The illegality defence: Is an illegal employment contract always unenforceable?

It is a general principle of contract law both in Scotland and England & Wales that if the performance of a contract is tainted by illegality, then its terms are unenforceable. This is commonly referred to as the doctrine of illegality. However, the recent Court of Appeal case of Okedina v Chikale [2019] EWCA Civ 1393 proved an exception to this general principle.

The facts

This case concerned the Claimant, Ms Okedina, who worked as a live-in domestic worker in the UK for Ms Chikale, the Respondent. The Claimant was initially granted a six-month domestic worker visa, based on an application made by the Respondent which contained a considerable amount of false information. The Claimant was unaware of this and was under the impression that her employer, who was in possession of her passport, was applying for this to be extended. However, this application and a subsequent appeal were refused by the Home Office. The Claimant was now, unknowingly, working illegally.

She continued to work for the Respondent, but after asking for a pay increase, she was summarily dismissed. She subsequently raised a claim in the Employment Tribunal under a number of different heads of claim including unfair and wrongful dismissal.

The first decision

At the Employment Tribunal, the Claimant was successful on almost all counts. However, the Respondent then sought to rely on the defence of both statutory and common law illegality (as established in the case of Hall v Woolston Hall Leisure Ltd [2001] 1 WLR 225):

Statutory illegality applies where a legislative provision prohibits the formation of a contract, or renders the contract or its terms void.

In this case the Respondent relied upon sections 15 and 21 of the Asylum and Nationality Act 2006 (IANA) which imposes a civil penalty on an employer who employs someone who does not have the right to work in the UK.

Common law illegality applies where the conduct or performance of a contract is illegal and denying enforcement of the contract is an appropriate response to the illegal conduct. In the employment context, this requires that the employee was aware of the illegality or participated in it.

In this case the Respondent advanced that because the Claimant continued to work illegally it rendered the contract void under common law. As such any sums awarded for the period where the Claimant was working illegally was invalid under the illegally performed contract. The EAT rejected both of these arguments and the Respondent then appealed to the Court of Appeal.

The final decision

The Court of Appeal, had to determine whether statutory and/or common law illegality applied.

In deciding whether there had been statutory illegality, the Court considered sections 15 and 21 of the IANA which did not state that a person cannot be party to a contract of employment, or that such contract would be unenforceable. The Court had to consider whether it could imply this intention into the legislation. Underhill LJ held that, referring to public policy considerations, it was not the intention of Parliament to deprive an innocent individual of a contractual remedy under a contract of employment. 

In respect of common law illegality, the Court concluded that this was not engaged as the Claimant was in the unusual position in that she was totally unaware her leave to remain had expired. Indeed, her employer had misled her to believe she was working legally and, as such, she neither had the knowledge nor had she participated in the illegal behaviour.

The Court therefore upheld the earlier decisions of the Employment Tribunal and EAT allowing the Claimant’s contractual claims to succeed.

The implications for employers

This is, of course, an atypical case and the facts will not be applicable to most employees. However, this should serve as a warning for employers that an individual’s contractual rights may not be extinguished upon the expiration of their leave to remain. Employers should remain vigilant in ensuring that employees have the right to work in the UK to avoid not only Employment Tribunal claims, but potential civil and criminal penalties.

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