The claimant was engaged by the respondent, the Crown Prince of Ras-al-Khaimah which is one of the seven United Arab Emirates, for the purposes of looking after his children in the UK.  On appointment, the letter stated:

‘You will be paid a management fee for undertaking this work at the rate of £34,000 per year.  You will be responsible for your own tax on that payment.’

This salary was later increased to £37,000 and the respondent still thought that the claimant was self-employed.  However, after engaging tax consultants the advice was that she would actually be employed and that she should be taxed at source.  At a meeting, the claimant was told that she had, in fact, not paid any tax for approximately 7 years and her response was that she thought it was going through on PAYE.   She further stated that she felt she was entitled to £37,000 net and that she did not have to pay any money back.

The claimant accordingly made a number of complaints to the respondent stating that the records were being ‘manipulated’ to present employees as self-employed for the purposes of circumventing the requirement to register with HMRC as an employer.   These communications were seen to amount to protected disclosures under the 1996 Act (Order in NI).  The claimant was then dismissed due to the dispute over the tax responsibility from 2007 to 2014.  Accordingly, the claimant brought claims of unfair dismissal, wrongful dismissal and that the dismissal was automatically unfair as a result of the protected disclosures.

The Tribunal dismissed the claim of automatic unfair dismissal stating that the protected disclosure was in relation to the respondent failing to put her on PAYE and ‘manipulation’ whereas the dismissal was in relation to the dispute as to who should pay the tax between 2007 and 2014.   Furthermore, the Tribunal at first instance held that the unfair dismissal would have normally succeeded but could not in this case due to the contract of employment being ‘illegal’ as it stated that she was to pay her own tax.

The EAT allowed the appeal on the finding of illegality, but not the protected disclosure.  On the illegality, the EAT held that the claimant did perform the contract illegally as she knowingly did not pay her tax on the monies earned.  The reason for this was that there was no basis upon which that the Tribunal could conclude, that as a matter of public policy, she should not be allowed to enforce her contractual and statutory rights as a result of the illegality.   Indeed, the EAT provided another option stating that it could have enforced the rights through the separate agreement after 2014 when the tax was then taken, which was entirely legal.  For this reason, the EAT found that there had been unfair dismissal.

Practical Lessons

This factually interesting case demonstrates how the change in the law on illegality (in civil matters generally) that was brought forward by the Supreme Court in Patel v Mirza is working in practice.  This case changed the law to one based upon public policy rather than the older test in Tinsley v Milligan which asked whether the claimant had to rely upon the illegality in bringing their claim.   This public policy test could be seen as being effective here as it would be wholly unfair to allow the claimant to not have any employment rights as a result of one element of illegality.    This should be borne in mind when there has been illegality in a contract of employment and that even if it has to be relied upon it will not instantly invalidate the claimant’s rights.
https://www.gov.uk/employment-appeal-tribunal-decisions/his-highness-sheikh-khalid-bin-saqr-al-qasimi-v-ms-t-robinson-ukeat-0283-17-joj-full-hearing