Appeal No.	 EAT/239/00

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 16 June 2000
Judgment delivered on 14 July 2000

Before
HIS HONOUR JUDGE J ALTMAN
MR D A C LAMBERT
MR B M WARMAN

MR M G DAVIS	APPELLANT

MR J W SCOTT	RESPONDENT

Transcript of Proceedings

JUDGMENT

PRELIMINARY HEARING

Revised

	APPEARANCES

For the Appellant	MR I WILSON
(of Counsel)
Appearing under the
Employment Law Appeal
Advice Scheme	

JUDGE J ALTMAN:	This matter comes before us by way of preliminary hearing to consider whether there is an arguable point of law such as to merit the appeal being heard in full before the Employment Appeal Tribunal.

1	Earlier today we heard argument from Mr Wilson, who undertook to present the Appellant’s case under the ELAAS scheme and we are enormously indebted to him for his assistance.  We reserved our decision in order to study two cases to which I shall refer and therefore this judgment is being prepared later in the day, after we heard submissions and after the Appellant left.

2	The matter comes before us, our having given leave in the form of amended grounds of appeal in which the Appellant argues, with the assistance of Mr Wilson, that although the contract of employment may have been tainted with illegality, that does not prevent a valid claim for redundancy to cover the whole period of employment found by the Employment Tribunal.

3	The Employment Tribunal found that the Appellant worked from November 1995 until May 1999 and they found as a fact that the Appellant was employed for 35 hours a week.  During that period the Respondent took over the business from a Mr John Stevens on 2 February 1999.  The Respondent says that thereafter he paid the Appellant £175 a week, subject to deductions, and that this was queried by the Appellant who said he used to receive £150 and £25 for petrol money.  Indeed, having heard the evidence the Employment Tribunal found that there was £120 per week shown as paid in the books of the Company and that it was alleged that £50 a week was attributed to such petrol money, paid without deduction of Income Tax or National Insurance.  The Employment Tribunal said this:

“5  We have listened carefully to extensive evidence given by Mr Davis and by Mr Scott.  We find that there is an element of contrived naivete about Mr Davis’ evidence.  We think he well knew that what was going on was not acceptable to the National Insurance authorities or the Inland Revenue.  It follows that the contract between Mr Stevens and Mr Davis is tainted by illegality and we accept Mr Moore’s submission that that means that the effective start date for Mr Davis’ employment was 2 February 1999.  There follows from that the fact that there was inadequate service for a redundancy payment and we dismiss that claim.”

4	It was suggested by Mr Wilson that, in fact, if there had been a transfer of undertaking then it was inconsistent to find that the contract suddenly became lawful in February 1999 and that if there had been illegality, it must be tainted throughout.  It seems to us, if there was an error it must have been in the Appellant’s favour for the logic of Mr Wilson’s argument would have been to disentitle the Appellant to any money at all.  However, it seems to us that what the Employment Tribunal found was that the illegality rendered the contract of employment that began in November 1995 void from its outset and therefore, not to be counted as in existence.  It must follow from that, that once the arrangements between the parties were lawful in February 1999 a new contract was then established.  That seems to us consistent with the finding of the Employment Tribunal and with the law, as we understand it to be.

5	Mr Wilson argues, however, that a claim for redundancy payment is not based on the contract of employment but upon statute only and the Applicant is therefore not relying upon the contract to found this claim but upon the statute only.  In support of that argument we have been referred to the case of Hall v Woolston Hall Leisure Ltd heard on 23 May 2000 in the Court of Appeal under case No. EATRF/1998/0297, in a judgment which we are told is unreported.  Mr Wilson has helpfully provided us with the transcript.  The authorities clearly establish that in claims for unfair dismissal, if the contract of employment is tainted with illegality because of fraud on the Inland Revenue, known to both parties and which was to the benefit of both parties, this will destroy the basis of an application for unfair dismissal.

6	The case of Hall v Woolston Hall Leisure Ltd dealt with the issue as to whether the same principle applied in a complaint of sex discrimination.  The judgments of the Court of Appeal all considered, to a greater or lesser extent, the import of the European Directives about the position of employees in relation to sex discrimination.  In his judgment Peter Gibson LJ dealt with that and the position in the common law and referred also to the case of Leighton v Michael [1995] ICR 1091, in which the Employment Appeal Tribunal, presided over by Mr Justice Mummery, as he then was, found that a sex discrimination case would not be invalidated by the finding that the contract of employment with which it was associated, was tainted with illegality.  In his judgment Peter Gibson LJ said, in paragraph 46:

“It is undoubtedly correct that where the complaint is of sex discrimination by dismissing an employee, the employee must establish that she was employed and was dismissed from that employment, so that to that extent reliance must be placed on the contract of employment.  But in my judgment it could not properly be said that the complaint of sex discrimination by dismissal was based on the contract of employment, still less that her claim of such discrimination was so closely connected with or inextricably bound up or linked with the acquiescence by the employee in the unlawful failure by the employer to deduct PAYE and NIC that the court would be seen to be condoning unlawful conduct by the employee.  It is the sex discrimination that is the core of the complaint, the fact of employment and the dismissal being the particular factual circumstances which Parliament has prescribed for the sex discrimination complaint to be capable of being made.  The illegality consists only of the employer’s mode of paying wages. …”

Peter Gibson LJ then goes on to say:

“In my judgment Leighton v Michael was rightly decided and the awareness of the employee that the employer was failing to deduct tax and NIC and to account to the Revenue does not of itself constitute a valid ground for refusing jurisdiction.”

