This case illustrates the need for remuneration (or consideration of some kind) and certainty for a contract of employment to exist.

Mr Stack was an equal partner in a new audio/visual equipment business. He and the other two partners hoped to receive returns on their investment but the complainant did not receive wages for the work he did for the firm. Another partner, Mr Martin, did receive £60k per annum and had written terms of employment but, unlike Mr Stack, he had no other outside business interests and worked full time for the firm. 

There were various documents showing Mr Stack’s role within the company and giving him different titles, such as “operations director” and “operational director and chief firefighter, fighting fires and undertaking logistical management”. All directors were members of the staff private healthcare scheme, had company credit cards, and they used employee expenses claim forms. 

Early in 2007 a human resources consultancy was engaged to organise staff contracts. A template was produced and circulated to all employees. Mr Stack received one, but this was never completed or taken any further as far as his own contract was concerned.

Also in 2007 the company’s solicitor produced a draft contract entitled “Senior Executives’ Employment Agreement”. It was discussed. A copy of the draft was annotated by the solicitor. The draft was circulated but no action taken any further, and Mr Stack did not sign any agreement. 

The relationship between the three directors broke down and Mr Stack's appointment as a director was terminated by the remaining two in 2009.

The case decision has some interesting discussion of case law in this area and the various tests required in order for a contract of employment to exist. Ultimately in this case the EAT found there could be no contract of employment because there was no consideration made for the work carried out by the claimant. He could have sorted out the situation when the employment matters were raised by consultants and solicitors but he failed to do so. 


Practical lessons from this decision

All contracts of employment contain four essential elements - offer; acceptance; intention of legal consequences; and consideration. Take away any one of these and a contract of employment cannot exist, unless there is an implied or express term to the contrary. Although contracts do not need to be in writing and a contractual relationship can be implied by actions or performance, it is always best, to avoid situations like this one, to have express written terms agreed in advance. 
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