In Enfield Technical Services Ltd v Payne; BF Components Ltd v Grace, the Court of Appeal found that two employees who had wrongly been characterised as self-employed were not precluded from claiming unfair dismissal by the doctrine of illegality. In so holding, the Court endorsed the EAT’s view that ‘there must be some form of misrepresentation, some attempt to conceal the true facts of the relationship, before the contract is rendered illegal for the purpose of a doctrine rooted in public policy’.

P had initially worked for ETS Ltd on a self-employed basis, but had later been made an employee. Similarly, G had worked for BFC Ltd as a contractor and, after resisting an initial attempt to make him an employee, had finally acquiesced. Both brought claims for unfair dismissal. They argued that, despite having officially been employees for less than one year, they had sufficient continuity of employment as they were, in reality, employees even when characterised as self-employed. Both ETS Ltd and BFC Ltd resisted the claims on the ground that the contracts were illegal, since the arrangements under which P and G had been characterised as self-employed had the effect of depriving HM Revenue and Customs of tax to which it was entitled. P succeeded before the tribunal, whereas G did not. The cases then made their separate way to the EAT, where they were heard together.

The EAT found that neither P nor G was precluded from bringing a claim for unfair dismissal. It took the view that it was not enough that the arrangements have the effect of depriving the State of tax, particularly as any unpaid tax could be reclaimed at a later date. Rather, the EAT stated that there must be ‘some form of misrepresentation, some attempt to conceal the true facts of the relationship, before the contract is rendered illegal’.

Before the Court of Appeal, the employers argued that the requirement for misrepresentation put an unnecessary gloss on the doctrine. Both employees had knowingly participated in arrangements which, the employers continued, amounted to an unlawful performance. In support of this argument, the employer cited another EAT decision, Daymond v Enterprise South Devon, in which it was stated that employees who knowingly enter into arrangements of the type seen in the present case will be working under an illegal contract, even where they genuinely believe  that the arrangements are lawful. Dismissing the appeal, the Court agreed with the EAT that there must be more than a simple mischaracterisation of the employment relationship for the doctrine of illegality to bite. Misrepresentation or an attempt to conceal the true nature of the relationship was necessary, despite the comments to the contrary in Daymond.

The case will be reported in full in a future edition of IDS Employment Law Brief.

Click here for the Court's judgment.

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