In his judgment Mance LJ said, in paragraph 80 C:

“The protection of someone in Mrs Hall’s particular position, before and after her promotion, would also appear to me to fall within the wording and purpose of the Directive – despite the Industrial Tribunal’s finding that she knew that the Inland Revenue (and presumably the DHSS) were being defrauded.  That too was evidently the view of the Employment Appeal Tribunal in Leighton v Michael, which distinguished cases on other domestic employment legislation, governing unfair dismissal and redundancy.  We are not directly concerned with that legislation, and I see no need to say more about it than that (a) it would require to be considered according to its own wording and background and (b) I take a more relaxed view of the objective and aims of the Directive than the majority of the Employment Appeal Tribunal …. .”

In his judgment Moore-Bisk J said, at paragraph 83:

“I also agree … Leighton v Michael … was correctly decided and that even if Mrs Hall would have been prevented by reason of illegality from enforcing her contract of employment as such she would nonetheless be entitled to recover substantial compensation for wrongful discrimination under the Sex Discrimination Act 1975.”

7	It is clear therefore that two of the Judges in the Court of Appeal gave express approval to Leighton v Michael and Mance LJ said that questions of redundancy would fall to be considered on the particular statutory wording.  The question of redundancy was expressly addressed by Mummery J in Leighton v Michael and distinguished from the position of sex discrimination.  In his judgment, first of all, the case of Tomlinson v Dick Evans ‘U’ Drive Ltd [1978] ICR 639 is referred to where the Employment Appeal Tribunal dismissed the appeal of an employee, whose claims for both unfair dismissal and redundancy payments had been rejected by an Industrial Tribunal, on the ground that weekly bonus payments in cash to the employee were made in order to avoid Income Tax, because there was there a deliberate fraud on the Revenue which rendered the contract of employment illegal.  Mummery J purported to follow that decision in which the need to consider an issue of redundancy appears to have been central.  He says, in paragraph 8 on page 1098:

“We agree with Mr Sutton that the principles in the unfair dismissal and redundancy cases are not applicable in the present case.”

He later says in paragraph 10:

“The cases in which an illegal contract of employment has been held to disqualify applicants for unfair dismissal and redundancy payments are distinguishable from claims under the Sex Discrimination Act 1975.  For the purposes of claiming unfair dismissal or redundancy payments the applicant makes a claim which is directly founded upon, relies upon and seeks to enforce the contract of employment.  In order to invoke the statutory rights not to be unfairly dismissed and to claim redundancy payments, the employee has to establish not only that he was an employee but also that he was dismissed by his employer on the termination or expiration of the contract.  Dismissal is an essential part of the cause of action.  The definition of dismissal in section 55 of the Employment Protection (Consolidation) Act 1978 refers expressly to the contract under which the employee is employed and to its termination with or without notice and to the expiration of fixed-term contracts without renewal under the same contracts.  The definition also embraces constructive dismissal which involves examining possible breaches of the contractual obligations by an employer.  A dismissal is an essential ingredient of the statutory right, the employee who invokes the statutory right has to refer to the contract of employment, but not to identify himself as an employee.”

8	Accordingly, we are driven to the conclusion that established authority clearly demonstrates that the position under unfair dismissal and redundancy law are indistinguishable from themselves but wholly different from the Sex Discrimination Act and that therefore the argument that the illegality of the contract does not destroy the claim for a redundancy payment falls to be rejected as an argument of law and there is no arguable point of law upon it.

9	Whilst we recognise that, formally speaking, the Appellant abandoned his other grounds of appeal on the advice, which we say was correct, from Mr Wilson that it did not disclose an arguable ground of appeal, for the sake of completeness we have considered it.  The Appellant said that first, he had no opportunity to present his case to the Tribunal because the Respondent used a signed and dated statement of which he had no knowledge until it was produced on the very morning of the hearing and it contained accusations which were libellous and misleading which he could not deal with.

10	We have considered the material that was produced later by the Appellant in relation to what he said would have been argued at the time, but we are satisfied that dealing with Witness Statements and evidence is a matter within the day-to-day control of the Chairman and Members of the Employment Tribunal and that evidence is often given at Employment Tribunals which one side may have to adjust to or meet and that had any difficulty been apparent, we are sure the Employment Tribunal Chairman would have enabled the Appellant to take such reasonable steps as were necessary.  We see no error in law in the way in which the Chairman conducted the proceedings in that connection.

11	So far as the other ground of appeal is concerned, the Appellant puts forward a schedule of employment between November 1996 and 1999 which would have demonstrated that he did receive proper payment without money that was gross of Tax and National Insurance, but those were issues that were canvassed before the Employment Tribunal and they made findings of fact upon them from which no point of law seems to us to arise.

12	Accordingly, there is no point of law arising on this appeal and it falls to be dismissed at this stage.