Ajar-Tec Ltd v Stack
| Jurisdiction | England & Wales |
| Judge | Lord Justice Elias,Sir Stephen Sedley,Lord Justice Etherton |
| Judgment Date | 26 April 2012 |
| Neutral Citation | [2012] EWCA Civ 543 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 April 2012 |
| Docket Number | Case No: A2/2011/2037 |
[2012] EWCA Civ 543
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM the EMPLOYMENT APPEAL TRIBUNAL
THE HONOURABLE MR JUSTICE UNDERHILL (PRESIDENT)
UKEAT/0527/10/CEA
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Etherton
Lord Justice Elias
and
Sir Stephen Sedley
Case No: A2/2011/2037
Mr David Reade QC and Mr Niran de Silva (instructed by Messrs Brian Harris & Co) for the Appellant
Mr Timothy Pitt-Payne QC and Mr James McClelland (instructed by Speechly Bircham LLP) for the Respondent
Hearing date : 19 April 2012
The issue in this case is whether Mr Stack is either an employee or a worker employed by the appellant company. (I shall refer to Mr Stack as the claimant, as he was before the Employment Tribunal, although he is the respondent to this appeal.) Mr Stack has lodged claims before the Employment Tribunal for constructive unfair dismissal and unauthorised deduction from wages. He has to be an employee to pursue the former, and a worker to pursue the latter. At a preliminary hearing to determine whether Mr Stack fell into either or both of these categories, the employment judge held that he fell into neither and that accordingly the Tribunal had no jurisdiction to hear his claims. The Employment Appeal Tribunal (Mr Justice Underhill P sitting alone) concluded that the employment judge had erred in law in his approach and remitted the matter to a different Tribunal to decide the issue afresh. The appellant company now seeks to restore the decision of the employment judge.
The statutory provisions.
The terms "employee" and "worker" are defined in section 230 of the Employment Rights Act 1996 as follows:
"(1) In this Act "employee" means an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment.
(2) …
(3) In this Act "worker" (except in the phrases "shop worker" and "betting worker") means an individual who has entered into or works under (or, where the employment has ceased, worked under) –
(a) a contract of employment, or
(b) any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual;
And any reference to a worker's contract shall be construed accordingly."
It follows from the definition that all employees are workers, but not all workers are employees. The central feature of both concepts, however, is that the worker should be employed pursuant to a contract. If there is no contract personally to perform work or services, then neither concept applies.
The facts.
The appellant is an audio-visual business which designs, installs and supplies various systems for clients. It was incorporated in April 2005 and operates in West London. When it was formed four people were involved, although only three were shareholders and directors. They had equal shareholdings. They were Mr Andrew Martin, who worked from the company's inception on a full time basis and had a formal written employment contract; Mr Keane, who was a part time finance director and played a small part in the company's operation; and the claimant. There was a dispute about the extent of his involvement in the company. The finding of the employment judge was that he was not working full time in the business initially, nor indeed for the first few years, although in the last months of the relationship he was virtually full time. Neither Mr Keane nor Mr Stack had any formal employment contract.
The judge found that the intention was that all three directors should become employees. A draft Senior Executive Employment Agreement was prepared in 2007 and was discussed between the parties, but it never materialised into a final agreement. Mr Stack accepted that no conclusions were ever reached in these discussions. Furthermore, there was a memorandum of a meeting in April 2009 which stated that the "target was that the directors would become full time employees of the business drawing a salary at the rate of £5000 per month." However, nothing had been formalised before Mr Stack left in August 2009.
The employment judge summarised the contending positions of Mr Stack and the company as follows (paras 15 and 16):
"The Claimant said in evidence that [the failure to formalise the relationship] was of no great concern to him because it was always the intention of the parties that this arrangement would be formalised and there was an understanding that he was employed and that everything would be formalised when the Company became profitable.
On the contrary the Respondent, while it intended that the Service Agreement would eventually form the basis of the employment relationship that would be entered into (but the details remained to be agreed), was clearly of the view that nothing would be formalised until the venture became profitable and that, indeed, there was no real relationship between the parties at all and that anything that the Claimant was doing was done by means of protecting his investment. In truth, there was not a great deal of difference between the two positions."
The last sentence overstates the common ground; the claimant appears to be saying that there was in place an informal arrangement amounting to a contract and that the only question was when it would be formalised. The respondent was denying that any such arrangement existed; there was no contractual arrangement in place although the aim and intention was to introduce contracts in the future when the business became profitable.
There was other evidence confirming a common intention that there should ultimately be a contract. Mr Kong, who carried out audit work for the company, remembered at least two occasions when Mr Keane (who did not give evidence) had confirmed that the respondent would be paid a salary or dividends and that it would be backdated to the commencement of his employment.
The claimant's case, as summarised by the employment judge, was that he "worked under an implied contract … for a long period of time backdated to 2005". I take this to mean that his case was that there was an implied contract from the beginning (although as Sir Stephen Sedley pointed out in argument, it would be better to say that it was a contract to be inferred from the way the parties conducted themselves.) The employment judge accepted that the claimant did carry out an important role, though not quite as integral to the business as he had suggested.
The employment judge set out his conclusions. He structured them in accordance with the written submissions of Mr de Silva, counsel for the company below, who had focused on three factors in particular when analysing whether the claimant was employed pursuant to a contract or not. These were:
(a) the absence of a written agreement;
(b) the absence of any agreement as to wages or remuneration, and
(c) the conduct of the parties.
As to (a), the judge concluded, as he was bound to do on the evidence, that there was no agreed...
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