The claimant started working full time for the respondent whilst still on a student visa. When her work permit came through it showed a higher salary than that which was actually being paid to the claimant, an agreement the claimant claimed which was forced upon her. The ET upheld the claimant’s claim for automatic unfair dismissal because the respondent had not complied with the statutory disciplinary procedure. The principle ground of appeal was that the Tribunal failed to apply immigration law to determine whether the contract of employment was illegal. The ET decided that, as the claimant had already graduated when she started work with the respondent, she was not subject to the restriction of 20 hours per week as stipulated by the Immigration Directorate Instructions (IDI). Also, even though there was a discrepancy between the actual salary received and that which was written on the work permit, the claimant had not colluded with the respondent, and thus the contract of employment was not unlawful.

The EAT found that the Tribunal had not erred in law when holding that the contract of employment was lawful. Whilst a different ET may have made different findings, on the facts found by it the ET did not err in concluding that the claimant had not participated in illegality by signing the agreement relating to her salary.
____________________

Appeal No. UKEAT/0370/09/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal
On 11 November 2009

Judgment handed down on 25 January 2010

Before
THE HONOURABLE MRS JUSTICE SLADE
MR J R RIVERS
MR D WELCH

SAN LING CHINESE MEDICINE CENTRE (APPELLANT)

MISS LIAN WEI JI (RESPONDENT)

Transcript of Proceedings

JUDGMENT

APPEARANCES

For the Appellant MR DANIEL CHEUNG
(Trainee Solicitor)
Messrs Maxwell Alves Solicitors
44 Gray’s Inn Road
London WC1X 8HR
For the Respondent MS LEONIE HIRST
(of Counsel)
Instructed by:
Messrs Blavo & Co Solicitors
Crossways House
28-30 High Street
Guildford
Surrey GU1 3HY

SUMMARY

JURISDICTIONAL POINTS:  Fraud and illegality

On appeal the Respondent employer had contended that the Employment Tribunal erred in that it failed so to hold in circumstances where the Claimant Chinese national:

(1) after graduation worked full time for it while she was on a student visa; and

(2) worked for a lower salary than that on her work permit.

Since the Employment Tribunal made unchallenged findings of fact that:

(1) the Claimant was entitled to remain in the UK for a year after graduation not subject to restrictions; and

(2) the Claimant did not collude with the employer in making a false declaration of proposed salary in order to obtain a work permit,
the Employment Tribunal did not err in holding that the Claimant’s contract of employment was not tainted by illegality. Hall v Wollston Hall Leisure Ltd [2004] 4 AER 787 applied. Blue Chip Trading Ltd v Helbawi UKEAT/0397/08/LA and Vakante v Governing Body of Addey and Stanhope School [2005] ICR 231 considered.

THE HONOURABLE MRS JUSTICE SLADE

1.  This is an appeal by the Chinese Medicine Centre San Ling from the decision of an Employment Tribunal (‘ET’) entered in the register on 20 February 2009 by which the ET held that there was no illegality in the contract of employment between the Respondent and Miss Lian Wei Ji . The principal ground of appeal is that the Employment Tribunal failed to apply immigration law to determine whether her contract of employment was illegal. Further it is said by Mr Cheung on behalf of the Respondent that the ET failed to consider material facts and that the decision that the contract was not illegal was perverse. We will refer to the parties to this appeal as Claimant and Respondent, their titles in the proceedings before the ET.

2. Following the hearing before of the ET on 27 and 28 January 2009 the Respondent’s solicitors provided information to the ET from the UK Border Agency relating to Immigration Rules and the issue of work permits. The ET reached its decision of 20 February 2009 without sight of this information. By its Decision sent to the parties on 2 April 2009 the ET refused an application to review its earlier decision on the basis that the information provided by the Respondent was not before the Tribunal when it made its original decision. The information was available to and could have been relied upon by the Respondent at the time of the hearing. There is no appeal against the judgment refusing the application for a review. Supplementary Grounds of Appeal were served on 14 April 2009 in which the Respondent contends that the Claimant had been in breach of Immigration Rules by working full time for the Respondent under a student visa. It is said that this alleged breach of the Immigration Rules rendered her employment with the Respondent unlawful.

