When can an employee be prevented from enforcing a contract where there had been a prior period of illegality?
21st February 2020
The Employment Appeal Tribunal (EAT) recently held that, while the Employment Tribunal (ET) were entitled to find that an employee would not have been entitled to enforce their rights in relation to a contract performed illegally, it did not prevent the Claimant from enforcing her contractual and statutory rights when they were performing the contract legally.
Ms Robinson was engaged by HH Sheikh Khalid Bin Saqr Al Qasim (“Sheikh Khalid”) to care for his children in the UK, managing his UK properties, and making arrangements for him and his wife when they visited the UK.
The contractual documents set out that Ms Robinson was responsible for paying her own income tax on any earnings she received through her employment, however failed to do so until July 2014, when Sheikh Khalid became aware.
Ms Robinson was advised that she was likely to be deemed an employee and that deductions for tax would have to be made at source. This led to a dispute as to whether the Claimant was employed or self-employed and therefore, whether her remuneration should be paid in gross or net. Sheikh Khalid did not accept that Ms Robinson was an employee and, as such, he was responsible for deducting tax on Ms Robinson’s earnings from 2007 onwards.
Despite this, from July 2014 deductions were made from Ms Robinson’s monthly payments equal to the amount of tax and national insurance that would be due if she were self-employed.
Between June 2014 and March 2017, Ms Robinson made disclosures, which she alleged were protected under whistleblowing legislation, alleging that Sheikh Khalid was failing in his legal duty to operate a PAYE system and manipulating the tax system to avoid payment of PAYE.
Sheikh Khalid later wrote to Ms Robinson explaining that he felt that he had little option but to terminate her contract unless she agreed to account for the tax due on the payments made to her. Ms Robinson contended that she made a number of protected disclosures between 2014 and 2017.
The ET accepted that the disclosures (i.e. the request to deduct tax via PAYE) made by Ms Robinson were protected. However, the ET noted that the disclosures went back to 2014, some three years before the Claimant’s dismissal. During this time, Ms Robinson did not suffer any detriments as a result of having made the protected disclosures, so the ET held that the dismissal could not therefore be because of such disclosures being made. Instead, the real reason for dismissal was the dispute over who should pay tax, not the disclosures themselves.
The ET held that the dismissal was unfair from a procedural standpoint as Sheikh Khalid should have had a further meeting with Ms Robinson prior to dismissal and a right of appeal, which would have extended the Claimant’s employment by a further month.
Most importantly, the ET found that Ms Robinson was performing the contract illegally by failing to pay or declare any tax. As such, Ms Robinson was not entitled to enforce her rights relating to the employment stemming from this contract.
Employment Appeal Tribunal
Ms Robinson appealed on the basis that, among other factors, the ET had erred in finding that she could not bring claims because of the illegal performance of the contract, and for failing to treat the period after May 2014 separately, as she was performing the contract legally.
The EAT concluded that the ET were entitled to find that the dismissal was not by reason of the protected disclosures but the fact that there was a dispute over who would pay the relevant tax, and had put its mind to the considerations and care that was required when doing so.
Further, the EAT recognised that the ET were wrong to preclude Ms Robinson from presenting a successful claim for wrongful and unfair dismissal. According to the EAT, the ET should have considered whether Ms Robinson had knowingly participated in the illegal performance of the contract after July 2014. As it was clear from the evidence that she had not, she should be to enforce her employment rights from the date that the contract became legally performed.
This judgment confirms that, even when an employee is prevented from enforcing their employment rights (such as where a contract is performed illegally), this prohibition will be lifted upon the reason for the prohibition being resolved, meaning that they have full rights to enforce their employment rights.
Employers should be aware of this and should always be wary of relying indefinitely on anything that seeks to prevent an employee bringing a Tribunal claim.
If you have any questions on the above and how it will affect you, please do not hesitate to get in touch with a member of our employment team.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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