The Employment Tribunal erred in finding an employment contract in the absence of remuneration

In the case of Ajar-Tec Limited v Stack the EAT considered whether Mr Stack was an employee or a worker for the purposes of his constructive unfair dismissal claim and unlawful deductions from wages claim. To claim unfair dismissal, Mr Stack needed to be an employee. To claim unlawful deductions from wages, Mr Stack needed to be a worker.

In particular, the EAT considered whether he worked under an express contract of employment and whether one could exist in the absence of an agreement to pay Mr Stack for work provided to the company.

Ajar-Tec, an audio-visual business, had 4 people when it was incorporated in 2005. 3 of these people (one of whom was Mt Stack) were shareholders and directors. Mr Stack did not have any formal employment contract with Ajar-Tec Limited, despite various discussions and draft contracts being circulated in 2005 and 2007. In 2009, relationships deteriorated and Mr Stack’s directorship was terminated.

Mr Stack lodged claims for constructive unfair dismissal and unauthorised deductions from wages in an Employment Tribunal. There was a protracted dispute over his employment status.

To establish employee or worker status, a contract is required. Case law makes it clear that there must be a wage or other remuneration (consideration) or there cannot be said to be a contract of any kind in place.

The Tribunal decided that there was an express agreement that Mr Stack worked for the company. Further, there was an implied term that he would be paid a reasonable amount for what he did. The Tribunal concluded that Mr Stack was an employee (and therefore a worker) from the outset. Ajar-Tec appealed against the Tribunal’s decision.

The Employment Appeal Tribunal (EAT) upheld Ajar Tec’s appeal, explaining that the Tribunal should have considered the issues in the following order:

• Was there an express contract?
• If not, was there an implied or inferred contract?
• If there was a contract, was there an express term as to remuneration?
• In not, was there an implied term as to remuneration?

The EAT pointed out that an agreement to do work does not amount to a binding contract unless there is consideration. Further, a Tribunal must establish whether there is a contract in place before deciding whether a term concerning remuneration should be implied into that contract.

The case has been remitted to be heard by a different tribunal.

Comment

This case is a firm reminder of the importance of formalising employment relationships with all employees/workers so as to avoid (or at least minimise) the costs of litigation should the relationship break down. In this case, doubts as to Mr Stack’s employment status have resulted in protracted proceedings, and this is the second time that the matter has been remitted to a fresh tribunal.