The boss who gave £3,500,000 to his workers

John Caudwell is renowned as a tough tycoon - but the cash he gave away at his Christmas party showed another side to an eccentric entrepreneur

For 500 of John Caudwell's loyal employees, it is safe to say that this year's office Christmas party, in a marquee at the firm's HQ in Stoke, won't be easily forgotten.

First, they were wined, dined, and entertained by the pop stars Will Young and James Fox. Then, as a fresh round of champagne was poured, waitresses swept into the room bearing gold envelopes - one for each guest.

Finally, Caudwell, the billionaire founder of Phones4U, took to the stage and explained that he had decided to give each guest "a small token of appreciation for your length of service".

To gasps of delight, the mobile phone tycoon announced that they would share in a £3.5m "golden farewell" to celebrate his departure from the mobile phone empire, which was sold for £1.46bn earlier this year.

Inside their envelopes, he said, the office workers would find cheques for between £5,000 and £15,000, depending on their length of service.

"People's first reaction was 'Oh my God!'" recalls one guest. "They immediately began ringing or texting home, to speak to their loved ones. Then everyone started punching the air and hugging each other. Later, an orderly queue formed of people wanting to thank John personally."

It was a typically flamboyant gesture from an entrepreneur who fought his way from the back streets of the downtrodden Shelton district of Stoke-on-Trent to become Britain's 29th-richest man, with a personal fortune estimated at £2bn.

Caudwell is invariably pegged as a maverick. He is, for instance, a fitness fanatic who has broken his neck three times in sporting accidents, yet continues to water-ski and cycle.

He often gets up at 5.30am to cycle into work, ignoring the £200,000 Bentley parked on the driveway of his Staffordshire home (a Jacobean mansion about which he once noted, "whether it's 40, 50, or 60 rooms, I don't really know").

Despite owning a helicopter, Caudwell often uses easyJet to visit the South of France, wears suits from Marks & Spencer, and buys groceries from Happy Shopper, saying: "I don't see why that's odd."

Most famously, perhaps, he cuts his own hair in order to save £10 for a trip to the barber, and admits to waxing his girlfriend's legs in an effort to decrease the spiralling cost of her beauty regime.

However, despite Caudwell's reputation as a tough employer - he is vehemently anti-union, and once banned employees from using e-mail, in order to increase their productivity - Saturday's £3.5m gift was aimed squarely at those on the lower end of the corporate food chain.

"My senior executives have already been rewarded very highly as a result of the sale, and I wanted to look after people lower down the pay chain," he explained yesterday. "I've got a lot of people who have been very dedicated and loyal and hard-working over the years, and it felt like the right thing to do.

"After I'd made my speech, one girl came and told me that her husband had just walked out on her and left her in a financial mess. Another said she'd now be getting a wheelchair for her disabled son, and it would change her life."

Like many successful entrepreneurs, the 54-year-old Caudwell had a tough upbringing. The eldest son of a salesman, who died when he was 14, and a postal worker mother, he was bullied for having ginger hair and freckles.

After leaving school, he worked in a variety of jobs, including a 10-year stint at the local Michelin factory, before embarking on a series of entrepreneurial ventures as a grocer, catalogue salesman and a used-car dealer.

The Phones4U empire was founded in 1987, when mobile phones were the size of small bricks. Caudwell and his younger brother Brian bought 26 at a discount on their £1,500 retail price, and took more than eight months to sell them, at a small profit. Nineteen years later, his business empire was selling more than 26 phones a minute, and extended to six countries. Brian, who had been in charge of sales and marketing, sold out in his forties, to spend more time with his £100m fortune.

The success was built on hard work and attention to detail. "John's a workaholic, in the same hard-nosed bracket as a Philip Green," says one former colleague. "That can make him very demanding as a boss. A lot of people can't stand him for it, but those that can get well looked after."

With this in mind, Phones4U has attracted praise and scorn in equal measure. On the one hand, his firm's hard-sell tactics have attracted hundreds of complaints from consumers, and a £150,000 legal bill to BT, after accusations of underhand tactics.

Caudwell himself has admitted that he deserves his reputation as a corporate tough guy, saying: "It's not fair, but I can see why people would think it... I probably can be a bit too aggressive. When my back's to the wall, I want to fight."

Yet supporters also describe him as a visionary. "He realised very early on that customer service was going to be the biggest factor in the mobile phone industry, so he made the entire firm revolve around that," says another employee.

"Yes, there have also been colourful moments, but there is method in his madness, if you like. For instance, when John banned staff from e-mailing each other, his view was that you should absolutely speak to people and colleagues you are doing business with."