3. By decision entered in the Register on 3 August 2009 the ET upheld the Claimant’s claim for automatic unfair dismissal for dismissing her without complying with the statutory disciplinary procedure. She was awarded a total sum of £12,037.38 in respect of unfair dismissal, failure to give her written particulars of employment, unlawful deductions from wages and unpaid holiday pay.

4. The facts giving rise to this appeal are taken from the judgment of the ET and may be summarised as follows. The Respondent supplies Chinese medical heath care and medicine. A Dr Wen is the proprietor of the business. The business had 10 branches at the time of the ET hearing and then employed 17-18 people. Bearing in mind the specialist nature of the practice and the need for language skills, all branch managers are Chinese nationals who work in the United Kingdom under work permit clearance obtained from the relevant immigration authorities. The work permits are obtained by the Respondent.

5. The Claimant applied to join the Respondent in response to an advertisement in a Chinese newspaper. She was in the UK on a student visa and had graduated in the summer of 2006.  The Claimant was interviewed by Dr Wen on about 10th September 2006.  The evidence of the Claimant and Dr Wen differed as to how much he agreed to pay her, the initial basis on which she would be working for the Respondent and the date on which she commenced employment. The Claimant gave evidence that Dr Wen told her that after an initial trial period he would apply for a work permit for her. If that application was successful he would pay her £18,000. Her employment commenced on 15 September 2006. Dr Wen gave evidence that the Claimant’s initial relationship with the Respondent was ‘a voluntary one and she was in training’. He would need to see how she worked before he would make a work permit application and had agreed that when she became an employee the Claimant would be employed on a salary of £15,000 per annum. The application for a work permit was approved on 15 December 2006 and Dr Wen said that the Claimant commenced employment in December 2006. The ET preferred the evidence of the Claimant and held that she was employed from 15 September 2006 at an agreed salary of £18,000 per annum.

6. After an initial period of employment, the ET found that in December 2006 the Respondent applied for a work permit for the Claimant.  In that application her salary was stated to be £18,000 and a work permit was granted on that basis. Dr Wen explained the difference between this figure of £18,000 and £15,000, which he said had been offered to Claimant, by saying that he had left the responsibility of applying for work permits with a Miss Di, a financial assistant, and that she and Claimant had conspired to inflate the salary in the work permit application to £18,000. He said that they had done this as Claimant did not believe that she would get her work permit unless she put in a higher salary. Dr Wen said that he was surprised when the approval for the work permit was obtained showing the salary at £18,000.

7. The ET disbelieved Dr Wen’s evidence, and at paragraph 15 they made the following findings of fact:

“Furthermore, on the basis that both the Complainant and Miss Di are very clear that no such collusion or conspiracy took place to inflate the salary for the purposes of the work permit application, on the balance of probabilities, the Tribunal prefer the evidence of the Claimant in this regard.”

8. A document was before the ET which indicated the Claimant’s agreement to have her salary calculated according to the volume of work she did at the clinic and not according to the £18,000 shown on her work permit. She further agreed to pay income tax on the sum of £18,000 regardless of the amount she actually received.  The Claimant acknowledged that she signed the document but said that she did so under duress: the duress being that if she refused to sign, her employment would be terminated and she would lose her right to work in the UK under the work permit. Dr Wen’s evidence was that Claimant insisted that she wished to work under this arrangement and as a result of that insistence the document was drawn up by Miss Di and signed by Claimant. At paragraph 10 of its judgment the ET held:

“On the balance of probabilities, the Tribunal prefer the Claimant’s evidence namely that she was asked to sign the documents…. and felt that given the circumstances she had very little choice.”

