Employment status receipt of pay is not essential

The Court of Appeal has overturned the EAT's decision that a director and shareholder, who performed part-time work for a company without pay for at least three years, was an "employee" and a "worker" for the purposes of the Employment Rights Act 1996 (ERA 1996).

Stack was one of three shareholders and directors of Ajar-Tec Ltd. Draft employment contracts were circulated between the three directors, but none were completed or signed by Stack. Relations between the directors deteriorated and in 2009, Stack's appointment was terminated. Stack was not paid for his work and the company's accounts reflected no liability to pay him. He brought claims of unfair dismissal and unauthorised deduction of wages.

An employment judge found that the directors had expressly agreed before the company was formed that Stack would work for it with an implied term that he would be paid a reasonable amount for his work when the company was in a financial position to do so. Considering the tests in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance, the judge concluded that Stack was both an employee and a worker within the meaning of S.230 of the ERA 1996. Ajar-Tec Ltd appealed against this decision.

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Andrew Chamberlain

Partner - Head of Employment & Chair of the SDE

I am a Partner, the National Head of the Employment Team and the Chair of the Service Delivery Executive (SDE), which is focused on building better solutions for clients.