Illegal contract terms

If the employer proposes something illegal in the contract, such as avoiding 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.

An employee is only likely to be barred from enforcing employment rights on the grounds of illegality if they knew of that illegality and participated actively in it (Kaid v Gruppo EAT/0546/03).

For example, 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 HMRC’s requirements. There was insufficient evidence that she knew of her employer’s tax fraud, so she was allowed to bring her claim.

In Blue Chip Trading Ltd v Helbawi UKEAT/0397/08, a foreign student exceeded the working hours allowed under his visa. He was allowed to claim the National Minimum Wage, but only for the hours he was legally permitted to work. The fact that he had breached the terms of his visa did not prevent him bringing any claim at all.

An employee who participates in an illegal contract may be barred from bringing 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). Employees have been allowed to bring unfair dismissal claims in cases where:

• their employer refused their request to organise PAYE 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).

Employees who misrepresent the truth, for example by pretending part of their wages are expenses, are likely to be denied employment rights (Enfield Technical Services Ltd v Payne UKEAT/0644/06). The same is true of an employee who identifies himself to HMRC as self-employed knowing he is really a worker, as opposed to honestly mistaking his employment status (Connolly v Whitestone Solicitors UKEAT/0445/10).

An employer cannot usually avoid a discrimination claim 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 turned a blind eye to her employer’s failure to deduct tax and national insurance. However, if the claim is inextricably linked to the claimant’s illegal behaviour, a tribunal may well decide not to allow it to proceed. The case of Hounga v Allen [2012] EWCA Civ 609, is an example of the severity of the courts’ approach. The case involved a young illiterate undocumented migrant domestic worker who suffered appalling abuse at the hands of her employer, but who was nevertheless barred from bringing her discrimination claim. An appeal is currently listed before the Supreme Court.

A more encouraging case is Wijesundera v Heathrow 3PL Logistics Limited (debarred) UKEAT/0222/13/DA. This case involved a UK-based Sri Lankan national who needed a work permit to be allowed to continue working in the UK. She knew, when applying for the job, that she needed a permit, and she kept pressing her employer to get one. But this took two years, during which time she worked illegally and suffered continual acts of sexual harassment. The EAT said her claim could be heard despite having no work permit. Some of the harassment took place when Wijesundera was applying for the job, when there could be no question of illegality. It is not unlawful to apply for a job without a work permit. As regards the harassment once she started work, the EAT said that all the facts must be looked at to decide whether a claim is “inextricably linked” to illegality. In particular, this claimant did not collude with the employer to deceive the immigration authorities or lie to her employer about her status. Instead, she continually pressed her employer for her status to be regularised.

In any event, said the EAT, the sexual harassment was not “bound up” with the illegal contract, “for there is nothing intrinsic about being an employee that leads to sexual harassment or freedom from it”. In other words, just because an illegal contract creates the conditions which enable an employer to sexually or racially abuse a worker, this does not mean that the abuse is “linked” to that contract.

A claimant who deliberately lies to their employer about their right to work in the UK is very unlikely to be allowed to claim discrimination or any other employment rights (Vakante v Governing Body of Addey and Stanhope School [2005] ICR 23).