9. The ET also made reference to other evidence adduced before it suggestive of the conclusion that it was the practice of the Respondent to pay employees a different salary from that shown on their work permits. The ET were shown payslips in English with the work permit figure and appropriate deductions. The Chinese version showed the sums actually paid. The ET also noted a reference to the fact that in the ET3 Dr Wen conceded that the Claimant should be paid £18,000 per annum. He subsequently withdrew this admission on the basis that his previous solicitors had misunderstood him as a result of a language problem.

10. Having obtained her work permit in March 2007 the Claimant obtained her visa granting leave to remain until 7 March 2012.  She remained working for the Respondent from March 2007 until the end of June 2008 when she was dismissed.

11. The ET held in respect of the period of employment from September 2006 to March 2007 that:

“The Claimant was working in the UK under the authority of hr student visa. As she had graduated she was not subject to the term time restriction of 20 hours per week. This element of the contract was not illegal.”

12. As for the period from March 2007 to June 2008 the ET held:

“The Claimant was working under the work permit which showed a salary of £18,000.However, on the evidence available to the Tribunal (including the evidence given by Doctor Wen) there was no reason to believe that £18,000 figure was in any way a condition of the work permit. Doctor Wen gave evidence that he had several employees who had work permits who were paid a lesser salary. Therefore, the fact that the Claimant was receiving a lesser salary should not constitute an illegal act.”

The Grounds of Appeal

Did the Employment Tribunal err in finding that there was no illegality in the Claimant’s contract of employment?

13. It was not contended before the ET nor was it a ground of appeal before us, if it were the case, that the Claimant had falsely declared her earnings to be £18,000 per annum in order to obtain leave to remain in the UK. Accordingly we do not consider whether the ET erred in failing to hold the Claimant’s contract of employment to be tainted with illegality on this ground.

Contentions of the parties

14. Mr Cheung submitted that the ET disregarded immigration law in concluding that the Claimant was not in breach of her student visa by undertaking employment with the Respondent on a full time basis. The grounds of appeal include a contention that the Home Office may have cancelled the Claimant’s Leave to Remain had they known that whilst on a student visa she had breached the Immigration Rules and the conditions of her leave to enter or remain as a student by filling a permanent full-time vacancy.

15. Mr Cheung contended that the ET had erred in not considering the effect of the provisions of Chapter 3 Section 3 of the Immigration Directorate Instructions (‘IDI’) paragraph 18.1 of which provides:

“Students should not work for more than 20 hours a week during term time, except where a work placement meets the definition of a sandwich course or internship (please see paragraphs 18.2 and 18.3 below for these definitions).  They may work full time during their vacation period and during the additional period of 2 or 4 months following completion of their studies whilst, for example, waiting for their examination results, prior to attending their graduation ceremony or before commencement of their new course.  A student must not engage in business, self-employment of the provision of services as a professional sports person or entertainer.  A student is not permitted to pursue a career by filling a permanent full-time vacancy.”

1. Mr Cheung contended that the Claimant was in breach of these provisions. If the Home Office had discovered that the Claimant was in breach of conditions of her student visa she would have been liable to removal from the UK pursuant to powers under the Immigration and Asylum Act 1999 Section 10(1). Further it was contended that if the conditions of the Claimant’s leave to remain as a student were breached, her leave to remain as a work permit holder obtained in March 2007 could have been cancelled.

17. Further Mr Cheung contended that the ET erred in not holding that it was a condition of her work permit that the Claimant be in employment earning £18,000 per annum. The ET further erred in failing to hold that the Claimant was in breach of that condition by agreeing to receive a smaller sum by way of remuneration. Mr Cheung contended that by failing to have regard to the fact that the Claimant signed a document agreeing to work for less or at least be paid on a different basis than a salary of £18,000 per annum the ET erred.  If it had regard to this evidence it would have concluded that the Claimant participated in illegality in breaching a condition of her work permit.

18. The basis of the contentions in relation to alleged breach of the conditions of the Claimant’s student visa was that paragraph 18.1 of the Immigration Directorate Instructions prohibited the holder of such a visa from filling a permanent full-time vacancy or from working full time. Mr Cheung relied on the dictum of Lord Phillips in R (on the application of Zhou) v Secretary of State for the Home Department [2003] EWCA Civ 51.

