BLUE CHIP TRADING LTD v MR A HELBAWI [2008] UKEAT 0397_08_2011

EMPLOYMENT APPEAL TRIBUNAL

BAILII case number: [2008] UKEAT 0397_08_2011

Case No Appeal No. UKEAT/0397/08

Venue 58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

Between

BLUE CHIP TRADING LTDAPPELLANT

MR A HELBAWIRESPONDENT

Before

Mr Justice Elias

Date 20 November 2008

[1]APPEARANCES For the Appellant MR MOHINDERPAL SETHI (of Counsel) Instructed by: Messrs Ross & Craig Solicitors 12A Upper Berkeley Street LONDON W1H 7QE For the Respondent No appearance or representation by or on behalf of the Respondent SUMMARY JURISDICTIONAL POINTS: Fraud and illegality The claimant was a foreign student studying in the UK, who worked in breach of the conditions imposed as a term of his student visa. He worked longer hours than were permitted in term time. He alleged that his employers were in breach of the minimum wage. The employers took as a preliminary point that the contract was illegal. The Employment Tribunal rejected that contention. The EAT upheld the employer's appeal in part, holding that part of the contract was lawful and could be severed from the unlawful part. The claimant could recover with respect to the periods out of term and at other times when there were no restrictions on his hours, but he could not recover with respect to the periods during term time when he was knowingly infringing the hours requirement. THE HONOURABLE MR JUSTICE ELIAS (PRESIDENT) In this action the claimant contended that he had not been paid the minimum wage. There was a pre-hearing review at which three matters were considered. The first was whether he had presented a grievance in accordance with section 32 of the Employment Act 2002 ; the second was whether the claim should be struck out on the grounds that it was misconceived and had no reasonable prospect of success, and the third was whether the contract of employment was tainted by illegality.

[2]The Tribunal found that the procedures had been complied with; that the claim should not be struck out; and that the contract was not tainted with illegality. It is this third conclusion which is the subject of this appeal.

[3]The background is this. The claimant was employed as a security officer working nights for the respondent organisation. They managed a hostel for the homeless on behalf of Lambeth Council. The claimant was a student and subject to certain immigration rules. The Tribunal appear to have been left in some doubt as to what precisely were the restrictions on the claimant working. They saw certain visas which stated that any work done by the claimant had to be authorised. However, the employment judge stated that he was not sure what that meant. He then referred to certain guidance, apparently obtained from the British Council, which said this:

"…an entry clearance or immigration officer's stamp that allows the student to study states: "

No recourse to Public Funds. Work (and any changes) must be authorised. If these words appear in your passport you are allowed to work in the UK, subject to the conditions above."

[4]One of the relevant conditions to which reference was made said that the student was only allowed to work up to 20 hours a week during term time, except in the case of an agreed work placement or internship. Another, as understood by the Tribunal, stated that he was not allowed to fill a full time permanent vacancy.

[5]It appears that these conditions are found in Immigration Directorate Instructions ("IDI") which in turn give effect to the Immigration Rules . Rule 57 of the Rules sets out the requirements to be met by a person seeking entry as a student, and they include (para 57(vii)) that he should only do:

"part time or vacation work with the consent of the Secretary of State."

[6]The IDI are apparently Government directives as to how the rules should be interpreted and applied However, they are publicly available and no doubt there would be a legitimate expectation at least that the Immigration Rules would be interpreted consistently with them. Chapter 3 section 3 paragraph 18, is as follows:

"Students should not work for more than 20 hours a week during term time, except where a work placement meets the definition of a sandwich course or internship (please see paragraphs 18.2 and 18.3 below for these definitions). They may work full time during their vacation period and during the additional period of 2 or 4 months following completion of their studies whilst, for example, waiting for their examination results, prior to attending their graduation ceremony or before commencement of their new course. A student must not engage in business, self-employment or the provision of services as a professional sports person or entertainer. A student is not permitted to pursue a career by filling a permanent full-time vacancy."

[7]It was submitted before the Tribunal, and apparently accepted by the employment judge, that there are two distinct conditions i.e not working more than 20 hours in term; and not pursuing a career by filling a permanent full time vacancy. I think it likely that they are just intended to be two sides of the same coin. Compliance with the first automatically secures compliance with the second. However, I will consider the case on the assumption that they are two distinct conditions.

