The claimant presented a claim in which he made a claim of unfair dismissal and/or breach of contract. The respondent presented a response to the tribunal in which it denied liability for the said claims and argued, inter alia, by way of defence that the claimant’s contract of employment was tainted by illegality and therefore was unenforceable. A pre-hearing review was held to decide whether or not the tribunal had jurisdiction to hear the claim having regard to the allegation that his contract of employment with the respondent was an illegal contract of employment. The factual background to this issue was that the claimant was receiving a significant percentage of his wage ‘cash in hand’ which would not have been subject to relevant deductions by the respondent of tax and national insurance, as required, under the PAYE system.

Citing the case of Hall v Woolston Hall Leisure Ltd [2001] ICR 99 the tribunal identified the index case as one involving a contract which was perfectly lawful when made, but was illegally performed by one party in circumstances where the other party knowingly participated in that illegal performance. In cases falling within this category there must be an illegal performance of the contract by one party of the contract and knowledge of that illegal performance and participation in by the other party to the contract in order for the doctrine to act as defence to a claim. The tribunal stressed the imperatives of ‘knowledge’ and ‘participation’ on behalf of the claimant and held, based on the facts, that the contract of employment was tainted by illegality.


Practical lessons from this decision

One of the main issues arising from this case was whether or not an objectionable part of an agreement can be severed so that the remainder of the contract can be enforced. The tribunal conclusively rejected the utility of such a ‘blue pencil approach’. It is important to note that illegality serves to infect the whole of the arrangement and make it unenforceable, thus claimants will very likely find any attempts to enforce selective aspects of a contract futile.