Employment contracts: employment status

Businesses should take note of an Employment Appeal Tribunal (EAT) case that highlights the importance of formalising employment relationships. The EAT held that an employment tribunal erred in finding that a director and shareholder, who performed part-time work for a company without pay for at least three years, was an “employee” and a “worker” for the purposes of the Employment Rights Act 1996.

Although there was an “agreement” that the individual would work for the company, there were no formal employment arrangements and no agreement concerning remuneration. In the circumstances, there was no consideration and therefore no express contract of any sort. In this instance, the doubts about employment status resulted in protracted legal proceedings and the case has now been remitted to a fresh employment tribunal for a second time.