Employment Contract Valid Where Illegality Not Shown

If a contract of employment is deemed to be unlawful, the courts will not allow either party to the contract to enforce their rights under it.

In Hall v Woolston Hall Leisure Ltd., the Court of Appeal held that contracts of employment are unenforceable where:

• the contract is expressly or implicitly prohibited by statute;
• the contract is entered into with the intention of committing an illegal act; or
• the contract, whilst lawful when made, is illegally performed and the party knowingly participated in that illegal performance.

In San Ling Chinese Medicine Centre v Lian Wei Ji, the employer tried to use an illegality defence to counter the employee’s unfair dismissal claim. Miss Lian Wei Ji began working for the San Ling Medicine Centre after she graduated in 2006, when she was in the UK on a student visa. Her employer subsequently applied for a work permit for her and the application stated that she would be earning a salary of £18,000 a year. This was approved in December 2006. Miss Lian Wei Ji was dismissed in June 2008 and claimed unfair dismissal.

The Medicine Centre argued that Miss Lian Wei Ji’s contract was illegal as it breached the immigration rules and so the Employment Tribunal (ET) did not have jurisdiction to hear the claim. The ET was shown a document signed by Miss Lian Wei Ji in which she agreed to have her salary calculated according to the volume of work she did whilst still paying income tax on the sum of £18,000. Miss Lian Wei Ji claimed that she had signed the document under duress. The ET also heard evidence that there were two sets of payslips, one showing the work permit salary figure and the other the sums actually paid.

The ET upheld Miss Lian Wei Ji’s claim of automatic unfair dismissal as the Medicine Centre had failed to comply with the statutory dismissal procedure. In the ET’s view, her student visa entitled her to remain in the UK for a year after she graduated, without restrictions, and, preferring her evidence to that of her employer, held that she did not collude in making a false declaration of her salary in order to obtain a work permit. Furthermore, there was no reason to suppose that her salary amount was a condition of her work permit so that this would be invalidated because she was paid less than the stated sum.

The Medicine Centre appealed against the decision and lost. The Employment Appeal Tribunal (EAT) found that the ET had made no error of law nor reached a perverse conclusion in its decision that Miss Lian Wei Ji’s contract of employment was not tainted by illegality. Working for less money than is stated on an application for a work permit does not automatically lead to its revocation. The ET made a finding of fact that Miss Lian Wei Ji did not participate in any misrepresentation in obtaining the permit and this finding of fact was not challenged.