[8]It is to be noted that these instructions also make it clear that students who comply with these conditions do not have to seek the permission of the local Job Centre. That is consistent with the statement from the British Council (reproduced in paragraph 3 above) that no separate authorisation is required if the relevant words appear on the passport (as they did in this case). The appellants accepts that in the light of these statements they cannot pursue a submission made to the Tribunal below that the claimant did not have the requisite authority to work at all.

[9]The claimant accepts that at least for some of the time - although he says that it was a minority - he worked for the respondent for more than 20 hours during term time and that was not permitted.

[10]The issue was whether the contract was illegal because of breach of either of the two conditions. The employment judge found that it was not. She recognised that the information from the British Council was not law but it was the best evidence he had as to the obligations of the student. She also appreciated that on some occasions the claimant was acting illegally by working for more than 20 hours, but she nonetheless concluded that this was not a case where the contract should be struck down for illegality. There were times when the visa under which the claimant was working appeared to have no restrictions at all and other times when it did and when he was acting in breach of it, but she did not feel that this meant that the whole contract should be treated as illegal.

[11]Furthermore, the respondent had apparently taken no steps to check and approve the claimant's right to work. If there was any illegality, then under the Asylum & Immigration Act 1996 both parties were potentially liable. The employment judge was also influenced by the fact that it is an important principle of public policy that an individual who works should be paid the legal minimum wage, and foreign nationals without recourse to public funds are particularly vulnerable to potential exploitation because of fear of losing their job. So on policy terms, she did not think that it was right to exclude the claimant from the right to claim the national minimum wage.

[12]She also rejected an argument that the claimant was in breach of the condition not to fill a full time vacancy:

"… My understanding of the nature of the work that the Claimant did was that he worked regularly for the Respondent but doing night watchman/security work which varied from week to week, and which was paid by the hour. Therefore I do not think that his working relationship with the Respondent can be characterised as filling a permanent full time vacancy."

[13]She considered that the Court of Appeal decision in Colen v Cebrian (UK) Limited

[2004] IRLR 210

was of some limited assistance. That held that if a contract was lawful when entered into and was intended to be performed lawfully, then the fact that some work done during the contract was done illegally would not render the entire contract unenforceable. That was, she considered, the position in this case.

[14]It followed that in her view the claimant was entitled to pursue his claim. The grounds of appeal .

[15]The appellant contends that the Tribunal erred in law. Their counsel, Mr Sethi, submitted that the claimant was in breach of both conditions and that, contrary to the finding of the Tribunal, this rendered the contract illegal both in its inception and in performance. Indeed, he submits that the Tribunal did not properly draw the distinction between contracts illegal at inception and those illegal in performance.

[16]First, the claimant was in breach of the second condition in filling a permanent full time vacancy. There was simply no evidence to support the Tribunal's conclusion that the night watchman/security work varied from week to week and therefore should not be treated as a permanent vacancy. In fact the only evidence before the Tribunal was documentary evidence, since no oral evidence was heard (although apparently the claimant was asked questions by the Tribunal) and this proved beyond peradventure that the claimant was consistently working the same hours every week. This meant that he was working pursuant to a contract which he should not have entered into at all, and accordingly the contract was illegal in its inception.

[17]Second, the Tribunal also erred in concluding that the contract was not illegal in performance. It was not disputed that the claimant was on any view exceeding 20 hours per week during term time. This was not an innocent oversight but a deliberate decision to do precisely what the condition had forbidden. The illegal behaviour was regular, albeit intermittent since it was limited to term time, and repeated throughout the performance of the contract. It was concealed from the employers and benefited the claimant. It necessarily infected the whole of the contract and rendered it illegal from top to bottom.

[18]Finally, the Tribunal erred in concluding that the public policy on illegality did not outweigh the public policy allowing the exercise of the statutory employment rights. This was a misconception of the way in which the doctrine of illegality operates. The issue that has to be determined is whether the claim arises out of or is so inextricably bound up with the employee's illegal conduct that the court could not permit the claimant to recover without appearing to condone that conduct: see Hall v Wilson Hall Leisure Ltd

[2000] IRLR 579

at paragraph 42 per Peter Gibson LJ.

[19]The appellants seek to gain support for these submissions from the decision of the Court of Appeal in Vakante v Governing Body of Addey and Stanhope School

[2005] ICR 231

. In that case the claimant, an illegal immigrant seeking asylum, obtained work as a maths teacher when he did not have a work permit, as he was required to do. He subsequently made certain allegations of race discrimination. The employer submitted that he could not pursue the claim because he had entered into an illegal contract. His conduct infringed section 24 of the Immigration Act .

