Mr M Gould v Daval International Ltd: 2300712/2017
EMPLOYMENT TRIBUNALS
Case No 2300712/2017
Between
Mr M GouldClaimantDaval International LtdRespondentDate 3 May 2017
JUDGMENT
Employment Tribunals Rules of Procedure 2013 – Rule 21[1]The respondent has made an unauthorised deduction from the claimant's wages and is ordered to pay the claimant the gross/net sum of £7,500[2]The claimant was dismissed in breach of contract in respect of notice and the respondent is ordered to pay damages to the claimant in the sum of £18,000[3]The claimant was unfairly constructively dismissed and is entitled to a basic award of £10,538 and a compensatory award of £18,500[4]The respondent has failed to pay the claimant’s holiday entitlement and is ordered to pay the claimant the sum of £5,400[5]The respondent is ordered to pay costs to the claimant under Rule 75(1)(b) in the sum of £250 in respect of the issue fee paid by the claimant in these proceedings.[6]The hearing listed on 4 July 2017 is cancelled. NOTICE THE EMPLOYMENT TRIBUNALS (INTEREST) ORDER 1990 Tribunal case number(s): 2300712/2017 Name of case(s): Mr M Gould v Daval International Ltd The Employment Tribunals (Interest) Order 1990 provides that sums of money payable as a result of a judgment of an Employment Tribunal (excluding sums representing costs or expenses), shall carry interest where the full amount is not paid within 14 days after the day that the document containing the tribunal’s written judgment is recorded as having been sent to parties. That day is known as “the relevant decision day”. The date from which interest starts to accrue is called “the calculation day” and is the day immediately following the relevant decision day. The rate of interest payable is that specified in section 17 of the Judgments Act 1838 on the relevant decision day. This is known as "the stipulated rate of interest" and the rate applicable in your case is set out below. The following information in respect of this case is provided by the Secretary of the Tribunals in accordance with the requirements of Article 12 of the Order:- "the relevant decision day" is: 22nd May 2017 "the calculation day" is: 23rd May 2017 "the stipulated rate of interest" is: 8% MRS E CROSSFIELD For the Employment Tribunal Office INTEREST ON TRIBUNAL AWARDS GUIDANCE NOTE[1]This guidance note should be read in conjunction with the booklet, ‘The Judgment’ which can be found on our website at www.justice.gov.uk/tribunals/employment/claims/booklets If you do not have access to the internet, paper copies can be obtained by telephoning the tribunal office dealing with the claim.[2]The Employment Tribunals (Interest) Order 1990 provides for interest to be paid on employment tribunal awards (excluding sums representing costs or expenses) if they remain wholly or partly unpaid more than 14 days after the date on which the Tribunal’s judgment is recorded as having been[1]Time for submission of the Response is extended pursuant to Rule 20 (4) to the date of this judgment.[2]The Judgment signed on 3 May 2017 and promulgated by the Tribunal on 22 May 2017 is set aside.[3]The Respondent has 14 days from the date that this judgment is sent to them if so advised to amend the Response filed to respond in greater detail to the claim.[4]The case is to be listed for a final hearing for two days before a judge sitting alone with standard directions for an unfair dismissal case.
REASONS
[1]This preliminary hearing was convened by a letter of the Tribunal dated 23 July 2017 directing determination of the following issues:-[1]The Respondent’s application for an extension of time to present the response;[2]The Claimant’s objection set out in their letter of 9 June 2017;[3]Case management orders for a full hearing. 2. The Tribunal heard evidence in the form of written statements and crossexamination from the Claimant and on the Respondent’s side from Mr Graham Ralph, Finance Director, Mr Stephen Hunt, a director assisting with fund raising and Mr Roger Beesley, Production and Distribution Director. 3. I received a skeleton argument from the Claimant’s representative supplemented by oral submissions and the Respondent relied on the application found at page 22 of the bundle and the oral submissions of the representative.