19. Mr Cheung relied on the judgment of Roskill LJ in R v Immigration Officer Heathrow Airport and another ex part Salamat Bibi [1976] 3 AER 843 at 848 to contend that Immigration Rules are delegated legislation. He contended that paragraphs 321A(1) and 323 of the Immigration Rules gave the Home Office power to curtail or cancel the Claimant’s leave to remain as it was said that she was working or obtained Leave to Remain on a different basis from that stated in her work permit. He contended that earning £18,000 per annum was a condition of the permit and that she was earning less than this sum.

20. Mr Cheung relied upon R on the Application of Jimmy Ocheing v the Secretary of State for the Home Department [2008] EWHC 3302 (Admin) paragraph 16 to illustrate that where an employer wishes to change the conditions of employment from those stated in the work permit, Work Permits (UK) must be notified. He referred to Guidance for Employers published by the UK Border Agency, which provides by paragraph 164 that checks may be made to ensure that conditions of employment including gross pay are as stated on the application for the work permit.  He relied on the Guidance to contend that salary referred to in the work permit is a condition.  Where the UK Border Agency decides that the employer has knowingly deceived them, they have the right to revoke the work permit.

21. Mr Cheung referred to the well known dictum of Peter Gibson LJ in Hall v Wollston Hall Leisure Limited [2000] 4 AER 787 that ‘No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act.’ In Blue Chip Trading Ltd v Mr A Helbawi (UKEAT/0397/08/LA) Elias P observed of a Claimant working in breach of his student visa at paragraph 28:

“ …. I do not think that public policy would be properly served by allowing the claimant to recover for any of the work done … when he was knowingly acting in breach of the licence conditions. He was in that period doing precisely what he should not have been doing and it would be wrong in my view for the court to condone this knowing breach of law.”

22. Mr Cheung contended that the Claimant’s contract was illegal from its inception as she worked in breach of her student visa. Further he said that participation by the Claimant in the illegality of working for a lower salary than that stated in the work permit was the central issue in the Respondent’s appeal.  This was a contention that the Claimant participated from March 2007 in alleged illegality by working for a lesser amount than that stated in the work permit.

23. Ms Hirst on behalf of the Claimant contended that there was no immorality or illegality in her contract of employment with the Respondent. If there were illegality it was not participated in by her in any event as the ET found she was forced to accept a lower salary. The ET also found that there was no reason to suppose that the lower salary was unlawful or that it was a condition of the work permit that Claimant be paid £18,000.  Further it is said that at its highest, all that the Respondent was able to demonstrate was that the Home Office has the power to cancel a work permit and thus make it unlawful for a person to continue in employment in certain circumstances.  It had not been demonstrated that a failure to inform the Home Office of a salary variation constitutes such a circumstance.

24. Ms Hirst referred to ZH (Bangladesh) v Secretary of State for the Home Department [2009] EWCA Civ 8 in which Sedley LJ giving the judgment of the Court of Appeal with the other members of the court agreed, whilst holding that it would be wrong for an immigration judge to adjudicate in ignorance of the IDI, observed at paragraph 32 that the IDI do not have, and cannot be treated as if they possessed, the force of law.

25. Ms Hirst drew attention to a recent judgment of the House of Lords on the status of Immigration Rules. In Odelola (FC) v Secretary of State for the Home Department [2009] UKHL 25 Lord Brown observed:

“34. Secondly, as Mr Ockelton put it in the tribunal’s decision here, the “immigration rules are essentially statements of policy.
…

1. The immigration rules are statements of administrative policy: an indication of how at any particular time the Secretary of State will exercise her discretion with regard to the grant of leave to enter or remain.”

