United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 128_95_2310

Appeal No. EAT/128/95

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 23rd October 1995

Judgment delivered on 11th January 1996

HIS HONOUR JUDGE P CLARK

MISS A MACKIE OBE

MR R TODD

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J S JOHAL          APPELLANT

B ADAMS T/A BLAC          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant MR M YOUNG

(of Counsel)

Messrs E Edward Son Noice

Three Horseshoes House

139 High Street

Billericay

Essex

CM12 9AF

For the Respondents MR M BARKLEM

(of Counsel)

Messrs Lee Bolton & Lee

1 The Sanctuary

Westminster

London SW1P 3TT


 


JUDGE CLARK: Mr Johal was employed by the Respondent as production manager in his garment manufacturing business from May 1987 until his summary dismissal on 16th April 1994. By an originating application dated 20th May 1994 he complained both of unfair dismissal and race discrimination. He is of Asian origin. In that document he set out his gross wage as £160.00 per week; £128.15 net.

In a Notice of Appearance dated 21st June 1994 the respondent admitted the employment and the dismissal but denied that it was unfair and also denied unlawful discrimination. He agreed the wage details pleaded in the form IT1.

On 1st March 1995 the respondent served notice of intention to apply for leave to amend his Notice of Appearance. The draft amendment pleaded that in addition to the "declared" wages of £160.00, from which tax and National Insurance was deducted, Mr Johal received undeclared cash payments which brought his net wage up to £315 per week. In those circumstances it was contended that the contract of employment between the parties was illegal in its performance and that accordingly neither claim could be sustained, both being dependent on the contract of employment.

The matter came before the London (North) Industrial Tribunal (Professor R Upex) on 5th December 1994, and leave to amend was granted. It was treated as a preliminary hearing to determine whether the Tribunal had jurisdiction to consider the complaint, bearing in mind the illegality point now pleaded.

At paragraph 3(iii)-(v) of their extended reasons the Industrial Tribunal set out their findings of facts. They accepted that Mr Johal, in common with most of the respondent's workforce, was paid partly through the books and partly in cash. The effect of the latter payment was to avoid the usual deductions under the P.A.Y.E. scheme, and the Tribunal found that Mr Johal knew that the arrangement was intended to defraud the Inland Revenue and that, although not very happy with it, he acquiesced in it.

The Tribunal then considered a number of authorities, in particular Salvesen v Simons [1994] ICR 409, and concluded that the contract of employment was tainted with illegality and was therefore unenforceable as between the parties. In those circumstances they dismissed the complaint.

Against that decision Mr Johal now appeals, and at the outset Mr Young sought our leave to amend the Notice of Appeal in the respects set out in paragraphs 7 and 8 of the draft Amended Notice. That application was opposed by Mr Barklem on behalf of the respondents. Mr Young accepted that paragraph 7 of the amended Notice raised a new point, not argued below, namely that Mr Johal's statutory rights under Section 74 of the Employment Protection (Consolidation) Act 1978 were collateral to and not dependent on the contract of employment. Accordingly the illegality of the contract was immaterial to the issue of the tribunal's jurisdiction to consider his complaint of unfair dismissal.

We were referred to the decision of this appeal tribunal in House v Emerson [1980] ICR 795, 800B, where Talbot J expressed the view that a new point going to jurisdiction ought to be permitted in argument, and the later case of Russell v Elmdon [1989] ICR 629, in which Knox J expressed doubt as to whether that principle holds good where further evidence is required. In fact, no further evidence is required for the new point to be argued in this case, and we concluded that it would be just to allow the amendment. Accordingly leave was granted.

Mr Young attacked the tribunal's conclusion on a number of grounds. We shall deal with each in turn.

First, he submitted that the tribunal was wrong to conclude that this contract of employment was illegal in its performance. He referred us to Coral Leisure Group v Barnett [1981] ICR 503, an Employment Appeal Tribunal decision, Browne-Wilkinson J presiding. There, the employee, a public relations executive, claimed that he had been unfairly dismissed. He contended that his job involved finding prostitutes for punters and paying them out of funds provided by his employers. The employers raised the issue that if he was alleging that his contract of employment was for an immoral purpose, then it was unenforceable as being contrary to public policy. Both the Industrial Tribunal and the Employment Appeal Tribunal rejected that argument. The Employment Appeal Tribunal held that on the facts, procuration of prostitutes was neither part of his contract of employment, nor part of his purpose in entering into the contract. Accordingly the contact was not illegal. In our view that case falls to be distinguished on its facts from the instant case, where this tribunal found that the purpose of the cash payment of wages was to defraud the Revenue, and Mr Johal acquiesced in the arrangement.

Similarly, we think that the case of Hewcastle Catering Ltd v Ahmed [1992] ICR 626 may be distinguished, since there the Industrial was not satisfied that the applicant knew or was part of the conspiracy to evade payment of V.A.T. under a scheme devised by the appellant company's managing director.

In our judgment, on the arguments presented to it this Industrial Tribunal was correct to base its conclusion on the judgment of the Employment Appeal Tribunal in Salvesen v Simons [1994] ICR 409, where it was held that a party to an illegal contract who knew what was being done could not pursue a complaint of unfair dismissal founded on the contract. In that case the illegality involved a fraud on the Inland Revenue. In the course of giving the judgment of the Employment Appeal Tribunal, Lord Coulsfield reviewed the authorities, and followed the clear statements of law to be found in Napier v National Business Agency Ltd [1951] 2 AER 264 and Miller v Karlinski 62 TLR 85. He referred also to the uniform practice of the appeal tribunal (illustrated in Tomlinson v Dick Evans "U" Drive Ltd [1978] ICR 639.) at page 425A of the report.

