February 27, 2015

Unpaid Company Director-Shareholder was an Employee

In Stack v Ajar-Tec Ltd [2015] EWCA Civ 46, the Court of Appeal considered whether a director-shareholder, who performed work for a company without pay, was an employee.

Mr Stack was the main investor in an audio-visual company, which had two other director-shareholders.  He worked part-time for the company for about three years but was never paid. Despite various draft employment contracts being circulated, none was ever formalised.  When the relationships between the director-shareholders deteriorated, Mr Stack’s directorship was terminated.  He sought to bring employment claims against the company, including for constructive dismissal.  The question arose as to whether he was an employee as this would determine whether he was entitled to bring such claims. The Court of Appeal held that he was. Before the company’s incorporation, there had been an express agreement between the director-shareholders that Mr Stack would work for it.  Although there had been no express agreement about remuneration, there was nevertheless a contract which was supported by valid consideration in the form of the promises given by each of the director-shareholders to contribute something of value to the venture (whether this was money or services).  To give efficacy to this contract, the Court implied a term that Mr Stack would be paid a reasonable rate for the work he did.

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