Caudwell, meanwhile, had many personal brushes with fame. During the 1990s he used to pay himself in gold bars and fine wine, to avoid national insurance. Later, his efforts to avoid tax by using an offshore trust led to a three-year battle with the Inland Revenue, which ended with his company paying £13m.

On the home front, he jollified several tabloid newspapers in 2002 when it emerged that he had separated from Kathryn, his wife of 25 years, and embarked on a series of affairs. A two-month fling with the violinist Jane Burgess produced a daughter, Scarlett, to add to three previous children. It also prompted a very public spat, in which Caudwell branded Burgess a "gold digger" who had tricked him into getting her pregnant (a charge she denied). He now pays for Scarlett's upkeep, but has little other contact with her.

"That whole affair, if anything, points to the tougher side of John Caudwell," says one former colleague. "It's all very well raising money for children's charities, which he does, but to do what he's done with Scarlett you have to have a steely element to your character."

At the same time as seeing Burgess, Caudwell started a relationship with the former model Claire Johnson. She is now the mother of his youngest child, Jacobi.

His affinity to children led him to set up the Caudwell Charitable Trust, an organisation that supports terminally ill youngsters, and has in part been funded by a series of long-distance cycle rides.

Meanwhile, a brush with testicular cancer (he has joked of resembling Adolf Hitler in the "bollock" department) has also led Caudwell to support the Everyman cancer charity.

Those closest to Caudwell say his reputation as an eccentric has been over-egged. "I've often seen the word maverick, or eccentric used. He's certainly his own man, but a lot of what is written is total rubbish," says his spokesman David Ginivan. "There's just a lot of hyperbole used.

"For instance, his house doesn't have 40 bedrooms. It's more like 12. He doesn't drive a Bentley Azure (£250k) it's a Continental (£150k). And he doesn't own a private jet. Sure, he owns a pair of hair clippers, but that's for convenience: if you're about to go out for the night, and need a trim, you can't very well pop out to the barbers."

The man himself isn't so easily ruffled. Two months after the £1.46bn from the sale of Phones4U landed in his bank, he was yesterday back at his desk, surveying future business opportunities. "I do want more time to myself, and also with my charity work, but there are two businesses I'm looking at," he said. "One is a marine business, the other is in winter sports."

The recipients of the £3.5m windfall will, no doubt, be beating a noisy path to his door.

'Girls came round with gold envelopes on silver trays...' - Chris Smith, 30, graphic designer

"I've been with 2020 for seven years and four months. I got £7,000. I was so shocked - I still feel the same now. I can't believe it. Nobody expected it - it was a little bit wow. It was Saturday when we were given the cheques and I'm still recovering. It's only just hitting home. It's fantastic.

I've got no idea what I'm going to do with the money yet - there's a 1001 things I'd like to do. I think Christmas is going to be a bit special. I'll probably go on holiday with my partner.

There were rumours about John [Caudwell] throwing a party and then at the end of October we all got invites in the post. We had no idea what sort of a do it would be. When we arrived we were greeted by look-a-likes - Posh and Becks were there as well as Basil Fawlty. It was surreal.

There was champagne and then Will Young and James Fox singing. There was nothing about that on the tickets. Then John got up to speak. He was just reminiscing about the firm and telling a few stories. Then he thanked everyone for their loyalty to the company and said he wanted to reward us all for our hard work.

These girls came round with gold envelopes on silver trays. I didn't have any idea what they were. Then we saw peoples' faces as they opened them. There were shouts and screams. It was crazy. It was a shock, a very, very good shock."

'It was nice to say thank you in such a useful way' - Tina Aldridge, 39, telesales manager

"I got £1,000 for every year of service. I've been with 2020 for 15 years now - practically since the beginning - so I got £15,000. I was overwhelmed. I still can't believe it. It was nice to say thank you in such a useful way.

There's always been an annual awards dinner for the staff to recognise good work - the winners usually got a trip to London or something like that - but never anything like this. I'm still so shocked by it all.

It's extremely generous of John [Caudwell]. It's something he didn't have to do. My husband and I have been speaking about it all weekend - we'll probably end up putting it towards something for the house.

The party was brilliant - the band were great. All of a sudden the band stopped playing and these girls came round with gold envelopes - 10 for each table. They gave me one and I kind of said 'thanks very much' then we opened them and it was simply unbelievable. Everyone was just so shocked.

I've always enjoyed my job with 2020 but nothing like this has ever happened before. I started 15 years ago as an order processor and now I'm a telesales manager. It was a great career move for me.

I've always got on with John and his brother Brian - who, back when we first started, was the sales director. Even now they still remember people - they'll always stop and say hi for a chat. John is very down to earth."

Sam Jones