It is an established principle of law that illegal contracts are unenforceable. In a recent case, the Sheffield Employment Tribunal (ET) refused to allow a claim for unfair dismissal brought by a woman who had been employed for three years as a chef in a Thai restaurant at a flat rate of £260 per week, with no deductions for PAYE or National Insurance.

The view of the Tribunal was that the basis under which the contract operated was unlawful and they therefore refused the claim. The employee appealed to the Employment Appeal Tribunal, which upheld the original finding.

The employee then took her case to the Court of Appeal. The Court took a different view, concluding that the illegal performance of a contract is not the same thing as an illegal contract. The employer (now in liquidation) had performed the contract illegally. The chef spoke limited English and had no knowledge of the UK tax and National Insurance provisions. For the contract to be unenforceable, it was necessary for her to have known the facts that made the contract illegal and to have actively participated in the performance of them. The ET had failed to demonstrate this and therefore the appeal was allowed.

The case presents an interesting scenario with large numbers of workers from abroad coming into the UK and taking casual work, in some cases under illegal 'cash in hand' arrangements. Such employees would appear not to be denied the right to bring a claim for unfair dismissal, in appropriate circumstances, if they can demonstrate that they had no knowledge of the illegality.