[20]Both the Employment Tribunal and the EAT (Burton P presiding) had concluded in the circumstances that the contract was illegal. Mummery LJ, with whose judgment Lord Slynn of Hadleigh and Brooke LJ agreed, and said this (para 34):

"As for the illegal conduct here: (a) it was that of the applicant; (b) it was criminal; (c) it went far beyond the manner in which one party performed what was otherwise a lawful employment contract; (d) it went to the basic content of an employment situation- work; (e) the duty not to discriminate arises from an employment situation which, without a permit, was unlawful from top to bottom and from beginning to end."

Mr Sethi submits that in essence that is precisely the situation here.

[21]I formed the provisional view that a possible answer in this case was that the unlawful work might be severed from the lawful, so that the claimant could at least recover for the latter, and notified the parties. (The claimant in fact represented himself both below and before me). This possibility is envisaged in Chitty 29 Edn, Vol 1, paragraph 1649 in the following terms:

" Unlicensed transactions . Where a statute or statutory instrument prohibits the doing of work otherwise than under a licence, a contract under which unlicensed work is carried out will generally be unenforceable. If there is in existence some licence, the illegality only extends to the excess by which the work exceeds the amount of the licence, unless there is an unseverable agreement to exceed the amount licensed."

[22]Mr Sethi submitted that this doctrine was not applicable here. The deliberate, considered and calculated decision to infringe the unambiguous condition rendered the whole contract illegal. The court should not condone this conduct even by permitting payment for the work actually done within the terms of the authorisation. It is true that not all acts of illegality in the performance of the contract will render the contract illegal, as the Colen case affirms, but here there was a deliberate and regular breach. Conclusions .

[23]I note two particular features of this case. First, it is about the failure to pay the minimum wage, a claim which is plainly inextricably linked with the contract. It is the fact that the claimant is working under a contract in the United Kingdom which gives rise to the obligation to pay the minimum wage: see section 1(2) of the National Minimum Wage Act 1998 . It is therefore not possible to pursue the claim without relying directly on the contract.

[24]Second, at various times while the contract was being performed it was not in breach of the condition concerning the hours of work. This was so during vacation periods, for example. It was also the position, as the appellant accepts, for a period of a year from 14 December 2006 to 13 December 2007 when the claimant was a participant in the Science and Engineering Graduate Scheme.

[25]The circumstances where a contract may be rendered illegal were set down by

Lord Justice Peter Gibson in the Hall case (paras 30 and 31):

"In two types of case it is well established that illegality renders a contract unenforceable from the outset. One is where the contract is entered into with the intention of committing an illegal act; the other is where the contract is expressly or implicitly prohibited by statute: St John Shipping Corpn v Joseph Rank Ltd [1957] 1 QB 267, 283 per Devlin J. In a third category of cases a party may be prevented from enforcing it. That is where a contract, lawful when made, is illegally performed and the party knowingly participated in that illegal performance…"

[26]I first consider whether the Tribunal erred in finding that he was not filling a permanent post. The contention is that if he was then he was doing the very thing which statute forbade him to do, and the contract was unlawful in its inception.

[27]As I have said, what he is in fact barred from doing under this condition, if it is to be treated as a distinct condition, is "pursuing a career" by way of permanent employment. That appears to me to be envisaging a situation where the education is really a cloak to enable the individual to pursue some other primary career path. That is not this case. It is not seriously disputed that this claimant never did want to work as a career in the field of security/night watchman. It was only a job to be performed whilst he was undertaking his studies. Mr Sethi accurately points out that there was no express finding to that effect, but realistically accepts that it was undoubtedly the position.

[28]The Tribunal did not approach the condition in this way because, as I have said, they treated the condition as being that the claimant should not fill a permanent post. It may be that the employment judge did err in finding that the hours were varied (although I think that the claimant may have asserted that they were, since he has alleged that to be the case in his submissions to this Tribunal. That would have provided an evidential basis for the decision.) In any event, the claimant alleged that he was only paid for the hours worked and the Tribunal appear to have accepted that. That fact, combined with the fact - which would have been apparent to the Tribunal - that the claimant was working for a company which was performing services under contract to a third party, which contract was presumably limited in time, to my mind were capable of justifying the Tribunal's conclusion that this was not a permanent full time appointment. Accordingly, even if I am wrong in the emphasis that I have placed on "pursuing a career", I think that the Tribunal were entitled to say on the material before them that this was not permanent full time employment.

