Identifying whether you, as a director, are also an employee is incredibly important. For instance, a determination that you are in fact an employee will mean that you are entitled to the statutory rights of an employee. This article will elucidate the law around directorship to provide you with clarity about your position.
A director will not always be characterised as an employee. That is, you will not automatically be considered an employee if you are the director of a company. Importantly, however, it was found by the court in Anderson v James Sutherland (Peterhead) Ltd  SC 203 that a person who acts as a directorcanbe an employee in certain circumstances. Anotable example of this would be where the person in question acts as a managing director. (Anderson v James Sutherland (Peterhead) Ltd  SC 203) In advancing this principle as part of Australian jurisprudence, Justice Hudson in Lincoln Mills (Aust) Ltd v Gough  VR 193 at 197-8 stated:
‘…the offices of director and managing director held under articles such as those of the plaintiff company are separate and distinct, though the holding of the former may be, and generally is, an essential requirement to the holding of the latter. The duties of a managing director as such are those of an executive officer, and in relation to the performance of them he is subject to thecontroland directions of the whole board. His remuneration and term of office are also matters to be fixed and determined by the whole board and as the cases shew the fixing and determination thereof will bind the company to the managing director in contract, just as it would be bound to a manager or other executive officer not occupying the position of a director.’
The case of Lincoln Mills (Aust) Ltd v Goughillustrates that the existence of control that the employer (here, as effected through the ‘board’) has over the managing director is indicative of an employment relationship. Thus, where the employment relationship is established, the employer will be characterised as the company through its board.This is also applicable in the context of superannuation benefits. For instance, under section 15A(2) of the Superannuation Industry (Supervision) Act 1993 (Cth) a ‘person who is entitled to payment for the performance of duties as a member of the executive body (whether described as the board of directors or otherwise) of a body corporate’ will be considered, and must be treated as, an employee of that company.
The existence of the relationship is a question of fact determined on the basis of the particular circumstances of the particular case. (Hollis v Vabu Pty Ltd (2001) 207 CLR 21) A necessary requirement to a finding of the existence of an employment relationship, including one between company and director, is that the relationship is governed by a contract of service and not a contract for services. (see Lincoln Mills (Aust) Ltd v Gough  VR 193, 198) The latter will be characterised as an independent contractor relationship. (see Zuijs v Wirth Bros Pty Ltd (1955) 93 CLR 561) In delineating between a contract of service and a contract for services relevant factors include, but are not limited to, the skill of the workers, the authority of the workers themselves (e.g. control over the work), and whether equipment was provided to the workers for the work to be performed. (see Hollis v Vabu Pty Ltd (2001) 207 CLR 21)
It is important you understand your relationship with your company and identify whether you are both a director and employee or not. To find out more about Executive Employment check out our Resources Centre. If you need any further advice about the issues in this article, please get in touch today!
This article was authorised by Warwick Heeson.