The Findings of Fact
[4]The findings of fact are as follows. The Claimant presented a claim to the Tribunal on 2 March 2017 alleging unfair dismissal, claiming a redundancy payment, notice pay, holiday pay and arrears of pay. At box 9.2 of the form the Claimant claimed unpaid salary for November 2016 in the sum of £6,000 net, unpaid salary for December 2016 for one week in the sum £1,500 net, a statutory redundancy payment based on 22 weeks at the statutory maximum £479, alternatively a basic award of £10,538, a compensatory award of three months net salary in the sum of £18,000, a claim for loss of statutory rights in the sum of £500, £18,000 for notice pay being 3 months net salary and £5,400 holiday pay being 18 days unused as net pay. The total, £59,938, is the sum claimed in the claim form. The claim was one of constructive unfair dismissal. The date of dismissal was said to be 7 December 2016 and the Claimant had an early conciliation certificate showing that conciliation began on 9 January and concluded on 6 February. There was no dispute regarding the time of presentation of the claim.[5]The claim was accepted and served by post on 10 March 2017 with a hearing date of 4 July 2017 by the Tribunal. The address for service was taken from the claim form as 4a Gildredge Road, Eastbourne, East Sussex, BN21 4RL. The date for submission of the response was 7 April 2017. The Claimant was directed to supply a schedule of loss in the standard Tribunal orders. By e-mail of 12 May 2017 he supplied to the Tribunal a copy of the Schedule of Loss which he had supplied to the Respondent at the service address used on 30 March 2017. The total claimed in that document was £97,388.[6]Employment Judge Sage signed on 3 May 2017 a judgment pursuant to Rule 21. This was before the Tribunal received the Claimant’s Schedule of Loss provided on 12 May 2017. The judgment was in the sum of £59,938 plus the issue fee of £250. Although the Judge gave directions for that Judgment on 3 April 2017 it was not signed until 3 May 2017 and was not promulgated by the Tribunal until 22 May 2017.[7]Solicitors instructed by the Respondent e-mailed the Tribunal on 31 May 2017. Audrey Williams, Of Counsel, wrote to say:- “I am instructed on behalf of the Respondent who are surprised to have been notified of a judgment as they have not been served with the proceedings. They were only alerted to this via a Google alert which is set up against the company name when the decision was posted on the register of judgments”. The web link was then supplied. Ms Williams continued:- “I will be making a formal application for an extension of time and for the judgment to be set aside,...”[8]A trainee solicitor in the Respondent’s representative’s firm spoke to one of the clerks in Croydon who referred the matter on 1 June 2017 to Employment Judge Sage who directed acknowledgment and that the tribunal would await the application for an extension of time and the application to set aside the judgment.[9]On 2 June 2017 the Tribunal received from the Respondent’s solicitors an application for an extension of time together with draft grounds of resistance. In light of extensive objections received from the Claimant’s solicitor dated 9 June 2017 Employment Judge Sage directed that the matter should be listed for a one day reconsideration hearing before any of Judge without the issue of a fee. Before that was done the Employment Judge Martin directed on 14 June 2017 that a draft form ET3 would be required which was supplied by the Respondent on 15 June 2017. Directions were then given on 30 June 2017 for the case to be listed as set out above.[10]The bundle produced by the parties for this hearing runs to 180 pages. The testimony received establishes that the Respondent is a small private company specialising in pharmaceutical products. The company was set up by Mr David Shotton and his wife Mrs Valery Shotton. Mr and Mrs Shotton are the father-in-law and mother-in-law of the Claimant. Sadly Mrs Shotton became unwell in 2015 and Mr Shotton stood down from the role of CEO and Mr Kevin Norville took over on 29 February 2016. Difficulties between the Claimant and the company date from this period.[11]In the context of service of papers the Respondent accepts that the claim form was sent to the registered office of the company. The Company’s Finance Director, Mr Graham Ralph gave evidence that his accountancy practice operated from November 1999 to 2009 at the registered office address for the company. When Mr Ralph moved his practice in 2009 unusually he left the registered address for the Respondent, and it appears other companies for whom he was acting, at his former address.[12]The Respondent it is said operated without any PAYE employees, saving the disputed case of the Claimant, from Tudor House in Swanley, Kent.[13]A third address in this case is the address of Mr Ralph’s practice from 2009 onwards. That is Natewood House, Polegate. Mr Ralph’s evidence was that the current tenant of his former business address at Gildredge Road is a client of his accountancy practice. Arrangements are made for collection of post from that address three times a week to be taken to Natewood House and dealt with by Mr Ralph. Tudor House was as stated above the operating address for the Respondent used by the Claimant and Mr Beesley as warehousing and a base for product purposes.[14]Mr Ralph’s evidence was that he was on holiday between 26 February and 5 March 2017 skiing. He states that he did not receive the notice of a claim. His business partner Hazel Mattock has confirmed to him that she has no recollection of opening post from the Employment Tribunal. Mr Ralph accepts receiving a letter from the ACAS conciliator dated 15 March 2017 and expecting that there would be some follow up from ACAS. He states he did receive the Rule 21 Judgment in default but cannot say when he received it and that he may have received it when a Google alert placed by Mr Hunt was triggered. Mr Ralph can not offer any explanation for the items of post sent by the Claimant to the Respondent for which certificates of posting were produced together with appropriate signatures of receipt not coming to his attention.[15]In relation to the merits it would be inappropriate to conduct other than an initial assessment at this stage. Issues in this case will involve a dispute whether the Claimant was an employee of the Respondent. Some PAYE payslips have been produced in the bundle about which there is dispute. Clearly evidence will have to be taken at length on whether these were created for the purposes of assisting the Claimant in connection with a loan he was seeking to obtain, or as demonstration of the net income he would earn if he moved, as the Respondents appear to contend, from selfemployed to PAYE status or if some other analysis is correct. Submissions: Claimant[16]The Claimant’s representative submits that pursuant to Rule 90 there is deemed delivery of the claim form. A passage from IDS Handbook is quoted. It states among other things:- “The burden is on the party alleging that the document was not received to prove that this was so. It is usually difficult to prove the negative and rebut the presumption.” The Claimant submits that the claim was served at the address for the registered office of the company and the correspondence address for the directors as recorded at Companies House and the address given on the ACAS Early Conciliation Certificate.