Contractors' Questions: Can a director be sacked but remain an employee?

Contractor’s Question: Can a director (with no shares) be sacked from a limited company if he resigns his directorship?

Expert’s Answer: Legally, there are two separate roles to consider here, a director and an employee, although they usually overlap.

A director is a specific legal role whereby someone directs how a company should be run. The role of a director is governed by the company’s Articles.

Often, directors are also employees of the company and, if so, their employment will be governed by their employment contract, often called a Service Agreement. This will set out such things as hours of work, pay, holiday and termination.

Legally, the two roles are separate, and directors are usually paid a salary under their employment contract and not anything for the role of being a director.

Therefore, it is technically possible to resign from the role of being a director but to continue being employed by the company. If this is to be the case, it is important to specify clearly in your resignation letter that you are only resigning as a director but not as an employee.

Having said this, the company may well take the view that your employment contract is for you to be employed as a director and not for any other role. You will need to check what your contract says if you have one, as often it will make it clear that the director’s employment is for a director position. The company may therefore argue that, by resigning your directorship you must also resign as an employee.

Each company is different and, while it may be possible to continue to be employed in a different role, this is not always the case. If the company has other positions available that you could fulfil as an employee, then they should consider this.

If you have not yet resigned, it is advisable, once you have checked what your contract says, to talk to your fellow directors to see if they are happy with you continuing to be employed in a different role. If you have already resigned and they have sacked you as an employee, then you should consider obtaining employment law advice as to whether you have a claim you could make to an employment tribunal.

The expert was solicitor Gary Cousins, founder of legal advisory Cousins Business Law.

Editor’s Note: Related Reading –

Contractors’ Questions: Will I be disqualified as a company director?

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Contractors’ Questions: What if our limited company director oversteps the mark?