Enfield Technical Services v Payne; Grace v B F Components Ltd

EAT: Elias J (President), Mrs J M Matthias and Mr D Norman: 25 July 2007

In the first case the claimant entered into an agreement with the respondent employer that he would provide his services as an independent contractor, an arrangement that was accepted by the Inland Revenue. When his contract was terminated, he made a claim of unfair dismissal, and the employer contended that he was not an employee; alternatively, that he was working under an illegal contract, since both parties were representing to the revenue that he was self-employed. An employment tribunal decided that the claimant was an employee and that the contract was not illegal.
In the second case, having initially worked for the respondent employer on a self-employed basis, the claimant was given a contract of employment. When, four months later, he was made redundant, he made a claim of unfair dismissal, and an employment tribunal decided that during the initial period, though representing himself as self-employed, the claimant was in fact working under a contract of employment and that, accordingly, he had the necessary continuity of employment to pursue his claim. The tribunal went on to find that there had been insufficient consultation and that the dismissal was unfair but that the claimant would have been dismissed in any event after a four-week consultation period and that compensation should be assessed accordingly. Following an appeal by the claimant, and a cross-appeal by the employer on the ground the claimant was knowingly participating in an illegal contract when representing himself as self-employed, the matter was remitted for redetermination. On remission, a second employment tribunal upheld the contention of illegality and dismissed the claim. The tribunal also concluded that, had the contract not been illegal, the employer's failure to consult was so fundamental that it was impossible to say that the absence of consultation had made no difference and, accordingly, there would have been no reduction in compensation.

The employer in the first case and the claimant in the second case appealed, and the employer in the second case cross-appealed.

The Employment Appeal Tribunal held:
(1) There was a common law doctrine of illegality, rooted in public policy, which could defeat claims in contract or tort where the party seeking the assistance of the court knowingly participated in the illegal performance of a contract, but, for a contract to be rendered illegal for the purposes of the doctrine, there had to be some form of misrepresentation, some attempt to conceal the true facts of the relationship, and a contract was not illegal merely because the parties in good faith and without misrepresentation had wrongly characterised their relationship with the result that the wrong tax regime was adopted. In neither case had there been a misrepresentation of the facts of the relationship such as to render the contract illegal.
(2) The tribunal was wrong to conclude that, because the failure to consult was such a fundamental defect, it necessarily precluded any assessment of the outcome of consultations. It was not possible to say that the evidence was so scant, and the task so speculative, that no assessment of future loss could be made, and, accordingly, the case would be remitted for reconsideration of the likelihood of the claimant's employment continuing, had the dismissal process been fairly conducted.

The appeal in the first case was dismissed and the appeal in the second case was allowed.
The employer's cross-appeal in the second case was allowed.

Appearances: Marcus Pilgerstorfer (Natwest Mentor Services, Solihull) for the employers in the first case; Stephen Roberts (Berry Smith) for the claimant in the first case. The claimant in person in the second case; Marcus Pilgerstorfer (Qdos Consulting Ltd, Earl Shildon) for the employers in the second case.