[17]Letters had been delivered to the address by registered post and signed for. This had included reference to case management orders and the hearing date. It was contended that the Respondent could not discharge the burden of proving that the claim form was not received. The Claimant stated that it was extraordinary that the Respondent contended the Claimant was not an employee because it had failed to make PAYE deductions. The submission then dealt with some invoices said to been produced by the Claimant or on his behalf. The submission was that the claim was very strong even before the Claimant obtained the default judgment and the defence was hopeless. Submissions: Respondent[18]The Respondent submitted that the only useful guidance in relation to rule 21 was to be found in Kwik Save Stores Ltd v Swain 1997 ICR 49. There were three limbs which were discretionary factors. These included explanation for delay, prejudice and the merits. The Respondent had not wilfully ignored the claim. The Tribunal might be critical at what Mr Ralph said, but the Respondent should not be penalised for a genuine oversight. In the authority of Pendragon v Copus UKEAT 0317/2005 the principles in the Kwik Save case were held to apply to the rules then in force. The absence of a good reason for delay in presenting the Response was not a barrier to an extension if there merit in the proposed defence. The discretion is a broad just and equitable one. Here the prejudice against the Respondent was significant. This present case was a judgment obtained on a technicality. No evidence had been considered. On the basis of the merits and the authority of Kwik Save the case should be heard. The merits require consideration of an unfair dismissal claim focusing on status and jurisdiction. Complex questions of fact and law were involved. There was no written agreement. The case had a long and complex history and involved a triable issue. This was not a situation where it was so obvious that the response had no merit at all of succeeding. Mr Ralph was adamant that he did not get notice of the claim. There was no evidence to rebut that Mr Ralph did not receive the case management orders. There was oral evidence to rebut the deemed postage.
Conclusion
[19]Having considered the matters raised above I set out the provision of Rule 20. Applications for extension of time for presenting response 20.—(1) An application for an extension of time for presenting a response shall be presented in writing and copied to the claimant. It shall set out the reason why the extension is sought and shall, except where the time limit has not yet expired, be accompanied by a draft of the response which the respondent wishes to present or an explanation of why that is not possible and if the respondent wishes to request a hearing this shall be requested in the application. (2) The claimant may within 7 days of receipt of the application give reasons in writing explaining why the application is opposed. (3) An Employment Judge may determine the application without a hearing. (4) If the decision is to refuse an extension, any prior rejection of the response shall stand. If the decision is to allow an extension, any judgment issued under rule 21 shall be set aside. Rule 20(4) provides that if the decision is to allow an extension any judgment issued under Rule 21 shall be set aside. The requirement that it should be just and equitable to extend time is subsumed in the overriding objective to deal with cases fairly and justly. The authority of Kwik Save remains relevant. The explanation for delay, the balance of prejudice and the merits of the defence are the factors which must be considered.[20]Considering the merits of this case I analyse whether there is some merit in the defence put forward.[21]It would be impossible on the facts of this case to say that there was no merit in the defence. The unusual arrangements of this case must be the subject of careful consideration by the Tribunal. The Claimant states that his pay was £6,000 per month net of tax. That is a relatively exceptional description for salary. It appears that no tax or National Insurance has ever been paid over the lengthy period of the engagement. While those aspects are not in any sense determinative a consideration of them can lead to other relevant aspects in relation to the true nature of the relationship between the Claimant and the Respondent. It can not be said on any basis that this was a conventional employment relationship. On the Claimant’s own case the sums claimed by the Claimant in the claim form do not appear to have been intended to represent the value of the claim. The Claimant’s schedule of loss seeks a sum approximately twice the amount awarded in the Rule 21 Judgment. The Claimant has not argued his prejudice in relation to the loss of the possibility of that additional sum if the judgment stands. That is an added component to this most unusual case.[22]I therefore consider that there are merits in the Respondent’s defence. Those require a trial.[23]The Respondent has produced evidence rebutting receipt of the claim and there is nothing to suggest that it was wilfully ignored particularly given the promptness of the action upon notification being received via the Internet. While the Respondent candidly acknowledges the unsatisfactory nature of the method of dealing with post addressed to the Respondent’s registered office, it is not suggested by the Claimant that the Respondent adopted a strategy of allowing the judgment to be entered and then delaying the case by applying to set it aside. I accepted the evidence of Mr Ralph that he did not receive the Claim form sent to the registered office.[24]Further the prejudice to the Respondent given the size of the judgment in this case would be significant if a trial is not undertaken. The Claimant would receive a windfall based on figures which have not been tested and without any consideration of the compensatory award for unfair dismissal reflecting the just and equitable requirement of section 123 of the Employment Rights Act 1996.[25]I therefore extend time for the response and direct that the judgment is set aside. The case is to be listed for two days with standard directions for an unfair dismissal case.[26]The Respondent has 14 days from the date this judgment is sent to them to amend the Response filed to respond in greater detail to the claim which it appears was not in their possession at the time the draft response was prepared.
Discussion and conclusions
[27]The third essential feature is mutuality of obligation. It is the Respondent’s case, as the tribunal understands it, that the Claimant could choose to work as and when he saw fit. However, the tribunal finds that in practice whenever there was work for the Claimant to do for the Respondent he did it and that he was obliged to do so. As the Respondent’s witnesses accepted in evidence, the Claimant had done a good job for the Respondent but in the latter part of 2016 there was simply not much work available for him to do. The tribunal also finds that although the Respondent was not obliged to provide the Claimant with any particular amount of work it was obliged to, and did, pay him regularly and consistently throughout his period of work from 2000 to 2016.[28]The final feature is that there is no term of the contract that is inconsistent with it being a contract of service. There is no definitive checklist of the type of terms to consider in this context, although a number have been discussed in the authorities over the years. Looking at the facts of this case as found above, it seems to the tribunal that the following are relevant:28.1 The Claimant was paid every month throughout his period working for the Respondent. The amount was set by the Respondent without any input from the Claimant. He did not invoice for his services.28.2 The amount the Claimant was paid was a set amount (apart from expenses) each month. There was no element of profit-sharing.28.3 The Claimant took on no element of financial risk. He was paid business expenses on top of his regular monthly pay.28.4 Although on occasions he used his own vehicle (for which he was paid expenses), for the most part he used the Respondent’s equipment such as office furniture, computer, mobile phone, van and so on.28.5 The Claimant worked exclusively for the Respondent.28.6 The Claimant continued to be paid when on holiday and on sick absence. Although not referred to expressly as such, that amounted to holiday and sick pay and there was never any question of the Claimant’s pay being stopped when he was absent from work for any reason.28.7 The Claimant was an integral part of the Respondent’s business. He was considered as such by the Respondent itself; the tribunal recalls here Mr Cater’s comment in evidence that the Claimant was ‘part of the fabric’. He was also held out to others as an integral part of the Respondent’s business, for example in the form of business cards and the company credit card.[29]The tribunal has considered the fact that on various occasions the Claimant was referred to in documentation as an employee and on other occasions as a worker or something similar that was inconsistent with employed status. However, the tribunal considered this aspect of the evidence to be broadly neutral. There was no consistency in the way that the Claimant was referred to by others in the Respondent’s organisation. The tribunal has concluded that the terms used at various times are an indication of a lack of care with words and/or a lack of understanding of their meaning in a legal sense.[30]The tribunal has also considered the way in which the parties saw themselves in terms of employment status. The tribunal has already found that both parties believed that the Claimant was self-employed, at least until near the end of the contract between them. However, that cannot, in the tribunal’s judgment, outweigh the other objective evidence in this case, as summarised above, as to the terms of the contract between the parties.[31]In all the circumstances, the tribunal finds that the Claimant was employed under a contract of service throughout the period of his work for the Respondent from mid-2000 to December 2016. He was therefore an employee within the meaning of section 230(1) of the ERA.[32]In light of the above finding it is unnecessary to consider the alternative arguments concerning worker status under section 230(3) of the ERA. Illegality[33]The Claimant’s claims are all predicated on his contract with the Respondent. If, therefore, that contract was illegal from the start or was performed in an illegal manner then the illegality defence may be made out and, if it is, his claims would have to be dismissed.[34]The Supreme Court, in the Patel case, has recently considered the illegality defence and, by a majority, has given updated guidance as to the correct approach for courts and tribunals. Essentially the two schools of thought being discussed in Patel (see, for example, paragraph 226, per Lord Sumption) were on the one hand that the law of illegality may require the application of clear rules and on the other that the equity of each case should be addressed as it arose. Putting it another way (as Lord Sumption did later in his judgment) the distinction is between a rule-based approach and a ‘range of factors’ approach.[35]The majority of the Supreme Court (which did not in fact include Lord Sumption) favoured the ‘range of factors’ approach, as set out by Lord Toulson, JSC, at paragraph 120 in the following terms: ‘[120] The essential rationale of the illegality doctrine is that it would be contrary to the public interest to enforce a claim if to do so would be harmful to the integrity of the legal system (or, possibly, certain aspects of public morality, the boundaries of which have never been made entirely clear and which do not arise for consideration in this case). In assessing whether the public interest would be harmed in that way, it is necessary(a) to consider the underlying purpose of the prohibition which has been transgressed and whether that purpose will be enhanced by denial of the claim,(b) to consider any other relevant public policy on which the denial of the claim may have an impact and(c) to consider whether denial of the claim would be a proportionate response to the illegality, bearing in mind that punishment is a matter for the criminal courts. Within that framework, various factors may be relevant, but it would be a mistake to suggest that the court is free to decide a case in an undisciplined way. The public interest is best served by a principled and transparent assessment of the considerations identified, rather than by the application of a formal approach capable of producing results which may appear arbitrary, unjust or disproportionate.’