Jersey: Stack The Odds In Your Favour - Directors’ Agreements And Express Terms

Last Updated: 4 March 2015
Article by Simon A. Hurry and Gareth Jones


In a judgment released earlier this month, the English Court of Appeal has allowed a director to claim unpaid wages and compensation for constructive unfair dismissal from a company despite there being no formal contract of employment between himself and the company.

Indeed, the only express agreement that had been reached was an informal and, in some respects, apparently incomplete verbal agreement, concluded between the director and his business partners before they set up the company and went into business together, that the director would work for the company and would be paid for his work, but the amount he would be paid was not agreed and the company would only pay him once it could afford to do so. The Court of Appeal found on the basis of these facts that an implied contract of employment existed between the company and the director.

Directors of companies are not automatically considered to be employees. A directorship is a position of office and directors only become employees if they have a contract of employment with the company. In most cases an employment contract or service contract will be negotiated and signed in the usual way.

Directors can also be shareholders of the company and they may agree to take money out of the company by way of shareholder dividends, rather than wages. As a result, they may feel that there is no need to put in place employment contracts even though the directors are working full-time or almost fulltime for the company and may be considered to have an employment relationship with the company.

The dangers of not formalising the position are highlighted in the case of Stack v Ajar-Tec Limited. Mr Stack, Mr Martin and Mr Keane set up a company in which they each owned 1/3 of the shares and they were each appointed a director of the company. The company was a start-up that was funded by shareholder loans. The three directors/shareholders were found to have agreed that Mr Stack would work for the company and would, eventually, be paid for his work but the agreement was never documented and detailed terms were never agreed as to what Mr Stack would be paid and when.

Nevertheless, the Employment Tribunal appears to have found from the evidence a clear understanding amongst the directors/ shareholders that Mr Stack was to be an employee of the company, and this was enough, in the Court of Appeal's view, from which to find an implied contract of employment between the company and Mr Stack.


Mr Martin was the principal motivator behind the company. He signed an employment contract and worked full time for the company from the date of incorporation.

Mr Stack acted more as a financier of the venture, although he spent up to 80% of his time working for the company. He had agreed with Mr Martin and Mr Keane that he would work for the company once it was incorporated but that he would not be paid any wages until the company could afford to pay him. He was provided with various draft employment contracts, but the terms were never signed or agreed.

Mr Stack's relationship with Mr Martin and Mr Keane deteriorated and his appointment as a director was terminated in August 2009 without him receiving any wages from the company. Mr Stack claimed constructive unfair dismissal and unpaid wages. The company denied that he was an employee, which if right, meant that Mr Stack's claims could not be brought. The claim has now been hotly contested over a period of nearly five years, resulting in two hearings before the Employment Tribunal, two hearings before the Employment Appeal Tribunal and two hearings before the Court of Appeal. It remains to be seen if there will be a further appeal to the Supreme Court.

The Employment Tribunal held that Mr Stack was an employee, the Employment Appeal Tribunal held that he was not an employee and the Court of Appeal agreed with the Employment Tribunal and said that he was an employee.


On one analysis, the Court of Appeal's judgment appears to stand as authority for the somewhat startling proposition that an informal arrangement can lead to legally binding obligations and afford a director the status of employee. It therefore appears to create a minefield for start-up companies. In particular, it creates some uncertainty as to the circumstances in which a director can be removed from office without that removal also being treated as a termination of the employment relationship, thus giving rise to an unfair dismissal claim unless a proper termination process is followed.

The contrary, and arguably the better, view is that this case is a triumph for fairness that turned very much on its particular facts – there was no dispute that Mr Stack had devoted a substantial amount of time and energy, not to mention capital and other resources, to the venture.

It was also clear that no party had honestly intended that Mr Stack would work for free. Whilst Mr Stack had a 1/3 shareholding in the company, Mr Martin also had a 1/3 shareholding and had always received a salary from the company. The company argued that Mr Stack had worked only to protect his investment in the company and not for further remuneration, but the Court of Appeal rejected this argument as nonsensical when contrasted against Mr Martin's position. The Court of Appeal held that Mr Stack was to be an employee of the company and remunerated for his services but, as one might expect from a financier of a start up venture, had agreed to defer any remuneration until the venture had begun to bear fruit.

However, there are some difficulties with the Court of Appeal's analysis. In particular, the Court of Appeal never convincingly dealt with the question of how the company could be bound by an agreement amongst individuals before incorporation. One possible answer is that the evidence showed that all parties, who became directors and shareholders of the company, continued to act in accordance with the agreement that appeared to have been reached pre-incorporation, but there is a slight awkwardness in the proposition that the company acted as if it regarded itself bound by an informal agreement that was reached before it existed.

Whatever the answer to that question, it is likely to be infrequent that there will be sufficient evidence of an informal, pre-incorporation agreement amongst business partners to support similar decisions in the future.

Nevertheless, the case illustrates the importance of documenting the basis upon which directors work for companies. The absence of a signed employment contract does not necessarily mean that there is no employment relationship and, consequently, no right for a director to claim unfair dismissal and other statutory rights afforded to employees.

It is apparent that not only did Mr Stack and the company disagree on his employment status, but so did the English courts, more than once. If there is no intention to pay a director for his or her work this should be clearly documented in the same way that an intention to pay the director should be documented. If the director is an employee, a fair process must be followed before his or her employment is terminated to avoid a claim for unfair dismissal and other statutory amounts that may be due.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions