are taking payments or receiving benefits from third parties that might conflict with their duties as directors. And interestingly enough, all that these duties that I've mentioned exist, obviously, while the director is in office, Andi is a director of the company. But, interestingly enough, in relation to conflicts of interest, please note the wording of Section 875 of the Companies Act of 2006 which makes it clear that the duty to avoid conflicts of interest about which I spoke does continue. After the relationship off, director and company has come to an end. Eso again. Obviously a director will acquire certain confidential information through being an employee or being an officeholder. There cannot be a conflict of interest further down the line. I'm now gonna turn, if I may, to the termination off the office off director on this could be done very, very easily. Under Section 168 off the Companies Act, a company may, by ordinary resolution, removed a director from office. It's a very, very straightforward process. Directors come, directors go. That's how it were. The usual circumstance will obviously be governed by contract that any contract of employment or service agreement will be said to terminate when the director is removed from office, though this is not always the case. If there is nothing in the articles of association or the memorandum or the contract of service that says that it will terminate upon the director being removed from office through an ordinary resolution under 168 there may have to be a separate process to terminate at that service. Agreement. Eso Please don't go away from this webinar thinking that it is totally automatic. It will depend on the wording off the documentation in the main. Of course, it is the position that the service agreement usually comes to an end. There's usually a clause within it, and it set out there off course. If the director is an employee, they will be entitled to periods of notice. There may be contractual periods of notice. The director may very well have a claim for unfair dismissal if they have, if they are on employees and have acquired at those employment rights. Eso make sure if you are terminating the appointment of a director on their employment. At the same time, make sure that you see KJAR advice or, indeed, specialist legal advice. Finally, just a word on the transfer of undertakings. Protection of Employment Regulations of 2006 Obviously, in most cases to P will operate where there is a service provision change or a business transfer to transfer the employment off employees from one employer to another. Where there is the transfer off on undertaking on the effect of two p also applies to directors who are employees because if a director has an employee state employee status, they're entitled to be protected by the regulations and move across under two p. Indeed, it is the case, looking at two P that if a director is also an employee and they transfer across on, they are an office holder of the trance, very transfer, or they are entitled to receive a directorship off the trance. Very Andi. In fact, if the transfer he refuses to appoint that director as a director of the trance, very that is more likely than not to be a repudiate any breach of the directors contract service contract If the trance very does not appoint, therefore in order to guard against that. It should be clearly set out in any service agreement with the trunks. For all that, if the businesses sold all this business transfer or service provision, change that. In fact, the director is entitled to be appointed by the transfer three on the transfer. E will know about this through the process of do diligence on the provision of employee liability information prior to the transfer taking place. So it's not as though the trance very the receiving organization, is going to be taken by surprise. They will know that they have an obligation to a point certain individuals as directors off the trunks very well. There we are. That's a we have time for in this webinar. I hope that's been of use. I hope it's wetted your appetite on. Hopefully, it's laid some foundations for you to go out on, do some further research on the various areas that I have touched on. I thank you for your attention and I wish you a good day
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