[36]Earlier in his judgment Lord Toulson had discussed the sort of factors that may be relevant: ‘[107] In considering whether it would be disproportionate to refuse relief to which the claimant would otherwise be entitled, as a matter of public policy, various factors may be relevant. Professor Burrows’s list is helpful but I would not attempt to lay down a prescriptive or definitive list because of the infinite possible variety of cases. Potentially relevant factors include the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability. [108] The integrity and harmony of the law permit—and I would say require—such flexibility. Part of the harmony of the law is its division of responsibility between the criminal and civil courts and tribunals. Punishment for wrongdoing is the responsibility of the criminal courts and, in some instances, statutory regulators. It should also be noted that under the Proceeds of Crime Act 2002 the state has wide powers to confiscate proceeds of crime, whether on a conviction or without a conviction. Punishment is not generally the function of the civil courts, which are concerned with determining private rights and obligations. The broad principle is not in doubt that the public interest requires that the civil courts should not undermine the effectiveness of the criminal law; but nor should they impose what would amount in substance to an additional penalty disproportionate to the nature and seriousness of any wrongdoing. ParkingEye is a good example of a case where denial of claim would have been disproportionate. The claimant did not set out to break the law. If it had realised that the letters which it was proposing to send were legally objectionable, the text would have been changed. The illegality did not affect the main performance of the contract. Denial of the claim would have given the defendant a very substantial unjust reward. Respect for the integrity of the justice system is not enhanced if it appears to produce results which are arbitrary, unjust or disproportionate. [109] The courts must obviously abide by the terms of any statute, but I conclude that it is right for a court which is considering the application of the common law doctrine of illegality to have regard to the policy factors involved and to the nature and circumstances of the illegal conduct in determining whether the public interest in preserving the integrity of the justice system should result in denial of the relief claimed. I put it in that way rather than whether the contract should be regarded as tainted by illegality, because the question is whether the relief claimed should be granted.’[37]In the above extract Lord Toulson referred to a list of factors suggested by Professor Burrows (in his Restatement of the English Law of Contract (2016) at pages 221–222) which had already been discussed earlier in his judgment: ‘[93] If a ‘range of factors’ approach were preferred, Professor Burrows suggested, at pp 229–230, that a possible formulation would read as follows: ‘If the formation, purpose or performance of a contract involves conduct that is illegal (such as a crime) or contrary to public policy (such as a restraint of trade), the contract is unenforceable by one or either party if to deny enforcement would be an appropriate response to that conduct, taking into account where relevant—(a) how seriously illegal or contrary to public policy the conduct was;(b) whether the party seeking enforcement knew of, or intended, the conduct;(c) how central to the contract or its performance the conduct was;(d) how serious a sanction the denial of enforcement is for the party seeking enforcement;(e) whether denying enforcement will further the purpose of the rule which the conduct has infringed;(f) whether denying enforcement will act as a deterrent to conduct that is illegal or contrary to public policy;(g) whether denying enforcement will ensure that the party seeking enforcement does not profit from the conduct;(h) whether denying enforcement will avoid inconsistency in the law thereby maintaining the integrity of the legal system.’ Professor Burrows noted that the final factor is capable of a wider or narrower approach, depending on what one understands by inconsistency.’[38]As noted at the start of this discussion, an illegality defence can succeed either because the relevant contract was illegal from the start of because it was performed illegally. In the employment context, for example, a contract may be illegal from the day it was made if the employee in question did not have the right to work in the UK, or it may be performed in an illegal manner because an employer avoids payment of NI contributions to HMRC. In either type of case the tribunal dealing with the matter once an illegality defence is raised must now (in line with the Patel guidance) consider all relevant factors before deciding whether the defence is made out.