Stack v Ajar-Tec Ltd

For employee or worker status under section 230 of the Employment Rights Act 1996, a contract need not be wholly express or wholly implied. An express agreement to work may combine with an implied remuneration term where the circumstances show that the term was intended to give business reality and create enforceable obligations. Mutual promises by business promoters to contribute skills or money may provide consideration. Investment motives, absence of a written contract, failure to seek payment, or deferred remuneration may be relevant but are not automatically inconsistent with a contract. The parties’ agreement and dealings must be assessed as a whole.

The appellant was one of three founders, shareholders and directors of the respondent company. He claimed constructive unfair dismissal and unauthorised deductions from wages, requiring him to establish employee and worker status.

An Employment Tribunal initially found that he had neither status. Following an earlier appeal, the case was remitted. On reconsideration, the Tribunal found that he was both an employee under section 230 of the Employment Rights Act 1996 and a worker under that section and Article 2 of the Working Time Regulations 1998. The EAT allowed the company’s appeal, holding that no contract of employment could be implied. The central issue was whether the EAT had wrongly treated the absence of an express remuneration agreement as fatal to contract formation.

The Court of Appeal unanimously allowed the appeal. Lord Justice Tomlinson gave the leading judgment, with which Lord Justices Patten and Moore-Bick agreed. The order of the EAT was set aside and the Employment Tribunal’s judgment was restored.

1. Employee and worker status. The statutory definitions require a contract involving personal work or services. Every employee is a worker, but not every worker is an employee. The Employment Tribunal’s direction on the classic indicia of a contract of service was uncontroversial.
2. Consideration. The agreement found by the Tribunal had been made between the three promoters before incorporation. The absence of a promise by the company to pay at that stage was therefore unsurprising. The relevant question was whether the promoters’ agreement was supported by consideration. It was: each agreed to contribute different skills or money to the venture, and their mutual promises supplied ample consideration.
3. Remuneration and mixed contract formation. The Tribunal was entitled to consider whether remuneration was an implied term of the express agreement. Applying the approach discussed in Attorney General v Belize Telecom Ltd and Anr [2009] 1 WLR 1988, it could ask what terms the parties must have intended in order to give business reality to their arrangements. Contract formation may be partly express and partly implied. The absence of an express remuneration term did not prevent a concluded contract.
4. Tilson. Tilson v Alstom Transport [2011] IRLR 169 concerned whether any contract could be inferred between an agency worker and the end user. It did not preclude the alternative analysis available here. The passage concerning business reality was properly attributed to The Elly 2 [1982] 1 Lloyds Rep 107, and not to Bingham LJ as stated in Tilson.
5. The Court did not need to decide whether it would itself have found a contract on the facts. The question was whether the grounds of appeal disclosed legal error in the EAT’s decision. They did.

• Court of Appeal (Civil Division). The appeal was allowed. The EAT’s order was set aside and the Employment Tribunal’s finding that the appellant was both an employee and a worker was restored: [2015] EWCA Civ 46.
• Employment Appeal Tribunal. His Honour Judge Birtles allowed the company’s appeal, held that no contract of employment had been established, and directed that the matter be remitted: UKEAT/0293/13.
• Employment Tribunal. Employment Judge Pettigrew found that the appellant was both an employee and a worker in a decision dated 8 January 2013.
• Court of Appeal. On the earlier appeal, the company’s appeal was dismissed and the issue was remitted for fresh determination: [2012] EWCA Civ 543.
• Employment Appeal Tribunal. On the first appeal, the EAT held that the original Employment Tribunal had erred in law and remitted the issue for reconsideration.
• Employment Tribunal. At the preliminary hearing in April 2010, the Tribunal held that the appellant was neither an employee nor a worker.