However, Mr Young submits that what Lord Coulsfield described as the uniform practice of the Employment Appeal Tribunal in these cases has been swept away by the House of Lords decision in Tinsley v Milligan [1994] I AC 340. In that case the plaintiff and defendant had formed a joint business venture to run lodging houses. Using funds generated by the business they purchased a house in which they both lived and which was vested in the sole name of the plaintiff but on the understanding that they were joint owners of the property. The purpose of that arrangement was to assist in a scheme by both parties to defraud the DSS. In due course the parties fell out, and the plaintiff vacated the property leaving the defendant in occupation. The plaintiff then brought possession proceedings against the defendant, and the defendant counterclaimed for a declaration that the property was held by the plaintiff on trust for the parties in equal shares and sought an order for sale. The issue which came before the House of Lords was whether the defendant's claim to an interest in the property was tainted by illegality and therefore unenforceable. By a majority, the House held that the defendant was entitled to recover as she was not forced to plead or rely on an illegality. Mr Young referred us to passages in the speech of Lord Browne-Wilkinson, who was in the majority, as authority for the proposition that all the employment cases which followed the `uniform practice' described in Salvesen had been overruled. We think that proposition is unsustainable. We should be very surprised if a former president of this Tribunal had, by his speech in Tinsley, intended to overrule that long line of authority without mentioning the fact. We note that not one of the relevant employment cases was referred to, either in the speeches or in the argument. In our view Tinsley must be distinguished from the instant case on the ground that in employment cases it has traditionally been held that complaints of unfair dismissal are based upon the contract of employment, whereas the defendants counterclaim for declaratory relief in Tinsley was not.

However, that does not conclude the matter. During the course of argument we drew the attention of Counsel to a recent unreported decision of this Appeal Tribunal in Leighton v Michael and Charalambous [EAT/992/94] Mummery J presiding. In that case the female applicant complained that in dismissing her from employment as an assistant at the respondent's Seven Seas Fish and Chip Shop in Ross-on-Wye, she had been unfairly dismissed and unlawfully discriminated against on the grounds of her sex contrary to the Sex Discrimination Act 1975 ["The 1975 Act"].

Before the Industrial Tribunal the evidence was that when the first respondent took over the business he refused to deduct tax and National Insurance contributions from Miss Leighton's wages. She protested at this practice and her solicitor wrote to the employer complaining of the non-deduction of tax and National Insurance. During the hearing the applicant withdrew her claim for unfair dismissal, and sought to proceed only on her claim of sex discrimination. The tribunal held that it had no jurisdiction to entertain her complaint under the 1975 Act on the ground that she was unable to rely upon the contract of employment because of illegality to which she was undoubtedly a party.

On appeal to this tribunal, by a majority, it was held that the cases in which an illegal contract of employment have been held to disqualify applicants complaining of unfair dismissal are distinguishable from claims under the 1975 Act. That distinction lay in the fact that dismissal was an essential ingredient in unfair dismissal claims, and accordingly an applicant who invokes the statutory right not to be unfairly dismissed must refer to the contract of employment, not simply identify himself as an employee. Conversely, it was said that protection under the 1975 Act against sex discrimination involves a reference to the contract to determine whether the person is "employed" within the meaning of the statute, but the claim of sex discrimination does not involve enforcing, relying on or founding a claim on the contract of employment. Accordingly the public policy consideration did not arise and the tribunal had jurisdiction to entertain Miss Leighton's complaint of sex discrimination.

We have considered the application of that reasoning to Mr Johal's claim of race discrimination. However, we find that the two cases our distinguishable. Miss Leighton complained of a continuing course of sexual harassment during her employment by her employer as founding her claim under the 1974 Act. In this case, Mr Johal's complaint under Section 1(1)(a) and 4(2) (c) of the Race Relations Act 1976 is that his employer discriminated against him on the grounds of his race by dismissing him. It follows that on the facts of this case dismissal is an essential ingredient of his statutory right not to be discriminated against. In these circumstances the `uniform practice' applies and the tribunal has no jurisdiction to entertain either complaint, both of which are founded on the contract of employment and its termination.

Finally, Mr Young sought to invoke Articles 7 and 48 of the EEC Treaty.

Article 7 provides:

"Within the scope of application of this Treaty and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited."

and Article 48(2) provides that freedom of movement for workers shall entail the abolition of any discrimination based on nationality between workers of the members states as regards employment.

Assuming, without deciding, that these provision are directly enforceable by the appellant in these proceedings, we accept Mr Barklem's submission, first that as Mr Johal is a British national, no discrimination of the type envisaged by the Treaty has occurred, and secondly that in any event the complaint here does not in fact amount to a breach of the Treaty.

In the result, whilst accepting that the rules of public policy are not fixed for ever (per Browne-Wilkinson J in Coral [1981] ICR 507D), we reject the collateral contract argument advanced by Mr Young on behalf of the appellant, and conclude that this Industrial Tribunal correctly found, in accordance with the uniform practice identified in Salvesen, that it had no jurisdiction to entertain Mr Johal's complaint. The appeal is dismissed and we direct the Registrar to refer the papers in this matter to the appropriate authorities, namely the Inland Revenue and DSS.