[39]In this case, both parties accept that the contract between the Claimant and the Respondent was legal when first made in 2000 and there is no suggestion that that contract was terminated and replaced with a different contract at any time thereafter.[40]The Respondent’s case on illegality therefore rests on a contention that the contract was performed illegally. The Respondent says that the Claimant knew throughout that he was self-employed but failed to account to HMRC for tax or NI on that or any other basis. The Claimant says that the illegality defence could only arise if he was in fact working under a contract of employment (which the tribunal has found he was) but if he was working under such a contract then the Respondent was responsible for deducting tax and NI on a PAYE basis and accounting for it to HMRC; in other words, the Claimant did nothing wrong.[41]The tribunal is unaware of any authority on this specific type of case. Generally the authorities on illegality concerning tax involve either the employer (with or without the knowledge and/or agreement of the employee) failing to deduct and/or pay PAYE tax or NI on a proper basis or the employer paying gross payments and the employee declaring income to HMRC on a self-employed basis (whether innocently or with knowledge or suspicion that this was not the correct approach) when he or she was in fact an employee. However, although the facts of no previous reported case of which the tribunal is aware are on all fours with this case, it will be of some assistance to consider previous cases in which similar tax issues have arisen.[42]This case is in some respects similar to the Enfield Technical Service case. In that case both claimants and their employers proceeded on the basis that the claimants were self-employed. When dismissed they each claimed unfair dismissal, contending that they had in fact been employees. Although they were correct in their assertion that they had been employees rather than self-employed, the Court of Appeal held that an error in categorisation of the relationship was not enough, without more, for an illegality defence to succeed. What was required was some sort of false representation as to the work being done or the basis on which payment is being made.[43]There is, of course, an added feature in this case in that although both parties believed that the Claimant was self-employed and he was paid on that basis, he did not then declare his income on that (or, indeed, any other) basis to HMRC.[44]The tribunal is aware of two cases which may also be said to have raised issues similar to this case. The facts were clearly different and both cases were decided before (and in one case long before) the guidance of the Supreme Court in Patel but they are nevertheless of some assistance.[45]The first is McConnell v Bolik ([1979] IRLR 422), a decision of the Scottish EAT sitting in Glasgow. The claimant was an employed farm worker. In addition to his basic wage he was given two calves by his employer each year which he then reared and sold. He had failed to include income from the calves (which amounted to a small percentage of his total earnings) in his tax returns. The employer had been wholly unaware. When the employer discovered this, after the industrial tribunal (as it then was) had decided the claimant’s unfair dismissal claim in his favour, an illegality defence was raised on appeal. The EAT dismissed the appeal, finding that the employer was not privy to the claimant’s failure to declare part of his income and that it was a separate matter between the claimant and the Inland Revenue (as it then was).[46]The second case is Quashie in the English EAT ([2012] IRLR 536). It involved issues of both employment status and illegality. The judgment of HHJ McMullen QC was subsequently overturned on appeal on the employment status point (the Court of Appeal judgment is cited in the list of authorities above) and it was therefore unnecessary for the Court of Appeal to consider the illegality part of the EAT judgment. The material facts of the case were that the claimant had believed that she was self-employed when she first started working for the respondent and had paid tax on that basis. However, during the latter part of her work for the respondent she believed that she was in fact employed but continued to declare her income on a selfemployed basis and to pay tax accordingly. The respondent was not involved in this in any way.[47]As part of her case to the EAT, the claimant contended that her relationship with HMRC was entirely separate from her contract with the respondent. This argument was rejected in the following terms: ‘71 … Mr Hendy at one stage contended that the relationship between the Claimant and HMRC was entirely outside the contract, a matter solely between the Claimant and a third party and nothing to do with the performance of the contract. I reject that as a matter of common sense. The contract was performed by the Respondent providing the Claimant with earnings. She had to account to the Revenue for those earnings. …’[48]HHJ McMullen QC then discussed the applicable legal principles in the following terms, before deciding that the ET in the particular case had failed to deal with the illegality arguments sufficiently and that the matter should therefore be remitted: ‘72 If there is falsehood in the representations made by the Claimant to the Revenue, it seems to me that that is a falsehood in the performance of the contract which makes it unlawful. I accept Mr Glynn's submission that illegal performance “may arise because one or both of the parties may intend to perform the contract in an illegal manner” [citing Chitty on Contracts at paragraph 16/009]. It follows that when the illegality is unknown to the innocent party the innocent party is not defeated by that illegality: Davidson v Pillay [1979] IRLR 275 para. 4. By implication the person committing the illegality may not enforce the contract. 