Employment law does not allow for any special exemptions or dispensation for employers who employ, whether directly or indirectly (eg via a limited company), partners, spouses or other immediate family members. However, in our experience, the existence of these close personal and family ties often results in the employer adopting a much more relaxed and informal approach compared to that taken with other employees. Unfortunately, this absence of the usual rigour and formality often means that insufficient discussion and consideration is given as to the actual terms on which the employee will be employed. As a result formal agreements are often dispensed with or alternatively limited to a few specific terms set out in an exchange of emails. As with more orthodox situations however, the significance and value of having full and proper contracts often only becomes apparent when the relationship is tested or begins to break down. Generally speaking the absence of any proper contracts or agreements in those circumstances will weaken the employer’s ability to manage or, in cases where the situation has deteriorated so as to involve a claim, to successfully defending that claim. The key lesson is therefore not to rely on trust and pre-existing relationships, as whilst they may seem sure and unbreakable at the outset, circumstances can (and often do) change. Given that the stress and emotions generated by close personal ties may also make it more difficult to exercise judgement fairly and objectively, the existence of a clear and comprehensive contract can bring much needed structure and clarity to any decision making. One situation on which we were recently instructed to advise involved a small family business. The husband was employed full time as the Managing Director whilst his wife was notionally employed on a part time basis, but in reality was not required to render any services nor did so. When the marriage broke down the husband wished to terminate the employee’s employment. The only potentially fair ground upon which to do so in this particular case, would have been to rely on the catch all ground of there being a substantial reason of a kind sufficient to justify dismissal, namely a breakdown in the relationship between the employer and employee which would preclude them from being able to work together. The prospects of successfully resisting any claim for unfair dismissal were much more difficult in view of the fact that his wife asserted that she was willing and able to work with her husband (and actually undertake her normal duties). As she had not actually worked in the business, it would have been difficult for the husband/employer to cite any examples of a professional relationship not working. Another issue which arose was whether or not any claim could be successfully resisted on the basis that the contract itself was unlawful, given that it falsely represented the wife as being gainfully employed by the company, when in fact it was a device to enable a greater share of the husband’s earnings to be paid in a more tax efficient way to a spouse who would be liable for tax at a much lower rate, but in circumstances where she was not genuinely engaged to perform the services of an employee. In order to succeed in a claim of illegality the employer must show three things: that the Claimant knew of the illegality; that the Claimant participated in the illegality; and that the illegality affected the contract. For reasons of public policy however the Defence may not succeed if the Defendant’s knowledge or participation was greater than the Claimant’s. How can Morr & Co help? If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Employment team on 01737 854500 or email info@morrlaw.com and a member of our expert team will get back to you. Disclaimer Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position. Authored by Mel McCrum Partner, Head of Department Message Tags Insights Corporate Insights On this page Related Stories Insights Keeping it in the Family – Corporate Structures and Family Businesses View more Contact our team today Contact Us