[29]However, the claimant was plainly at various points acting in breach of the other condition to limit his hours to 20 per week and I accept that he must have been conscious that this was so. The question is: does this render the whole contract illegal?

[30]Mr Sethi contends that this meant that the contract was illegal at inception since it was envisaged that it would be carried on unlawfully. Further and on any view it meant that the claimant was illegally performing the contract by working the excess hours, and therefore the contract should be considered illegal on that ground. It is important to note the consequence if this submission is correct. It is not simply that the claimant cannot recover the minimum wage; strictly, he is not entitled to enforce his right to any payment at all.

[31]The Vakante case certainly supports the view that working in breach of the conditions of entry may render a contract illegal. There is, however, an important distinction between Vakante and this case, namely that here there is not a complete bar to the employee doing any work at all. He was allowed to do the particular work at certain times.

[32]The question whether a contract is expressly or impliedly prohibited by the statute is not always an easy one to determine in particular circumstances. However, in this case it is the clear intention of Parliament to prevent a person from working save within the terms specified by the Secretary of State, and that analysis is consistent with the conclusion of the Court of Appeal in Vakante . In those circumstances, in my judgment when the claimant was exceeding the time stipulated he was doing the very thing which he was forbidden to do. Moreover, this was a feature of the contract. It was not just a matter of an occasional unlawful act committed in the course of performing an otherwise lawful contract.

[33]I cannot accept the Tribunal's analysis that the whole contract is lawful, notwithstanding this flagrant and deliberate breach of the conditions. It would, in my view, involve the court condoning the illegal contract if the claimant were allowed to recover in full for all the hours worked. Mr Sethi is, in my view, right to say that when applying the principles of contract illegality, the court cannot simply balance two conflicting policy considerations and decide which they believe should carry greater weight. As Mummery LJ observed in Vakante (paras 36-37), the issue is whether the court, by permitting the claim to succeed, is condoning that behaviour. At that stage the alleged conduct of the defendant - in the Vakante case, serious allegations of race discrimination - is out of the picture.

[34]However, the issue then is whether the right solution is to treat the whole contract as illegal, thereby depriving the claimant of any right to any consideration for the work he has done, or whether it is possible to sever the unlawful elements of performance and to allow the claimant to recover for the remainder. This depends upon whether the legal and illegal parts of the contract can be treated separately: see Chitty para 16-189.

[35]In my judgment this is a suitable case to sever. I was referred to two cases, Dennis and Co v Munn [1949]2 KB 327 and Frank W Clifford Ltd v Garth

[1956] 1 WLR 570

in each of which a builder did works under a licence that limited the value of the work that could lawfully be provided. In each case he exceeded that sum and was allowed to claim up to the value permitted but not the excess. The crucial issue is whether it is possible to separate the legal from the illegal part.

[36]In my judgment it is. I think that this can relatively easily and justifiably be done with respect to those periods, such as vacations, when there were no hours limitations at all. In this context I reject a submission from Mr Sethi that this was an entire contract so that severance was impermissible; it is impossible in my view sensibly to describe a potentially open ended employment contract as an entire and indivisible contract.

[37]The issue of severance is more difficult with respect to the period in term when the limit is 20 hours, particularly since, unlike in the two building cases to which I have referred, the claimant always knew that he was going to be acting in breach of the condition. That followed from the very nature of the contract he made. Moreover, I am told that he is acting in breach of the criminal law in working in breach of the conditions.

[38]In these circumstances, I do not think that public policy would be properly served by allowing the claimant to recover for any of the work done in term when he was knowingly acting in breach of the licence conditions. He was in that period doing precisely what he should not have been doing and it would be wrong in my view for the court to condone this knowing breach of the law. Disposal .

[39]The claimant can recover for those weeks when he was not in breach of the licence condition not to work more than twenty hours a week. The matter will be remitted to a fresh tribunal to determine, if the issue is disputed, what those weeks were. However, this will only be necessary if the claimant can establish that there was a breach of the Minimum Wage Act with respect to the rate paid for work done in those weeks. That issue will first have to be determined by the Employment Tribunal.