73 It also seems to me that the enforcement of the right to claim unfair dismissal is integrally linked to the contract of employment: Tinsley v Milligan [1994] 1 AC 340 HL and Hall v Woolston Hall Leisure [2000] IRLR 579 CA. As is clear from the foregoing part of this Judgment, in order to obtain a right to claim unfair dismissal a claimant has to succeed in her contention that she has a contract of employment. Only then may she assert the right to unfair dismissal. Thus the contract of employment, and it follows the legality of its performance, are both pre-conditions to the enforcement of the statutory right. This puts in context the statement in Newland v Simons & Willer [1981] IRLR 359 CA by May LJ. “We have no doubt that Parliament never intended to give the statutory rights provided for by the relevant employment legislation to those who were knowingly breaking the law by committing or participating in a fraud on the Revenue.” 74 Only one exception has been provided in the authorities to me which is McConnell v Bolik [1979] IRLR 422 where the EAT held: “Nothing has been said to us to suggest that the appellants were in any way privy to such an arrangement and in our opinion it could never be said that where an employee without the knowledge of his employer fails to disclose to the Inland Revenue authorities in his income tax return the details of a benefit he has received this automatically makes his whole contract of service an illegal one: we therefore feel that there are no circumstances which would justify in any way a remit back for any further evidence to be heard in this case.” 75 Clearly in that case the value of the benefit was small and there would be no automatic disqualification of the Claimant's right to claim unfair dismissal by such a small indiscretion. 76 The matter was taken further in Enfield Technical Services Ltd v Payne [2008] ICR 1431 by Pill LJ at paragraph 18 who said the following: “A contract of employment may, as the cases show, be unlawfully performed if there are misrepresentations, express or implied, as to the facts. An obvious example occurs when what is in fact taxable salary is claimed to be non-taxable expenses. That is, however, distinguishable from an error of categorisation (as in the present cases) unaccompanied by such false representations, even if the employee had claimed the advantages of self-employment before the dispute arose. I accept that there are limits to that principle and that the circumstances in which a miscategorisation is made may amount to misrepresentation and bad faith which would deprive the employee of the right subsequently to claim the benefits of employment.” 77 This approach also follows that of Lord Mansfield CJ in Holman v Johnson [1775] 1 COWP 341 at 343 to the effect that the court should not lend its aid to a claimant when the cause of the claim arises from an immoral or illegal act. As Langstaff J said recently in Zarkasi v Anindita UKEAT/0400/11 which I drew to the attention of the parties, Lord Mansfield's observation deserves repetition. “The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiffs' own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendants.” 78 I prefer to base my judgment on the second of Mr Glyn's propositions, but I would observe that the circumstances in this case do fit the primary policy objection set out by Lord Mansfield. The Claimant who seeks the protection of the Employment Tribunal in the enforcement of her rights against the Respondent should pay the taxes properly due upon her earnings which themselves support the administration of the tribunal system. If she is not paying her way, why should she be entitled to free access to the administration of justice? Obviously the approach is different in a criminal jurisdiction where a defendant is summoned to a court. The Employment Judge's summary of the propositions in para 8 of her judgment above largely follows Peter Gibson LJ's in Hall v Woolston Hall at paras 30-32. In my view, it cannot be said the contract “from the outset” was illegal. I agree that by statute the Claimant was required to account for tax on her earnings, and not paying proper tax is prohibited by statute, but no wrong even on Mr Glyn's case was committed until she made representations, during the contract, to the Revenue. His policy based submission can easily be fitted into the authorities dealing with tax returns during the currency of the contract eg Newland. I would therefore dismiss Mr Glyn's first illegality argument. 79 Applying the above principles to his second point, a contract is performed illegally if the claimant knowingly makes false returns to HMRC on a scale above what might be described as the minor faults in McConnell. Avoidance of tax is not in issue. Evasion of tax on the small scale in McConnell does not “automatically” bar the claimant from the courts. Miscategorisation of an item declared to HMRC would not be illegal. 