NMW Tribunal Case Win

• A sole director/shareholder who paid themselves salary up to the threshold for tax can be an employee and should be paid at NMW for the actual hours they worked. Mr Fazal (in conjunction with CFS’s barrister) successfully proved employment status and successfully proved the hours that he worked on a weekly basis. The tribunal Judge ruled on the day of the tribunal and concluded Mr Fazal was an employee and therefore was entitled to be paid at NMW for the 40 hours per week he worked.
• The tribunal judge subsequently calculated and awarded Mr Fazal his redundancy using the relevant multiplier due for his age and NMW x 40 hours per week x his years of service. Unfortunately, Mr Fazal could not be awarded arrears of pay, holiday pay or notice pay because his application to make a tribunal claim was over the three-month deadline for these elements. During the tribunal and in coming to the conclusion that the time scales for these elements were out of time the judge did conclude that if they had been in time Mr Fazal would have been entitled to full arrears of pay calculated based on rolling back salary paid to cover previous periods of arrears caused by Mr Fazal not being paid NMW. The judge also commented that he accepted that the holiday rollover would also have been paid because he accepted that the holiday could not have been taken due to Covid confirming the use of Covid Working Time Regulation amendments to calculate holidays due was correct.

This case fully vindicates the case law and previous approach taken by CFS in calculating redundancy claims using NMW uplifts and IPs supporting those claims for directors. The issue now is how the RPS will react to this new judgement. Whilst the judgement itself does not set a precedent the RPS have been placing a high level of reliance on tribunal outcomes when setting its policies. CFS is now seeking clarity on how and what the RPS now intend to do following this most recent tribunal case.

In addition to the above we have now represented/provided extensive support to four clients in establishing employment status within the tribunal process. We hope that these decisions will finally lay to rest the RPS’s misguided stance that a director employee paying themselves salary below NMW negates employment status. In all four successful cases (Fazal, Pape, Lindsay, and Davidson) the director employee was paid below NMW at some stage of their employment. Mr. Davidson was only awarded a lesser amount because he did not provide documentary evidence of his hours (which was never requested so was paid NMW for lesser hours). In the two cases that the RPS successfully defended, the reference to payment in the judgments related to the salary payment inconsistency not to the fact that they were paid below NMW. In the six cases involving CFS the RPS has not received one single judgment to support their current policy on NMW or the over emphasis of non-payment of NMW salary as a major factor in determining employment status.

What Next?

CFS have written to the RPS asking them what they now intend to do in relation to the current policy following receipt of this and previous judgements. We will communicate this response once received. In the meantime, CFS will be submitting cases directly to Giles Ecart – Senior Leader at the RPS for any cases which meet the criteria for employment status as set out in the Fazal case and where the director can evidence their hours. These cases will be submitted at NMW including claiming for arrears of pay because NMW was not paid to the director. Once we get decisions on these test cases, we can communicate the outcomes and can establish if we can continue to submit cases on this basis without them automatically being rejected.