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06 February 2015

Charles Russell Speechlys advises a company director

Charles Russell Speechlys Employment Partner Robert Thomas recently acted for Mr Stack in his successful claim against Ajar-Tec Ltd.

Mr Stack had been a director and shareholder of Ajar-Tec and spent about 80% of his time working for the company but he had not been paid for three years. Draft employment contracts had been circulated but nothing was ever signed. An employment tribunal had found he was an employee and worker, but the EAT overturned this, finding that there was no agreement that Mr Stack be paid, and therefore no consideration and no binding contract. However, on appeal to the Court of Appeal, the tribunal’s original finding has been restored. The Court found that that there was an implied term that Mr Stack would be paid for his services from the point at which he started to do a substantial amount of work.

The contract was formed partly expressly and partly by implication and it was not fatal that there was no express agreement as to remuneration. His claims for unfair dismissal and unlawful deductions could therefore proceed.

This is an important decision in determining the employment status of director/shareholders as well as the guidance provided on contract formation.

Robert Thomas said: “Mr Stack worked hard for Ajar Tec for three years in good faith that he would eventually be paid. It’s right that he is compensated appropriately – and not right that a company should be able to avoid paying him having benefited from his three years of work.

Obviously, having a well-drafted contract in place is the best way for both companies and individuals to avoid this kind of dispute and everyone knows where they are. Unfortunately circumstances like these are still all too frequent.

Companies and directors must no longer assume that a director cannot be an employee if they do not have a written contract – employee status can be conferred even by an implied contract. This judgment clears the path for directors experiencing similar treatment in the future. ”