United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR C CIUMEI (of Counsel) Messrs Stanley Tee & Co 6 High Street Bishops Stortford Herts CM23 2LU
For the Respondents	NO APPEARANCE BY OR REPRESENTATION ON BEHALF OF THE RESPONDENTS


 


JUDGE PETER CLARK: This is an appeal by the Applicant before the Industrial Tribunal sitting at Stratford, Mrs Hall, against that Tribunal's award of compensation made following a remedies hearing held on 8 November 1996.

She began these proceedings against her former employer, the Respondent, Woolston Hall Leisure Limited, by an Originating Application presented on 26 May 1995. In it she complained of unfair dismissal by reason of pregnancy and unlawful sex discrimination.

The matter came before the Industrial Tribunal, initially on the issue of liability only, on 19 January and 23 May 1996. On that occasion the Tribunal found that she was employed by the Respondent for seven and a half months, on 15 July 1994 until 1 March 1995, when she was dismissed, ostensibly on grounds of redundancy and incapability.

She started as a sous chef at the Respondent's Epping Forest Golf Club, and in about September 1994 she was promoted to head chef.

An issue of fact arose in the evidence of the Appellant, and that of a Mr Pomfrett, the Respondent's Managing Director, as to whether he was made aware in early January 1995 that she was pregnant. The Tribunal accepted her evidence. They went on to hold that it was her pregnancy which was the reason for her dismissal on 1 March. In these circumstances the Tribunal upheld the complaint of sex discrimination, finding that she received less favourable treatment than would a man on the grounds of her sex.

The Appellant then withdrew her complaint of unfair dismissal. Extended reasons for that decision are dated 23 December 1996. There is no appeal by the Respondent against that finding. The question of remedies was adjourned to 8 November 1996.

At that remedies hearing a new point arose for the first time. During the course of the employment, the Tribunal found, the Appellant negotiated a pay rise. She asked for £250 per week after all deductions and that is what she received, in cash, each week. Her weekly pay was accompanied by a wage slip which showed gross pay of £250, deductions of £63.35 and net pay of £186.65. We pause to observe that in both the forms IT1 and IT3 the parties agreed that she received gross pay of £6.25 per hour and net pay of £250 per week. The evidence was that she worked a 50 hour week. Accordingly, the grossed up hourly rate roughly equated to a net figure, after deduction of tax and National Insurance, of £250 per week, a picture which was inconsistent with the pay slips which she received from the Respondent and which the Tribunal saw.

The Tribunal considered whether in these circumstances the contract of employment was tainted by illegality. They held that it was. Their findings were expressed in their extended reasons (the remedies reasons) dated 3 December 1996, in this way at paragraph 6:

"6. We hold that the contract of employment was tainted with illegality. Mrs Hall was turning a blind eye to the fact that the Respondents were not paying tax on part of her income. Where the payslips differed from the money she received each week there is only one logical conclusion, namely that there was an intention by the Respondents not to pay all the tax that was due. Indeed Mrs Hall was told by the Respondents that was the way they did business and she in our view knew that the Inland Revenue were being defrauded."

Based on that finding the Tribunal considered the Appellant's claim for compensation for injury to feelings, aggravated damages and loss of earnings. Directing themselves in accordance with the majority reasoning of the Employment Appeal Tribunal (Mummery J presiding) in Leighton v Michael [1995] ICR 1091, they held that the fact that the contract was tainted with illegality did not prevent them from entertaining the complaint of sex discrimination; they awarded £2,000 for injury to feelings, together with interest; rejected the claim for aggravated damages, and further held that since she was not entitled to enforce the contract of employment by reason of its illegal performance, involving a fraud on the Revenue, she could recover nothing by way of lost earnings.

The Appeal

The Respondent resisted the appeal and relied upon the reasoning of the Industrial Tribunal in their Answer. A skeleton argument prepared by Counsel, Mr Moore, further supported the Tribunal's approach.

By a faxed letter dated 2 February 1998, sent both to the EAT and the Appellant's Solicitors, the Respondent's Solicitors indicated that their instructions had been withdrawn as a result of the Respondent ceasing to trade on 31 January 1998. A letter from Mr Pomfrett to those Solicitors states that the Respondent has no assets. Accordingly, we have heard oral argument only from Mr Ciumei, on behalf of the Appellant.

He first submitted that the Tribunal's finding at paragraph 6 of the remedies reasons that the Appellant knew that the Inland Revenue was being defrauded was perverse. Following debate he withdrew that line of argument and proceeded to a second point which was that, given that the Tribunal accepted jurisdiction to entertain the complaint it was then bound to go on to award compensation for lost earnings arising from the dismissal in accordance with Sections 65 and 66 of the Sex Discrimination Act 1975 and the principle that the tortious measure of damages is to be applied: Ministry of Defence v Cannock [1994] ICR 918. He argues that it is an all or nothing position, by analogy with the principle to be found in personal injury cases: see, for example, Pitts v Hunt [1991] 1QB 24.

We see the force of that submission and we find ourselves in some difficulty as a result of the majority reasoning in Leighton.

Looking at the reasoning in that case to be found at page 1096 D - 1098 H, we would respectfully make the following observations:

(1) Although the provisions of the 1975 Act must be construed so as to conform, if possible to do so without distorting their meaning, with Article 5(1) of the Equal Treatment Directive, we have some difficulty in equating the reference to "working conditions" in the Directive with the contract foundation of a claim under the 1975 Act, by virtue of Section 6(2) and Section 82(1) (definition of employment) in the Act. The Directive is not directly applicable in this case, nor was it in Leighton, where the employer is not an emanation of the State.

(2) We do not readily appreciate the distinction between a statutory claim for unfair dismissal under the Employment Rights Act 1996, which depends upon a contract of employment and its termination by way of dismissal, and the claim here under the Sex Discrimination Act 1975, which depends upon a contract of employment and its termination by dismissal.

(3) We note that on the facts in Leighton, as the minority member would have held, the Applicant was not knowingly a party to the illegality practised by the employer (see Hewcastle Catering Ltd v Ahmed [1992] ICR 626) and accordingly ought not, as a matter of public policy to be barred from bringing her complaint of unlawful sex discrimination; whereas in the instant case the Appellant was found, properly in our view, to be a party to the illegality. However, that distinction is immaterial on the reasoning of the majority in Leighton.

Nevertheless, we have heard no argument from the Respondent in this case to the effect that the majority reasoning in Leighton is wrong in law, and accordingly, in the interests of comity, we do not propose to depart from the principle there laid down.

That leaves the question, are we bound to uphold Mr Ciumei's submission? In our judgment, we are not. It is a basic principle of the administration of justice that the court will not lend itself to enforcing an illegal contract involving a fraud on the Revenue. To order compensation for loss of earnings, based on a contract of employment performed illegally to the knowledge of the claimant, offends that principle.

Accordingly, we shall uphold the Industrial Tribunal's decision and dismiss this appeal.

Leave to appeal granted.