Ajar-Tec Ltd v Stack

Employee or worker status requires a contract under which the individual undertakes personally to perform work or services. The absence of a written agreement does not itself prevent a contract being inferred. Nor is failure to agree a precise rate of pay necessarily fatal, since an appropriate case may justify implying a term requiring payment of a reasonable sum. The parties’ relationship and conduct must be assessed as a whole. A finding that work was undertaken to protect an investment cannot safely stand as an independent factual conclusion if it resulted from the legally erroneous assumption that no contract could exist without agreed remuneration.

Mr Stack, a director and shareholder of Ajar-Tec Ltd, brought claims for constructive unfair dismissal and unauthorised deduction from wages. The Employment Tribunal held that he was neither an employee nor a worker because there was no written contract, no agreed remuneration and no contract to perform work. The Employment Appeal Tribunal held that the employment judge had erred in treating the absence of an agreed specific wage as decisive and remitted the matter for rehearing: UKEAT/0527/10/CEA.

The company appealed to the Court of Appeal. It argued that the employment judge had found no agreement to pay remuneration at all, that the finding that Mr Stack worked to protect his investment independently supported the result, and that a contract could be inferred only where necessary to explain the parties’ conduct. The central issues were whether the error of law was material and whether the evidence could safely be assessed by the appellate court.

1. Appeal dismissed. The employment judge’s reasoning was at least ambiguous, but could not fairly be read as finding that the parties had agreed that no remuneration would ever be paid. The judge had treated the absence of agreement as to the amount of remuneration as fatal. That was an error of law.
2. The absence of a written agreement was not itself a bar to an implied contract. An agreement to pay a precise sum is not necessarily essential. In an appropriate case, a contractual term requiring payment of a reasonable sum for work done may be implied. The earlier authorities were consistent with that principle, subject to the qualification discussed in Benedetti v Sawiris.
3. The statement that Mr Stack was working to protect his investment was not a freestanding finding of fact. It was inferred from the conclusion that no contract existed and was therefore potentially infected by the legal error. The Court could not treat it as an independent basis for upholding the decision.
4. The Court declined to determine the existence of a contract on the evidence. It identified an issue as to whether the necessity approach referred to in James v London Borough of Greenwich and Tilson v Alstom Transport was appropriate where the relationship involved a shareholder and director. Although Mr Stack faced real difficulties, the possibility of a contract could not be discounted.
5. The matter was to be reconsidered by the Employment Tribunal.

• Court of Appeal (Civil Division): The appeal from the Employment Appeal Tribunal was dismissed. The Court upheld the conclusion that the employment judge had erred in law and that the issue required reconsideration.
• Employment Appeal Tribunal: The employment judge’s decision was set aside and the matter was remitted to a different tribunal for a fresh decision: UKEAT/0527/10/CEA.
• Employment Tribunal: Mr Stack was held not to be an employee or worker, and the Tribunal concluded that it had no jurisdiction to hear his claims.