You may be right. I don't know much about employment law.

But I still think any contract is probably not binding if it is unfulfilled. If I agree to buy your house and don't pay for it, I don't own it. You have a possible action against me for damages due to breach of contract (here, our correspondent has a possible damages claim for the unpaid wages). If the matter is then settled in or out of court, the contract stands. But if not, there is no oblgation to make the other party fulfil the contract, you can just walk away from it if they do not do as they agreed.

Since there doesn't seem to be any great wish to twist the employer's arm to fulfil their part of the agreement, I think the contract is cancelled, as if it never existed. And copyright of the work therefore still belongs with the author.

I would just go ahead and use them, and tell the employer to boil his head if he objected. But this is not legal advice :-)

I assume this was some sort of internship?

I would argue that since the employer never fulfilled their contract with you, you own copyright of your own work and may use it as you wish.

Moreover, because they haven't paid you, they are infringing your copyright if they use your work.

In practice this could get complicated, should the employer try and assert what they say are their legal rights over your work. You may find yourself dealing with their solicitor and potential court proceedings for what they regard as your breach of contract. Who is right is likely to depend on employment law and the specifics of the agreement between you, rather than copyright law.

You seem to have accepted their non-payment, and this could be used to infer that you accepted the working arrangement.  If you can prove that you have tried to get them to honour their side of the bargain, I don't think they have a leg to stand on.

Having said that, in your situation I'd just use your work however you wish. Attack being the best form of defence I would also send them a letter pointing out they own no rights in your work (since they haven't paid you) and are in breach of your copyright. You could require them to stop using it, and/or sue for infringement and damages.

Any employer this unfair and unreasonable is unlikely to get sympathy from any court. Slavery has been illegal for a long time.

I would also inform the Dept of Work & Pensions, since unpaid internships are illegal under the 1998 National Minimum Wage Act. Like any other employment, and whether there is a contract of employment or not, they are subject to the minimum wage , and this employer appears to have tried to wriggle around the law.  Only charities are allowed to use unpaid workers.

But please note I am not a lawyer and this is not legal advice. It would be wise to get legal advice, perhaps from one of the solicitors in the links section.

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