Ajar-Tec Ltd v Stack

A tribunal must first determine whether a binding contract exists before implying a term as to remuneration or deciding whether the contract is one of employment. An agreement that a company promoter or shareholder will undertake work does not, without consideration, establish an express contract of employment.

An implied contract requires necessity. It must be necessary to give business reality to the parties’ dealings and create enforceable obligations. It is insufficient that the conduct is more consistent with contracting than not contracting; implication fails if the parties might have acted in the same way without a contract.

A shareholder and director may also be an employee, but status depends on the facts and on an existing contract.

The claimant was a substantial investor, shareholder and director of the appellant company. He undertook operational work but did not enter a signed employment agreement, seek payment, or receive a salary. The Employment Judge held that he was an employee and worker under section 230 of the Employment Rights Act 1996, finding an express agreement to work and an implied term for reasonable remuneration.

The company appealed. The central issue was whether the Employment Judge had first established a binding express or implied contract before implying a term requiring payment and deciding employment status.

1. Appeal allowed. The Employment Judge erred in treating an agreement that the claimant would work for the company as an express contract of employment. The Judge had not found that the company agreed to pay for that promise. There was therefore no consideration for an express contract.

2. The issues required separate determination. The tribunal should first ask whether there was an express contract. If not, it should decide whether a contract was properly implied or inferred. Only after finding a binding contract could it decide whether remuneration was an express or implied term. The finding of an implied term as to payment wrongly assumed the existence of the contract which had first to be established.

3. The necessity test in Tilson v Alstom Transport applied to the implication of a contract in this setting. A contract may be inferred only where necessary to give business reality to the dealings and create enforceable obligations. It is not enough that the parties’ conduct appears more consistent with an intention to contract. The implication fails where they might have behaved in the same way without a contract.

4. On the facts found, the claimant’s position as a major investor and shareholder, his other business interests, his failure over several years to seek or receive payment, and his failure to formalise remuneration when opportunities arose meant that the relationship was not only consistent with part-time work under an implied employment contract. The existing findings could not support such an implication.

5. The findings that the claimant was an employee and a worker under section 230 of the Employment Rights Act 1996 could not stand. The case was remitted for a fresh hearing before a different Employment Judge.

• Employment Appeal Tribunal: Appeal allowed. The Employment Judge’s findings of employee and worker status were set aside and the matter was remitted for a fresh hearing.
• Employment Tribunal, Watford: Judgment and Reasons sent on 8 January 2013. The Employment Judge held that the claimant was an employee under section 230 of the Employment Rights Act 1996 and a worker under that Act and the Working Time Regulations 1998.