Employment Law E-Bulletin Issue 28

Tribunal erred in finding an employment contract in the absence of remuneration – Ajar-Tec Limited v Stack UKEAT/0293/13

In this case, the Employment Appeal Tribunal (EAT) considered whether a shareholder and director, who provided work to a company under no formal employment arrangement and received no remuneration, was an employee, a worker or neither under the Employment Rights Act 1996.

For employment or worker status to be established there must be a contract of some description in place. If a contract exists, the test in Ready-Mixed Concrete (South East) Ltd v the Minister of Pensions and National Insurance [1968] 2 QB 497 should be applied to establish whether the contract is one of employment. For it to be so, "there must be a wage or other remuneration. Otherwise there will be no consideration and… no contract of any kind".

Ajar-Tec, an audio-visual business, had three shareholders and directors. One of these, Mr Stack, was the major investor and had other substantial business interests. Employment arrangements for the three directors were never formalised and in 2009, relationships deteriorated and Mr Stack’s directorship was terminated.

Mr Stack lodged claims for constructive unfair dismissal and unauthorised deductions from wages in the employment tribunal, leading to a protracted dispute about his employment status.

In the tribunal’s view, there had been an ‘express agreement’ that Mr Stack would work for the company, as well as an implied term that he would be paid a reasonable amount for what he did. It made no sense that Mr Stack would agree to deploy his skills without being entitled to pay.  It concluded that Mr Stack was an employee.

Ajar-Tec appealed. The EAT upheld the appeal. The fact that there was an express agreement that Mr Stack would do work for Ajar-Tec did not amount to a binding express contract when there was no consideration. The tribunal should have considered the following issues:

•  whether there was an express contract;
• if not, whether there was an implied or inferred contract;
•  if there was a contract, whether there an express term as to remuneration; and
•  if not, whether there was an implied term as to remuneration.

Points to note

• This case is a reminder of the importance of formalising employment relationships with express terms.
•  The EAT made a clear distinction between the need for there to be consideration for a binding contract to be established and the tribunal's ability to imply a term into an existing contract by objectively identifying what the relationship of the parties must reasonably be taken to be.

Flexible Working Regulations 2014

The Flexible Working Regulations 2014 came into force on 30 June.

They have extended the right to make a request for flexible working to any employee who has been employed for at least 26 weeks, meaning that the right no longer has to be made in relation to certain child and adult caring responsibilities.

Employees are still only able to make one statutory request in per year, and employers are now obliged to respond in a ‘reasonable manner’ within a 3 month decision period. Employers are still only able to refuse requests on one or more of the eight statutory business grounds.  

Employee affirmed contract by giving far more notice than was contractually required – Cockram v Air Products plc UKEAT/0038/14

The concept of constructive dismissal derives from common law contractual principles, but is also enshrined in s.95(1)(c) of the ERA 1996, which states that an employee is constructively dismissed where they terminate "the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct". The employee must accept the repudiatory breach and resign in response to the breach to treat the contract as at an end. However, an employee can also affirm the contract by waiving the breach and treating the contract as continuing. An employee must therefore not delay too long in accepting the breach and treating the contract as at an end.

In this case the claimant had a three month contractual notice period. He was unhappy with the outcome of a grievance he had raised and resigned, claiming that his employer had been in fundamental breach of his contract. He gave his employer seven months’ notice, stating that he was only doing so because he had no other work.

When the claimant’s employment ended, he brought a claim for constructive unfair dismissal. His claim was struck out on the ground that it had no reasonable prospect of success. The tribunal believed that he was motivated by his own financial reasons when he gave a long period of notice. The judge ultimately held that the claimant had affirmed his contract.

The claimant appealed to the EAT, which dismissed his appeal. The EAT held that the employment judge was entitled to find that giving such a lengthy notice period, which exceeded the claimant’s contractual notice period, had the effect of affirming his contract. By working for seven months after his resignation, the claimant provided services and received substantial remuneration in accordance with his contract of employment. If there was no limit on the period of notice that could be given, an employee could give many years' notice, regardless of their contractual notice period, while retaining their right to claim constructive unfair dismissal. The EAT did not believe that this had been Parliament's intention when allowing employees to give notice in a constructive dismissal scenarios.

Points to note

• Constructive dismissal claims are notoriously difficult to win because claimants face a high hurdle to prove that their employer was in fundamental breach of contract.
• Although employees are permitted to give notice on resignation, the giving of an extended period of notice may, on the facts of the case, lead a tribunal to conclude that they have in fact affirmed their contract.

Employment Practices Bill 2014-2015 published

The first reading of the Employment Practice’s Bill 2014-15 took place on 10 June and the first draft has now been published.

The Bill has been introduced to tackle the potential exploitation of migrant workers but will apply equally to all employers and workers.

The Bill provides that if an employer offers an employee residential accommodation as part of their employment package, it must offer a financial payment as an alternative. This payment would reflect the cost of bed and breakfast accommodation in an area where the employee works. A prescribed scale will be set for the amount that must be offered, taking into account regional variations.

It is likely to affect employers in many sectors who provide employee accommodation. However the Bill states that the requirement to offer a financial alternative to residential accommodation will not apply if the accommodation is deemed to be a necessary requirement of employment.