If an employment contract is illegal for some reason both the employer and employee may be prevented from enforcing their rights under it. However much depends on who is involved in the illegality and what makes it illegal in the first place.

There are two distinct bases on which a contractual claim may be defeated on grounds of illegality. These were set out in the case Hall v. Woolston Hall Leisure Ltd. They were held to be:

• statutory illegality, i.e. where statute provides that the making of a contract itself is prohibited or that it is unenforceable; and
• common law illegality, i.e. where the formation, purpose or performance of a contract involves conduct that is illegal or contrary to public policy.

However, neither was engaged in the case of Okedina v. Chikale ([2019] EWCA Civ 1393) which recently came before the Court of Appeal. Ms Chikale claimed unfair dismissal and breach of contract but the argument focussed on her illegal employment status. Ms Chikale was a Malawian national whose leave to remain (and right to work) in the UK had expired.

The issue in the case was whether sections 15 and 21 of the Immigration, Asylum and Nationality Act 2006 meant that an employee, who unknowingly worked when they had no right to work in the UK, was barred from bringing contractual claims by virtue of the doctrine of statutory illegality. Section 15 imposes civil penalties on employers that employ illegal workers, although employers have a statutory excuse against liabilities for civil penalties if they carry out satisfactory right to work checks. Section 21 makes it a criminal offence to employ a person knowing that they are disqualified from employment because of their immigration status.

Factual background

Both parties were Malawian nationals. The employer, Mrs Okedina, brought the employee, Ms Chikale, to the UK in July 2013 to work for her as a live-in domestic worker. Mrs Okedina obtained a six-month domestic worker visa by giving a good deal of false information.

Following the expiry of the visa in November 2013, Ms Chikale remained in the UK and continued to work for Mrs Okedina. Mrs Okedina kept Ms Chikale's passport and applied for a visa extension on the false basis that Ms Chikale was a family member. The visa application and subsequent appeal were refused. Mrs Okedina told Ms Chikale that the necessary steps were being taken to extend her visa and Ms Chikale was unaware that she no longer had the right to remain or work in the UK. Ms Chikale continued to work for Mrs Okedina until June 2015. Ms Chikale was required to work seven days a week, for very long hours and low pay. She was summarily dismissed when she asked for more money.

Following her dismissal, Ms Chikale brought claims in the employment tribunal for unfair and wrongful dismissal, unlawful deductions from wages (both by reference to the terms of her contract and for breach of the national minimum wage), unpaid holiday pay, breach of the Working Time Regulations 1998, failure to provide written particulars and itemised payslips, and race discrimination.

Mrs Okedina said the contract was illegal and had been illegally performed. She therefore argued that the contract was unenforceable and could not be relied on to bring contract-based claims. The employment tribunal did not agree. Ms Chikale succeeded in her claims apart from her claims relating to discrimination. The successful claims fell to be categorised as "contractual", in that they arose out of the contract of employment.

Employment tribunal and Employment Appeal Tribunal (EAT) decision

One of the issues raised in the employment tribunal was whether Mrs Okedina could rely on the defence of illegality in respect of the period of Ms Chikale's employment after November 2013. This was on the basis that from November 2013 the employment contract was illegal, or illegally performed, because Ms Chikale no longer had leave to live or work in the UK.

This statutory illegality defence was rejected by the employment tribunal. As for common law illegality, the tribunal found as a fact that Ms Chikale did not knowingly participate in any illegal performance of her contract. Applying Hall, the employment tribunal held that the contract was not rendered unenforceable by Ms Chikale at common law.

The EAT upheld the tribunal's decision but permission was granted for Mrs Okedina to appeal to the Court of Appeal on the limited ground of whether the effect of sections 15 and 21 of the Immigration, Asylum and Nationality Act 2006 precluded an employee from pursuing contractual claims where those claims arose at a time when the employee's leave to remain had expired.

Court of Appeal decision

The Court of Appeal considered the two bases on which a contractual claim may be defeated on grounds of illegality.

Statutory illegality

Lord Justice Underhill considered whether the Immigration, Asylum and Nationality Act 2006 expressly prohibits employment. The court considered it significant that sections 15 and 21 do not, in terms, prohibit a person from employing someone in breach of immigration restrictions.

The court also had to consider whether Parliament intended that someone who did not have permission to work in the UK was to have no remedy to enforce their contract of employment if they were, in fact, employed. It held there was no clear implication that this had been Parliament’s intention.

The judge went on to hold that there is not always culpability on the part of the employee and public policy did not require the relevant statutory provisions to be construed in a way which had the effect of depriving innocent employees of all contractual remedies. He found the employment tribunal had been entitled to hold that the defence of statutory illegality did not prevail. To do otherwise would allow employers to get around claims by using the statutory illegality defence based on their own illegal actions.

Common law illegality

Lord Justice Underhill found that Ms Chikale had not been aware that her leave to remain in the UK had expired or that she had no right to work. She had been misled by her employer. On those facts, the doctrine of common law illegality could not apply as there was no "knowledge plus participation" from the employee. The court found that the contract had not been rendered unenforceable at common law.

Take-away points

The Court of Appeal has confirmed that the Immigration, Asylum and Nationality Act 2006 was not directed at those working illegally, but instead imposed civil and criminal penalties on those who employed people who were. Further, as the employment tribunal had found that Ms Chikale had not knowingly participated in any illegality, there was no reason to deny her a remedy.

This is an unusual case on the facts - the employee was wholly unaware that she had no leave to remain in the UK. While this may be a common scenario for the most vulnerable workers in our society, in most cases an individual employee will be aware that they have overstayed their leave to remain or do not have that leave in the first place. In such cases it is more likely that an employee would find that they are not able to rely on the contract for the purposes of pursuing an employment tribunal claim.

Clients should remain aware of the penalties that can be imposed if they know any employees are working illegally. It is also important to ensure that right to work checks are carried out at the outset of employment and are repeated as appropriate if temporary leave to remain is granted. In right to work cases, a proper dismissal process is also important. Employers should follow a fair process which includes investigating concerns about the employee's immigration status, determining if the right to work in the UK could be retained and obtaining evidence to justify a decision to terminate.