80 All of that however appears to me to be settled by the decision of the Judge to approach the issue of illegality on the second basis put forward by the Respondent. This was that there were misrepresentations to HMRC, unilaterally by the Claimant and not known to the Respondent, which made the performance of the contract illegal. A weak challenge was made to that decision by Mr Hendy QC on the basis that there was nothing during the performance of the contract which was illegal. With respect, that argument cannot survive the finding that the Claimant signed tax returns during its currency, and if it were intended to cover the signature in January 2009, I would reject it because such signature should plainly relate to matters occurring during the subsistence of the contract and as I have said above in respect of expenses were incurred during the performance of the contract.’[49]In so far as the Claimant seeks to argue that his relationship with HMRC is separate from that with the Respondent and that therefore failure to declare his earnings to HMRC does not amount to illegal performance of his contract of employment, the tribunal rejects that argument. As HHJ McMullen QC found in Quashie, the contract here was performed by the Respondent paying the Claimant for the work he was doing for it, and it is fundamental to the employment relationship that appropriate account be made to HMRC in respect of that payment.[50]Turning to the facts of this case (and bearing in mind the ‘range of factors’ approach), the tribunal makes the following observations:50.1 The tribunal has already found that the Claimant believed from the start of his work for the Respondent until at least shortly before his contract was terminated that he was self-employed and knew that he was being paid on a gross basis.50.2 Although this may be said to be a miscategorisation case in that both parties thought that the Claimant was self-employed when in fact he was, as the tribunal has found, employed, it also has the significant added feature that he failed to complete a tax return over the course of over 16 years and failed to account for any tax or NI on his earnings over that period. The sums involved are very significant given the Claimant’s level of earnings and the period of time involved. Given the Claimant’s previous dealing with HMRC his failure to make any attempt to raise or discuss his tax status with HMRC over the course of many years can only have been deliberate.50.3 It is true that the Claimant (unlike Ms Quashie) did not make express representation (or misrepresentation) to HMRC as to his employment status or taxable earnings, but that distinction cannot, in the tribunal’s judgment, assist the Claimant here. The fact is that he made no representation to HMRC at all, effectively hiding his earnings from the tax authorities for many years, which makes his conduct significantly more serious than that of Ms Quashie.50.4 On any view there was a clear and serious breach of the Claimant’s obligations to account to HMRC for his taxable earnings. The Claimant cannot argue, in the tribunal’s judgment, that he should be in a better position than someone who deliberately misrepresented their status to HMRC. Nor can he argue that he should be treated the same as someone who inadvertently accounted to HMRC on the wrong basis, ie a true miscategorisation case; the fact is that the Claimant deliberately failed to account to HMRC on any basis whatsoever.50.5 It is also clear from the tribunal’s findings as set out above that the Respondent was wholly unaware of, and not involved in, the Claimant’s failure to declare his income to HMRC. In other words, the culpability is entirely on the Claimant’s side.50.6 Turning to the underlying purpose of the tax system, and the statutory requirements of that system with which the Claimant has failed to comply, it is clearly of the utmost importance to the integrity of the legal system, and to society as a whole, that individuals pay appropriate taxes on their earnings. Indeed, as HHJ McMullen QC rightly identified in the extract from his judgment quoted above, the system of courts and tribunals upon which the Claimant seeks to rely is itself funded from those taxes.[51]The tribunal accepts that, under the range of factors approach, illegal performance does not result in the illegality defence automatically succeeding. Proportionality must always be considered; to adopt Lord Toulson’s words, the tribunal reminds itself that respect for the integrity of the justice system is not enhanced if it appears to produce results which are arbitrary, unjust or disproportionate.[52]The tribunal has considered all the facts of this case, including the wholesale and long term failure by the Respondent to comply with the requirements of employment law in respect of its employees, the most obvious being its failure ever to provide any of its employees with a written statement of terms and conditions of employment.[53]However, in this case (unlike the McConnell case, the outcome of which can be explained in terms of proportionality, even if not expressed in such terms at the time) the Claimant’s failure to declare income did not concern a small portion of his earnings; it concerned his entire earnings, and in absolute terms the sums are very considerable. In this case, given the nature and extent of the wrongdoing, the tribunal has concluded that it would seriously harm the integrity of the legal system to allow the Claimant’s claims to succeed.[54]The tribunal has concluded that in all the circumstances the illegality defence has been made out.[55]Where that leaves the parties in terms of tax and NI liability in respect of the Claimant’s earnings over the relevant period is unclear, but that is not a matter that this tribunal has to decide.[56]Where that leaves the parties in the context of this case is that the Respondent’s illegality defence succeeds and all the claims are therefore dismissed.