Stack v Ajar-Tec Ltd (earlier appeal)

The central legal issue was whether the respondent, Mr Stack, was an "employee" or a "worker" within the meaning of section 230 of the Employment Rights Act 1996. The Court of Appeal accepted that the statutory definitions in s.230 require a contract under which the individual undertakes to perform personal services. The employment judge had held there was no contract principally because no specific amount of remuneration had been agreed; the EAT found that treating the absence of an agreed sum as automatically fatal to the existence of a contract was an error of law. The Court of Appeal agreed that the employment judge’s reasoning was tainted by that legal error and that his further finding that the claimant was working only to protect his investment could not safely be treated as an independent, untainted factual conclusion. The matter was therefore remitted for rehearing so that an employment tribunal can decide afresh whether, on the evidence, a contract (express or implied) existed.

Background and procedural posture:

• The respondent (Mr Stack) brought claims before the Employment Tribunal for constructive unfair dismissal (requiring employee status) and unauthorised deduction from wages (requiring worker status).
• At a preliminary hearing the employment judge found Mr Stack was neither an employee nor a worker and concluded the Tribunal had no jurisdiction to hear the claims.
• The Employment Appeal Tribunal (Underhill P) allowed an appeal limited to the legal correctness of the employment judge’s approach and remitted the matter to a different tribunal for rehearing.
• The employer appealed to the Court of Appeal seeking to restore the original employment judge’s decision.

Facts and issues:

• The appellant is an audio-visual company incorporated in 2005. Three principal participants (one full-time employee with a written contract; one part-time finance director; and the claimant) were involved from the start and had equal shareholdings. No formal employment agreement was concluded for the claimant.
• There was evidence of a shared intention that the directors would become employees and drafts were prepared, but no final agreement was reached before the claimant left in August 2009.
• The employment judge framed the legal enquiry around three factors: (a) absence of a written agreement; (b) absence of any agreed wages or remuneration; and (c) the parties’ conduct.

Court’s issues and reasoning:

• Statutory framework: The court relied on section 230 of the Employment Rights Act 1996 to define "employee" and "worker" and emphasised that the existence of a contract to perform personal services is central.
• Legal error identified: The employment judge had held that the absence of an agreed specific sum of remuneration was decisive against finding a contract. The EAT and the Court of Appeal concluded that treating lack of an agreed quantum as necessarily fatal to a contractual relationship was an error of law because, in appropriate circumstances, an implied contractual term to pay a reasonable sum may be inferred.
• Effect on factual findings: The Court of Appeal concluded that the employment judge’s further finding — that the claimant was working merely to protect his investment — was inextricably linked to the erroneous legal conclusion and could not be relied upon as an independent basis to decide the case.
• Remittal: Given the legal error and the tainting of factual conclusions, and because the court was not satisfied it could resolve the matter safely on the existing material (including questions about the appropriate test for inferring a contract), the case was remitted for rehearing.

Relief sought and disposition:

• The claimant sought to pursue unfair dismissal and unauthorised deduction claims. The Court of Appeal dismissed the employer’s appeal and remitted the matter for fresh determination by a tribunal on the question whether an express or implied contract existed.

The appeal is dismissed. The Court of Appeal held that the employment judge erred in law by treating the absence of an agreed specific sum of remuneration as necessarily fatal to the existence of a contract. Because that legal error tainted the judge’s subsequent conclusion that the claimant was merely protecting his investment, the finding could not be treated as an independent factual basis to dispose of the preliminary issue. The matter is therefore remitted for rehearing by a different employment tribunal.

Employment Tribunal (preliminary hearing) held claimant was neither employee nor worker and declined jurisdiction; Employment Appeal Tribunal (Underhill P, UKEAT/0527/10/CEA) allowed a limited appeal, concluded the employment judge had erred in law and remitted the matter to a different tribunal; Court of Appeal ([2012] EWCA Civ 543) dismissed the employer's appeal and agreed remittal was necessary.