Illegal clauses

If the employer proposes something illegal in the contract, such as a method for non-payment of tax by paying “cash in hand”, or paying part of the salary as “expenses”, employees need to be wary. It may mean that they cannot enforce any part of the contract, including statutory rights under it.

For an employee to be barred from enforcing employment rights on the grounds of illegality, a tribunal must identify the facts that made performance of the contract illegal, and must establish that:

• the employee knew that it was illegal; and

• the employee actively participated in the illegality (Kaid v Gruppo EAT/0546/03).

In Wheeler v Qualitydeep ([2004] EWCA Civ 1085), the Court of Appeal considered the case of a Thai employee who had only received two pay slips in three years. Although Ms Wheeler’s husband was a native Englishman, she barely spoke English and was unaware of the Revenue’s requirements. The Court of Appeal found insufficient evidence that Ms Wheeler was aware of the employer’s tax fraud. As a result, she was not prohibited from bringing a claim.

In the following case the EAT examined a claim by a foreign student who worked nights as a security guard:

An employee who participates in an illegal contract may not be able to bring a claim of unfair dismissal. The High Court has held that this is not a denial of the right to a fair trial under human rights law (Soteriou v Ultrachem ([2004] IRLR 870)).

However, employees have been allowed to bring unfair dismissal claims in cases where:

• the employer refused their request to make arrangements to pay their tax and National Insurance (Warp Technologies Holdings v Nunoo and Vermani EAT/0527/04); or

• they were paid occasional sums cash in hand (Annandale Engineering v Samson [1994] IRLR 59).

If employees misrepresent the true position, for example by pretending that part of their wages are expenses, they are likely to be denied employment rights (Enfield Technical Services Ltd v Payne UKEAT/0644/06). Similarly, an employee who represents himself to the Inland Revenue as self-employed, knowing they are really a worker (as opposed to honestly mistaking his employment status) is likely to be denied the right to claim unfair dismissal (Connolly v Whitestone Solicitors (UKEAT/0445/10).

Employers cannot usually avoid discrimination claims just by claiming the contract is illegal. For example, in Leighton v Michael ([1996] IRLR 67), an employee was allowed to bring a sex discrimination claim even though she had turned a blind eye to her employer’s failure to deduct tax and national insurance. However, if a discrimination claim is inextricably linked to a claimant’s illegal behaviour, a tribunal may well decide not to allow it to proceed. For more information see Chapter 6: Discrimination.