Russell Holland looks at the recent case of Sheibani v Elan and the interplay between a fair hearing and illegality.

In Sheibani v Elan & Co LLP UKEAT/0133/12/RN the Employment Appeal Tribunal (EAT) considered issues relating to a fair hearing in the context of a case involving alleged illegality The Claimant was paid partly by cheque and partly by bank transfer, but only the payment from the transfer appeared on his payslip. His case was that he was asked to accept this mode of payment and he queried the payslips until he was given an incorrect P60, when he insisted on having a meeting with his manager. At that meeting he claimed that the manager asked him to enter into a partnership arrangement and to pay the tax that the Respondent had not at that point paid. When the Claimant refused and demanded a correct payslip he was dismissed.

The Respondent claimed that the unusual mode of payment was entirely due to the Claimant and that when the Respondent stated he would not continue to pay in this way, that the Claimant became aggressive and resigned. The Claimant did not have a year of service and as such founded his claim on being dismissed in connection with his request for a correct payslip. The Respondent counterclaimed for the tax which it had, at trial, then correctly paid but said the Claimant should have been paying.

The Employment Tribunal (the Tribunal) dismissed both the claim and counterclaim on the grounds that the contract was tainted with illegality. Illegality not been raised as an issue by either party, or by the Tribunal and the authorities relied on in the judgment had not been put before the representatives.

Permission to appeal to the EAT was made on two key grounds. First, that there had been a breach of the rules of natural justice. Second, that the Tribunal had incorrectly applied the authorities in respect of illegality. The EAT upheld the appeal on the first ground. In so doing it relied on the well known authority of Stanley Cole v Sheridan [2003] EWCA Civ 1046. However, the EAT made it clear it would not have allowed the appeal on the second ground, but did not go into significant detail on this point, in light of the findings on the first ground.

This case is useful reading for a particular example of the application of the rules of natural justice in respect of the Tribunal as it makes it clear that if a Tribunal is going to make serious adverse findings it should give appropriate warnings and opportunities for representatives to make submissions. However it does potentially extend the possible ambit of illegality. In a case where illegality is not in issue but circumstances arise during a Tribunal such that it does become in issue then a Tribunal may be entitled to make findings such that a claim (and/or counterclaim) cannot succeed based on an inference surrounding the circumstances. In this case the EAT commented on Enfield Technical Services v Payne [2008] IRLR 500CA which highlighted that parties must have knowingly entered into arrangements and represented the facts of the employment relationship to be other than they really were. So far as illegality is concerned, advisers will need to consider whether or not the contract as entered into was actually illegal, whether something about the manner of its performance was illegal (for example not paying correct tax or national insurance) and that there was knowledge and active participation by both parties. However, even if the evidence is such that an agreement cannot be shown to have been made between the parties then a Tribunal may be entitled to make an inference from the circumstances to make a finding that there was illegality.

A finding of illegality can lead to serious results. In Hounga v Allen [2012] EWCA Civ 609 the employee had come to work illegally and had been abused by her employers who had been involved in arranging for her to work illegally. The Tribunal and EAT disallowed any claim for unfair dismissal but did allow a claim for discrimination. However, the Court of Appeal held that the employee could not bring a claim for unfair dismissal or discrimination.

Accordingly, advisers should pay careful attention to unusual circumstances relating to the payment of tax or immigration status, because even if it has not been an issue raised by either party and there is no evidence to suggest any illegal agreement was reached between the parties, there is a risk that the Tribunal could draw such an inference and thereby dismiss a claim.