Illegality as a defence in the Employment Tribunals: the case of Okedina v Chikale

In the recent decision in Okedina v Chikale UKEAT/0152/17/RN the EAT (HHJ Eady QC) considered the question of when a Claimant’s contract of employment would be said to be illegal by virtue of the operation of immigration law.

The case contains a useful rehearsal of the relevant legal principles (para 35 – 41 of the decision).

At first instance, the ET had found that the Respondent had arranged for the Claimant (a Malawian national) to travel to the UK to work directly for the Respondent as a domestic worker. In November 2013 the Respondent made an application for an EEA family permit for the Claimant, providing false information with the intention of regularizing the Claimant’s position in the UK. The Claimant relied on the Respondent to take care of her visa situation.

The ET found that there was nothing inherently unlawful about the contract of employment, but that the contract had been illegally performed after 29 November 2013. However, the Claimant had not knowingly participated in that illegality.

The Respondent contended (throughout) that the contract of employment was prohibited by immigration legislation and therefore void from the outset.

The EAT in Okedina referred back to the guidance given in Hall v Woolston Hall Leisure Ltd [2001] ICR 99 (CA). It agreed with the decision at first instance, that this was a case which did not fall within the second category in Hall (i.e. where the contract itself is prohibited); and the ET had found that the Claimant had not knowingly engaged in any illegal performance of the contract, and so was not complicit in any subsequent illegality.  

Discussion

The Court’s approach to illegality has developed substantially since Tinsley v Milligan [1994] 1 AC 340.

In Hall v Woolston Hall Leisure Ltd [2001] ICR 99 (CA), the Court set out three categories of illegality: one, where the contract is entered into with the intention of committing an illegal act; second, where the contract is expressly or implicitly prohibited by statute; and third, where a contract, lawful when made, is illegally performed and the party knowingly participated in that illegal performance.

Similarly, the decision in Enfield Technical Services v Payne [2008] IRLR 500 (in the Court of Appeal) cited the decision below (in the EAT) with approval, stating:

[25] In his judgment, Elias J analysed [the authorities] in some detail. I agree with his analysis and with the statement, at paragraph 43:

"In our judgment the essential feature of all the cases where there has been found to be illegality is that the parties have knowingly entered into arrangements which have to their knowledge represented the facts of the employment relationship to be other than that they really were."

I have already cited the general conclusion of the EAT at their paragraph 46. I agree with their further statement, at paragraph 49 that, while the decision in Daymond was correct, the width of Underhill J's remarks at paragraph 12, cited at paragraph 18 above, was too broad. Elias J stated:

"We do not consider that the authorities, or Salvesen, support the proposition that if the arrangements have the effect of depriving the Revenue of tax to which they were in law entitled then this renders the contract unlawful. For reasons we have given, in our judgment there must be some form of misrepresentation, some attempt to conceal the true facts of the relationship, before the contract is rendered illegal for the purposes of a doctrine rooted in public policy."

 

In Allen v Hounga [2014] UKSC 47, [2014] 1 WLR 2889 the Supreme Court considered illegality as a defence to a claim in tort – although the approach to this varied between justices. So, for instance:

“[t]he public policy in support of the application of that defence, to the extent that it exists at all, should give way to the public policy to which its application is an affront . . .” (para 52, per Lord Wilson)

and

 “[t]he various analyses offered in past cases are largely . . . different ways of expressing two connected aspects of the basis for the law of illegality. The first is that the law must act consistently; it cannot give with one hand what it takes away with another, nor condone when facing right what it condemns when facing left. The second is that before this principle operates to bar a civil claim, and particularly one in tort, there must be a sufficiently close connection between the illegality and the claim made. Neither proposition is suggested as a comprehensive test. En route to the answer in an individual case, the court is likely to need to consider also the gravity of the illegality of which the claimant is guilty and her knowledge or intention in relation to it. It will no doubt also consider the purpose of the law which has been infringed and the extent to which to allow a civil claim nevertheless to proceed will be inconsistent with that purpose. Other factors may arise . . .” (para 53, per Lord Hughes)

The approach in Hounga was elaborated on in Patel v Mirza [2016] UKSC 42 (para 101 per Lord Toulson)

“ . . . one cannot judge whether allowing a claim which is in some way tainted by illegality would be contrary to public interest, because it would be harmful to the integrity of the legal system, without a) considering the underlying purpose of the prohibition that has been transgressed; b) considering conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and c) keeping in mind the possibility of overkill unless the law is applied with a due sense of proportionality. We are, after all, in the area of public policy . . .”

Okedina is a useful illustration of how these factors interrelate. Patel represents a softening of the approach, in a way which (I anticipate) assists Claimants, because of the relevance of proportionality.

An argument which is frequently run in the Tribunals is that the employment contract is illegal on the basis that it defrauds the revenue. So, for instance (the following cases are ET decisions and so, of course, only illustrative):

In Haseldine v (1) Winterton (2) Academy 4 Dogs Ltd (3) Happy Hounds Dog Grooming School Ltd (C-2401434/17) the ET considered that wages were being hidden behind the pretense of unpaid work, and that the claimant was an active participant in the scheme; that was sufficient to yield an illegality defence.

A similar argument failed in Wilcox v Diamond Contracts Ltd (C-1800972/2017) in which the Respondent failed to prove that the arrangement was for the purposes of defrauding the Revenue, or that the performance of the contract was done in a way that had that effect (as in Colen v Cebrian (UK) Ltd [2004] ICR 568).

Likewise in Adair v (1) Concept Barbers Ltd (2) Conway Men’s Hairdressing Ltd (S/4100522/2017), where there had been illegal payments made in respect of the claimant’s wages in order to avoid income tax and NI contributions payable on her behalf. Critical in that decision was the fact that the Claimant did not wish for the financial advantage and did not wish to be party to an illegal arrangement; and the sums involved represented a small proportion (some 20 – 11%) of her total pay; she was an unwilling participant; and, although the case prior to Patel v Mirza would have been “on the margin”, the introduction of a further consideration of proportionality led the judge to the conclusion that he had jurisdiction: it would be “disproportionate to bar the Claimant’s access to her statutory and contractual rights entirely . . .”. And the fact that the First Respondent was the beneficiary of the arrangement counted against denying the Claimant a remedy by reason of illegality.

It is interesting to note that, despite the recent developments (at the level of the Supreme Court, to boot) on the subject of illegality, Hall remains a touchstone.

 

Ezra Macdonald