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ROBINSON V AL-QASIMI (2021) EWCA Civ 862

An employee whose contract of employment was performed illegally during a period of seven years when she failed to pay income tax was not prevented from claiming unfair and wrongful dismissal three years after the employer became aware of the non-payment and took steps to address it. The Court confirmed that, following the Supreme Court’s decision in Patel v Mirza [2016] UKSC 42 , a tribunal considering a defence based on illegality must assess whether denial of the claim would be a proportionate response to the illegality.

  • Unfair Dismissal
  • Breach of Contract
  • Illegality
  • Proportionality

Justices

Lord Justice Holroyde, Lord Justice Singh and Lord Justice Baker.

Background to the Appeal

 In March 2007, AQ engaged R to carry out various duties, including looking after his children and managing his properties. R’s letter of appointment stated that she would be paid a ‘management fee’ and would be responsible for paying her own tax. AQ took the view that R was self-employed but, after taking advice in 2011, understood that it was likely that she would be considered employed and so her income would have to be taxed at source. In 2014, R told AQ that she had not paid any tax on her earnings since 2007 and asserted that he was responsible for including her in a PAYE scheme. She also asserted that she was entitled to £37,000 net and so disputed that she was liable to pay any back tax. AQ continued to assert that R was self-employed but, from 1 July 2014, began to deduct a sum from R’s monthly payments to meet any potential tax liability. The dispute over liability for back tax continued and R sent a series of communications accusing AQ of breaching tax law. On 19 May 2017, AQ dismissed R with immediate effect. R brought an employment tribunal claim alleging, among other things, that she had been automatically unfairly dismissed contrary to S.103A of the Employment Rights Act 1996 for making protected disclosures. She also claimed ordinary unfair dismissal and wrongful dismissal.

The employment tribunal rejected R’s claims. It accepted that she had made protected disclosures in relation to AQ’s failure to put her onto PAYE but found that this was not the reason for dismissal. Rather, AQ dismissed R because of the dispute over who should pay R’s tax between 2007 and 2014, which was separable from the protected disclosures. The tribunal went on to find that the dismissal was wrongful because R should have been given ten weeks’ notice rather than being summarily dismissed, and that it was unfair under S.98 ERA because of procedural failures. However, her claims for unfair and wrongful dismissal could not succeed because they relied on a contract that had been performed illegally. R’s letter of engagement made it clear that it was up to her to pay tax but she paid none for seven years. R appealed successfully on the illegality point to the EAT, which held that the fact that the contract was performed illegally for seven years did not prevent her from claiming unfair and wrongful dismissal three years after AQ became aware of the non-payment and took steps to address it. The EAT remitted the unfair and wrongful dismissal claims. AQ appealed to the Court of Appeal.

 Judgment

The Court dismissed the appeal. It reviewed the case law on the illegality defence, including the Supreme Court’s judgment in the non-employment case Patel v Mirza [2016] UKSC 42, where Lord Toulson made clear that the key question is whether, in light of the illegality, allowing the claim would harm the integrity of the legal system. This depends on the underlying purpose of the law that has been breached, any other public policy considerations, and whether denying the claim would be a proportionate response to the illegality. The Court noted that Lord Toulson referred to the Court of Appeal’s decision in the employment case Hall v Woolston Hall Leisure Ltd 2001 ICR 99, where Lord Justice Peter Gibson held that the focus should be on whether the claim arises out of or is so clearly connected or inextricably bound up or linked with the illegal conduct that the court could not permit the applicant to recover compensation without appearing to condone that conduct. Hall also endorsed the ‘knowledge plus participation’ test – i.e. illegality will bar the employee’s claim only if the employee knows of and participates in the illegal performance of the contract of employment. The Court noted that, although Hall considered a statutory tort (sex discrimination) rather than a contractual claim or unfair dismissal, the test as there formulated contained an insight of more general importance. Hall emphasised the relevance of asking whether there is a sufficient causal link between the illegal conduct and the claim being made before the tribunal. In the Court’s view, this will not be decisive but it is a relevant consideration in performing the proportionality exercise now required by Patel. As for the ‘knowledge plus participation’ test, the Court held that this is a necessary, but not a sufficient, criterion for the doctrine of illegality.

The Court also considered Coral Leisure Group Ltd v Barnett 1981 ICR 503, where the EAT recognised that, even if an employee does an illegal act during the performance of a contract (in that case, arranging prostitutes for customers), he or she might subsequently be able to enforce the contract and claim unfair dismissal. In the EAT’s view, this would depend on whether the contract was entered into for the purpose of doing the unlawful act. The Court stated that this was not an entirely accurate statement of the relevant legal principle because it focused on the purpose or intention of the parties at the time of the formation of the contract. While that may be one example of where the defence of illegality may arise, it is not a necessary condition for it to do so. The defence may also arise where one or both parties perform the contract illegally at a later date even if that was not their intention or purpose at the outset.

Having set out the case law principles, the Court went on to reject AQ’s challenges to the EAT’s application of them to the present case. Among other things, it rejected the argument that the EAT had wrongly imposed a requirement that the illegal conduct would have to be contemporaneous with the dismissal for the illegality defence to arise. This was not a fair reading of the EAT’s judgment. The Court also rejected the argument that the EAT was wrong to hold that the tribunal could not reasonably have concluded that R had illegally performed the contract after July 2014. The key point in the EAT’s ruling was that, having regard to all the circumstances, the tribunal could not reasonably have regarded R’s illegal performance of the contract between 2007 and 2014 as being sufficient justification for not permitting her to rely on her rights in May 2017. In so holding, the EAT was conducting the proportionality exercise which is required following Patel.