“These two appeals consider the circumstances in which contracts will be considered illegal so as to preclude an employee from making claims for unfair dismissal.”
“Applying the Salvesen test [post] to the question of what constitutes “knowledge” we conclude that Mr Grace knew what was being done even though he may not have known that it was illegal.”
“. . . it is clear that it was not an illegal contract, nor tainted with illegality. The fact is that the Claimant [Mr Payne] at the onset of the engagement made a choice that he would prefer to be treated as self-employed. Arguments could be raised in support of self-employment status or employment status and generally the matter is never cut and dried but must depend upon various characteristics and background details. Indeed the Inland Revenue said that it was a finely balanced matter (D28). In the Tribunal’s view, just because a document had been prepared by the Respondent [Enfield] . . . and signed by the Claimant purporting to support the case for self-employment, does not render the contract illegal. The dividing line between self-employment and employment status can often be blurred and in the Tribunal’s experience it is a regular occurrence that the Inland Revenue will scrutinise arrangements of purported self-employment status to see whether it falls on that line or on the line of employment status. In the event, facts generated by the Respondent and signed by the Claimant were put before the Revenue arguing that the reality was self-employment. The Tribunal finds that there is nothing inherently illegal regarding the contract. The parties were arguing that the factual situation should be interpreted as one of self-employment as opposed to employment status. Furthermore, the parties were complying with Inland Revenue guidelines at the time that if somebody is self-employed, tax would be deducted at source at 18% and there was a CIS certificate in place. In the Tribunal’s view the Respondents in pursuing this rather vestigial argument of illegality were motivated by the unfairness, as they see it, of the Claimant having his cake and eating it, by urging upon the Respondents at the inception of his arrangement a self-employed position and then when the engagement ceased and it suited him, to change his stance to maintaining he was an employee. The situation in the Tribunal’s view comes nowhere near the circumstances where the contract could be determined to be illegal.”
“46. In none of these cases has the contract been held to be illegal merely as a consequence of the fact that the parties in good faith and without misrepresentation wrongly characterised their relationship with the result that the wrong tax regime was adopted. That is a relatively common occurrence. Tribunals frequently have to determine whether someone ostensibly employed under a contract for services has in fact been subject to a contract of service. Such cases typically involve the employee resiling from the arrangement he originally made.”
“56. We accept that on occasions where the parties have sought to claim self-employed status knowing that this was not sustainable then it might be legitimate to infer that they are seeking to misrepresent the true nature of their relationship. It is not, however, the mischaracterisation of the legal status which is the relevant misrepresentation; it is the implicit representation about the underlying facts of the relationship. The only evidence of that here is the finding that he continued to want to be treated as self- employed even after the company had told him that in their opinion he plainly was not. He was unwilling to accept their analysis, albeit only for a short period while he considered the employer’s offer. The Tribunal say that he thereafter knew that the status had been wrongly described. More accurately it seems to us that he knew that this is what his employers were representing. We do not think that his further exploration of the new position adopted by the company can be said to constitute a misrepresentation of the facts of the relationship such as to render the contract illegal.”
“No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If, from the plaintiff’s own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country then the court says he has no right to be assisted.”
“That is where a contract, lawful when made, is illegally performed and the party knowingly participated in that illegal performance.”
“. . . It is not necessarily inequitable that persons who seek to take advantage out of the tax system, misguidedly or otherwise, should not be entitled to be treated as if they were employed under a normal contract of employment.”
“. . . where an employee has made a positive choice to operate arrangements which have the effect of depriving the Revenue of payment to which it is entitled, contracts giving effect to those arrangements will be unlawful notwithstanding that the employee may genuinely have believed them to be lawful. The position might be different where the initiative came from the employer; but these are not the facts of that case.”
“But even where – surprisingly – they [employees] can show that they were not seeking such advantages [perceived tax advantages] I see nothing objectionable in the law taking the view that workers who actively choose to employ sophisticated arrangements of this kind must take the consequences of their actions, whether they appreciated those consequences or not.”
“[The payment] was not truly a payment to Jonor Services at all, but was a diversion of part of the [employee’s] remuneration, so we cannot escape the conclusion that there was here a misrepresentation to the Revenue, and, to that extent, a fraud upon the Revenue.”
“. . . the parties were representing that services had been provided by a partnership or company when in fact that was false.”
“In our judgment the essential feature of all the cases where there has been found to be illegality is that the parties have knowingly entered into arrangements which have to their knowledge represented the facts of the employment relationship to be other than that they really were.”
“We do not consider that the authorities, or Salvesen, support the proposition that if the arrangements have the effect of depriving the Revenue of tax to which they were in law entitled then this renders the contract unlawful. For reasons we have given, in our judgment there must be some form of misrepresentation, some attempt to conceal the true facts of the relationship, before the contract is rendered illegal for the purposes of a doctrine rooted in public policy.”