25.06.15 Stack v Ajar-Tec Ltd: Director an Employee?

Mr Stack had founded Ajar-Tec Limited with two other Directors and Shareholders, Mr Martin and Mr Keane. Whilst Mr Martin worked full-time for the business via a contract of employment and received a salary neither Mr Martin nor Mr Keane signed any form of employment contract. Mr Keane was part-time finance director and played a small part in the company’s operation. Mr Stack worked for the business from the start but did not receive any pay.

Despite being the major investor in the business, when relationships deteriorated Mr Stack’s directorship was terminated and he subsequently claimed constructive unfair dismissal and unauthorised deduction from wages.

It was decided at Employment Tribuanl that Mr Stack was an employee of the company because there were implied terms that he would work for the business and, accordingly, he could expect to be paid for that work.  Ajar-Tec Ltd appealed that decision and the Employment Appeal Tribunal upheld the appeal, referring it back to tribunal to decide if there was an implied contract of employment.  Mr Stack appealed against the EAT decision to the Court of Appeal. 

The Court of Appeal held that the fact that the parties had not expressly agreed a term about remuneration did not mean that there was no contract between them and the Tribunal had been able to imply a term that a Director would be paid a reasonable rate into the contract between Mr Stack and Ajar-Tec Ltd.  Accordingly it decided that Mr Stack was an employee. 

This case illustrates the importance of having a formal written contract in place. This case also serves as a reminder that a director and/or a majority or sole shareholder of a limited company can be found to be an employee. Whilst they will not normally take their own company to tribunal, where relationships deteriorate, this can happen and so, where they have worked for the company without remuneration they have a potential claim.

For more information see the full case law.