Employees knowingly working under illegal contracts may be prevented from relying on contractual and statutory employment rights, including the right to claim unfair dismissal. The EAT has recently held that a Solicitor who wrongly claimed he was self-employed for tax purposes would only lose the right to claim unfair dismissal if he knew he had no right to claim self-employed status.
In Connolly v Whitestone Solicitors Mr Connolly was offered employment as an assistant solicitor. An agreement was reached whereby Mr Connolly would be treated as self-employed for tax purposes, which resulted in him being in a far better position financially than if he were employed. Following the termination of his engagement, Mr Connolly claimed unfair dismissal.
When deciding whether Mr Connolly was in fact an employee and therefore able to bring an unfair dismissal claim, the Employment Judge raised the possibility that the contract may be illegal. The judge found that Mr Connolly wished to be engaged on a self-employed basis as it benefited him financially and had deliberately mis-categorised the nature of the relationship. The judge held that the performance of the contract was therefore illegal and public policy prevented Mr Connolly pursuing his claims. Mr Connolly appealed.
The EAT noted that a contract may be tainted with illegality in three ways:
- where the contract is entered into with an intention to commit an illegal act (e.g. to defraud HMRC)
- where the contract is expressly or impliedly prohibited by statute
- where the contract was lawful when made but has been illegally performed with the knowledge of the party seeking the Court’s assistance.
The relevant category in question here was the third one. EAT found that a case would not fall into this category merely because a claimant mistakenly chose or retained self-employed status – some form of misrepresentation was required. If on the other hand an individual claims self-employed status with HM Revenue & Customs knowing full well he is not entitled to, he implicitly misrepresents his own belief and acts in bad faith – it is contrary to public policy to support his claims. The EAT noted however that such cases would be relatively rare given the grey area which can exist as to difficulties of deciding upon a person’s employment status (see the previous case).
The EAT said that the employment judge was right to raise the issue of illegality, but that that the judge had not addressed the question of whether Mr Connolly knew that he was not entitled to self -employment status and there was no evidence to support this.