The claimant was engaged by the respondent, the Crown Prince of Ras-al-Khaimah, for the purposes of looking after his children in the United Kingdom.  The appointment letter stated that there would be a ‘management fee’ of £34,000 and that the claimant would be responsible for their own tax. 

The respondent took the view that the claimant was self-employed but after receiving advice it was clear that she should be regarded as an employee and taxed at source. The claimant requested that she be placed on a PAYE Scheme and that she was entitled to £37,000 net (there had been an increase the ‘management fee’ at this point). 

The respondent began to take deductions for potential tax liability and the claimant stated that the respondent was breaking tax law. In May 2017 the claimant was dismissed with immediate effect resulting in a claim for automatic unfair dismissal on the basis of a protected disclosure. She further claimed wrongful dismissal and ordinary unfair dismissal. 

The ET rejected the unfair dismissal claim initially. This was on the basis that the dismissal was due to the dispute over who should pay the tax rather than the protected disclosures that had been made. The wrongful dismissal would have been allowed due to notice requirements, but the Tribunal stated that as the contract had been performed illegally, then no award would be made. 

The claimant appealed citing that the illegal performance is not an automatic bar to an unfair/wrongful dismissal claim. This was on the basis that the respondent was aware for over three years that the tax should have been paid at source. The respondent appealed to the Court of Appeal. 

The appeal was dismissed with a focus on the seminal decision of the Supreme Court in Patel v Mirza.  This altered the approach to illegality in civil proceedings to one that focused on the impact on the ‘integrity to the legal system’.

Indeed, in the older case of Hall v. Woolston Hall Leisure the approach was on of ‘knowledge plus participation’ meaning the claimant must have known of the illegality and nevertheless participated in the contract.  Therefore, bringing these two cases together it was a matter of proportionality and public policy considerations. In examining the public policy arguments, it rejected the respondent’s appeal.

This was on the basis that the EAT outlined, that the illegal performance of the contract was not sufficient justification for barring any rights such as unfair or wrongful dismissal being relied upon. Accordingly, the appeal was dismissed, and it was remitted to the ET for decision following the earlier EAT decision. 

Practical Lessons

This case demonstrates the Patel v Mirza decision on the use of illegality in action. The move from a test of reliance to public policy does give greater scope for the exercise of rights even if there is overarching illegality. To provide an absolute bar in this situation would have eroded the rights of the claimant completely and having a more flexible approach using proportionality and public policy does give rise to a greater balancing of rights between parties.  
https://www.bailii.org/ew/cases/EWCA/Civ/2021/862.html