Unpaid director was employee

Posted: 25th February 2015

RCJA businessman who worked full time as a director of a start-up company – but was paid not a penny for his toil as the business fought to establish itself – was nevertheless entitled to full employment rights, the Court of Appeal has ruled.

The man had invested heavily, both in money and time, in trying to make the new venture a success. His fellow director was paid £60,000 a year for his work, but he received no remuneration at all before his directorship was terminated.

He launched Employment Tribunal (ET) proceedings, claiming constructive unfair dismissal and unauthorised deductions from wages. The case had a tortuous procedural history and numerous hearings culminated in a ruling of the Employment Appeal Tribunal (EAT) that he was not an employee. That decision effectively stymied his compensation hopes.

In upholding his challenge to the EAT's ruling, the Court of Appeal found that the fact that he had never sought payment for his services did not mean that he was not an employee. He had brought both skills and money to the company on the basis that he would be reimbursed for his efforts once the company became established.

Although there was no express agreement that he would be paid, there was an implied term in his contract that he would receive a back-dated salary when the company could afford it. In those circumstances, he was both an employee, within the meaning of the Employment Rights Act 1996, and a worker, within the meaning of the the Working Time Regulations 1998. The Court's decision opened the way for him to pursue his claim to a full ET hearing.