Court Re-States Test for Defence of Illegality in Unfair Dismissal Claims
08/01/2021
In June 2021, the Court of Appeal considered the case of Robinson v His Highness Sheikh Khalid Bin Saqr Al Qasim [2021] EWCA Civ 862 and re-stated the correct test for common law illegality as a defence to claims for unfair dismissal. It also set out the statutory interim relief regime in the context of alleged automatic unfair dismissal.
Background to the decision
The Claimant, C, had been employed by the Respondent, R, on the basis that she would pay her own tax and National Insurance (NI) payments. Between 2007 and 2014, she paid no tax and argued that R was responsible for the tax payments. The dispute ran for three years, during which time R deducted tax from C’s salary and held it in a separate account to show HMRC that the money had been collected should a future audit be conducted. In 2017, R dismissed C for failing to take responsibility for the unpaid tax. C maintained that communications between her and R on the tax matter amounted to protected disclosures and therefore she had been unfairly dismissed on both automatic and standard grounds.
The Employment Tribunal (ET) granted C interim relief and directed R to continue to employ her until the conclusion of her claim. The Employment Appeal Tribunal (EAT) set the ET’s decision aside. At the final hearing of the substantive claims, the ET found that C was unfairly dismissed on procedural grounds, but R could rely on the defence of illegality as the contract had been performed illegally due to C’s non-payment of tax. The EAT disagreed, stating that no illegality was present at the time C was dismissed and it was possible to sever the portion of the contract where the illegality occurred (2007-14).
R appealed on the grounds that the EAT did not apply the correct test for illegality set out in Patel v Mirza [2016] UKSC 42, [2017] A.C. 467, [2016] 7 WLUK 518 and was wrong to find that it was possible to sever C’s earlier illegal performance from her performance post-2014.
In Patel, the Supreme Court held that the defence of illegality should only be upheld if allowing a claim tainted by illegality would damage the integrity of the legal system. In answering this question, the Court had to consider:
(a) the purpose of the illegality and whether allowing the claim would enhance it,
(b) public policy, and
(c) whether denying the claim would be a proportionate response to the illegality.
At stage (c) the Court should consider matters such as the seriousness of the illegality, whether the illegality was central to the contract, and whether the Claimant’s conduct was intentional.
The Court of Appeal’s decision
Dismissing the appeal, the Court held that concerning the defence of illegality, one party’s illegal performance of the contract did not definitively mean the doctrine of illegality would apply. This is because such a simple test would not take into account matters such as the seriousness of the illegality which is part of the proportionality exercise laid down in the Patel test. The fact the Claimant had committed an unlawful act would not in itself result in the contract being unenforceable unless the reason for the agreement was to commit the illegality.
The Court of Appeal concluded that the EAT had conducted a considered proportionality test and having regard to all the circumstances, the ET could not reasonably regard C’s illegal performance of the contract between 2007 and 2014 as sufficient justification for not permitting her to rely on her rights in May 2017. The EAT was able to sever the period from 2014-2017 from C’s previous conduct.
Comment
The Court of Appeal has provided welcome clarification for the correct test for common law illegality as a defence to claims for unfair dismissal, indicating that Employment Tribunals should have regard to the three considerations identified by the Supreme Court in the non-employment case, Patel and in particular must assess whether denying the claim would be a proportionate response to the illegality. Parties to a contract should be aware that the doctrine of illegality will not be applied simply because one party performed the contract illegally; the Court will need to apply a proportionality test as outlined above.
While every effort has been made to ensure the accuracy of these court updates, these articles are intended as a general overview and not intended, and should not be used, as a substitute for taking legal advice in any specific situation. Neither Zurich Municipal, nor any member of the Zurich group of companies, will accept any responsibility for any actions taken or not taken on the basis of these article.
