Can you remove your spouse/partner from your business if your personal relationship breaks down?

We often advise on cases where our clients are separating from their spouse/partner and have businesses to consider. In this blog post, we ask Alex Kiernan from specialist employment and commercial law firm Loch Associates Group, what some of the common issues faced by business owners and shareholders who split from their spouse/partners when they are also their work colleagues. Over to Alex:

We are often asked to advise clients on complex situations involving the breakdown of a business relationship, but none more so than where family members are involved.

In the day to day cut and thrust of working alongside your spouse/partner, it can be easy to forget that you may be connected by a legally enforceable business relationship as well as your personal bond.  Your spouse/partner may be a fellow shareholder but they could also be a director and/or an employee too.   When things are going well, it can be very gratifying working with your spouse/ partner if the personal relationship goes sour, tensions start to bubble up which can make it very difficult to take objective, fair and reasonable decisions involving the other person.  However, there is the added challenge of having a situation where, despite the private relationship not working out, it does not ‘annul’ the other party’s employment or shareholder rights or impact on their role as a director to act in the best interests of the company.

Whilst it may be tempting to remove the other party as a director from the company quickly because you may not want to have them as a director alongside you, the company and shareholders must carefully consider the obligations under the Companies Act 2006, any processes defined in their Articles of Association, as well as the terms of any Shareholder Agreement.  You may find you are constrained in taking action. Each Director has to act in accordance with their duties to the company and not for any ulterior motive of their own.

If the other party has worked for the company as an employee for more than two years, whether as a Director or part-time PA or administrator, they will have acquired the right not to be unfairly dismissed.  If a fair and reasonable process is not followed in dismissing them for one of the statutory ‘fair reasons’ they could bring a claim in the Employment Tribunal (ET).  Equally, if one party claims they have been effectively ‘pushed out’ because of the other’s behaviour, they may resign and bring a claim for ‘constructive’ unfair dismissal.  The claim would succeed if they can demonstrate that the behaviour was so unreasonable as to constitute a fundamental breach of the employer/employee relationship.   There is also the potential for discrimination claims too which has no 2-year service requirement attached to it.

Of course, keeping the other party in the business may be just as problematic but defending an ET claim is invariably costly, stressful and time-consuming where personal relationships are involved. There is an additional drain on emotional and physical reserves, as well as the company’s profits.  Unlike family court proceedings, ET hearings are open to the public and are often attended by the Press if the story is particularly newsworthy, with ET judgments being available to read in full on the internet.  Whether or not the claim ultimately succeeds, an ET claim could be very damaging for the company’s reputation, as well as publicly exposing the private lives of the individuals involved, it could also be used as ammunition in any concurrent divorce or family separation proceedings.

It is possible to exit an employee quickly from your business and avoid the risks involved in defending an ET claim.  How that can be approached will very much depend on the individual circumstances and will always need to be managed carefully, with strategic advice from a specialist employment and commercial law firm like ourselves.

At Loch Employment Law, our expert employment and commercial solicitors have been supporting clients with these issues for many years.  Since being founded in 2007, Loch Associates Group has a wealth of experience in successfully navigating clients through an ever-increasing range of complex employment law issues, as well as Director and shareholder disputes. Where situations are particularly complex or sensitive and the usual legal routes are unlikely to assist in resolving the issues, we recommend our trained professionals at Loch Mediation step in to help resolve any commercial or employment disputes. You can contact Loch Associates Group here.