Case Law Update: Illegal Contracts

The Court of Appeal has upheld an earlier decision that an employment contract was enforceable despite being illegal.

This was due to the immigration status of the employee—as the employee was unaware that she was no longer able to work in the UK.

Okedina v Chikale

The law

An employee, or a worker, working under an illegal contract can be prevented from successfully bringing claims to an employment tribunal (ET) if they rely on said illegal contract to bring their claim. This is known as the ‘illegality defence’.

Previously, the Hall v Woolston Hall Leisure Ltd case identified three categories of illegality that could lead to the contract being unenforceable.

The third category is where a contract is lawful when created but becomes illegal and the employee (or worker) knowingly participated in the illegal performance of the contract.

The Immigration, Asylum and Nationality Act 2006 (IANA) outlines that organisations can face a civil penalty if they employ an individual illegally.

If the organisation knows about the employee’s immigration status but continues to employ them, they commit a criminal offence.

Background to the case

The employee came to the UK from Malawi to work for an employer as a live-in domestic worker.

Initially, she received a domestic worker visa that lasted six months.

Once this visa expired, the employee was told by her employer that steps were being taken to let her continue to work in the UK.

However, the employer failed secure the employee’s right to work in the UK, and failed to inform the employee that this was the case.

Therefore, the employee didn’t have the right to legally work in the UK.

The employee remained in her role for just under two years following this, during which time there were significant breaches to her legal employment rights.

She later brought numerous claims to the employment tribunal, including unfair dismissal, unlawful deductions from wages and discrimination.

The employer argued that due to the immigration status of the employee, the contract was illegal and therefore unenforceable.

What did the tribunal say?

The tribunal initially upheld all claims, with the exception of discrimination.

They rejected the employer’s argument, as the employee hadn’t known she was unable to continue working in the UK.

Therefore, she hadn’t knowingly participated in the illegal performance of her contract.

What did the Employment Appeal Tribunal say?

The employer appealed this decision to the EAT, who dismissed their appeal.

They held that the contract had been legal at the point of inception as it had complied with immigration law. Following this, the employee had not knowingly participated in any illegality.

What did the Court of Appeal say?

The employer appealed again to see whether the provisions of IANA could prevent an employee pursuing claims in this situation.

The Court of Appeal unanimously dismissed the appeal.

They identified that the purposes of IANA was not to prohibit the employment of an individual who’s in breach of immigration restrictions; IANA was there to provide a penalty in these situations.

They Court explained that Parliament had not intended IANA to prohibit the formation of the contract. Because, not all employers may be aware that their employees are unable to work in the UK.

IANA couldn’t stop employees from receiving contractual remedies in these situations.

The Court also agreed with the original reasoning of the tribunal that the contract was enforceable on the grounds of common law.

They held that the tribunal had needed to evaluate how far such an action was in the public interest when taking into account all factors and reasoned that they’d done this correctly by applying Hall.

Takeaway points

This case provides a nice bit of commentary from the Court of Appeal on how far the illegality principle can be relied on as a defence.

Here are the main points to consider:

1. To render a contract of employment illegal and unenforceable, employers will need to demonstrate that the employee knowingly participated in the illegality.
2. Just because a contract is technically illegal doesn’t mean that it cannot be enforced. However, this will depend upon the employee being unaware that by continuing to work under the contract they were actually breaking the law. 
3. If both parties continue to operate under an illegal contract in full knowledge of its illegality, the contract will not be enforceable.

Expert Support

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