Accordingly Ms Hirst submitted that breach of the IDI or the Immigration Rules is not in itself an unlawful act. Ms Hirst accepted that if the Claimant and the Respondent had conspired together to apply for a work permit based on a higher salary in order to obtain the permit while agreeing that she would be paid a lower salary the Respondent may well have been able to argue that the Claimant had perpetrated a deliberately illegal act. However the ET rejected the suggestion by the Respondent that this happened. The Respondent had not challenged the finding of fact that the Claimant had not conspired to inflate her salary for the purposes of the work permit application.  Nor was there a challenge to the finding that she had little choice but to sign the document agreeing to accept a different salary than £18,000 per annum.

Discussion

26. The principles underpinning the refusal by the courts to permit a party to enforce rights based on an unlawful contract are well established. In Hall the effect of the illegality of the employee’s contract of employment was considered in the context of a claim of sex discrimination, a statutory tort.  Mrs Hall claimed that she was dismissed because of her pregnancy. She had asked for a pay rise and was given £250 in cash net of deductions when her pay slips showed gross pay of £250, and net pay of £186.65.  When she queried this she was told ‘this is the way we do business’.  The ET held that the contract was tainted with illegality.  As Mrs Hall was not entitled to enforce the contract the ET held that no legal rights were destroyed when the contract was brought to an end.  However the ET awarded a sum for injury to feelings in the sex discrimination claim.  In the Court of Appeal Peter Gibson LJ held at paragraphs 30 and 31:

“30. In two types of case it is well-established that illegality renders a contract     unenforceable from the outset.  One is where the contract is entered into with the intention of committing an illegal act; the other is where the contract is expressly or implicitly prohibited by statute (St. John Shipping Corp. v Joseph Rank Ltd. [1957] 1 QB 267 at page 283 per Devlin J.)

1. In a third category of cases a party may be prevented from enforcing it.  That is where a contract, lawful when made, is illegally performed and the party knowingly participated in that illegal performance.  In Ashmore, Benson Ltd v Dawson Ltd [1973] 1 WLR 828 Lord Denning MR (at page 833) said:

‘Not only did [the plaintiff’s transport manager] know of the illegality.  He participated in it by sanctioning the loading of the vehicle with a load in excess of the regulations.  That participation in the illegal performance of the contract debars [the plaintiff] from suing [the defendant] on it or suing [the defendant] for negligence.’”

So too Scarman LJ at page 836:

“But knowledge by itself is not enough.  There must be knowledge plus participation...  For those reasons I think the performance was illegal.”

Peter Gibson LJ further held at paragraph 38:

“In cases where the contract of employment is neither entered into for an illegal purpose nor prohibited by statute, the illegal performance of the contract will not render the contract unenforceable unless in addition to knowledge of the facts which make the performance illegal the employee actively participates in the illegal performance. It is a question of fact in each case whether there has been a sufficient degree of participation by the employee.”

27. The Court of Appeal allowed the appeal by Mrs Hall on the basis that her acquiescence in her employer’s conduct in not deducting appropriate amounts of tax and national insurance reflected the reality that she could not compel her employer to change its conduct. She was not guilty of any unlawful conduct, had not benefited from the illegality and her acquiescence in her employer’s unlawful conduct was not causally linked with her sex discrimination claim.

28. In Blue Chip Trading Ltd v Helbawi UKEAT/0397/08/LA Elias P considered an appeal by an employer in the case of a student who worked in breach of conditions of his student visa imposed in accordance with IDIs.  The employment judge had held that breach of those conditions did not render the contract tainted by illegality.  Elias P held that the claimant was at various points acting in breach of a condition of his student visa limiting his hours of employment to 20 per week. Vakante v Governing Body of Addey and Stanhope School [2005] ICR 231 supported the view that working in breach of the conditions of a visa may render a contract of employment tainted by illegality.  Elias P concluded that Mr Helbawi was entitled to recover for those weeks when he was not in breach of the license condition not to work more than 20 hours a week.  However he held at paragraph 38:

“… I do not think public policy would be properly served by allowing the claimant to recover for any of the work done in term when he was knowingly acting in breach of the license conditions. He was in that period doing precisely what he should not have been doing and it would be wrong in my view for the court to condone this knowing breach of the law.”

It is to be observed that Elias P reached this conclusion on breach of IDIs notwithstanding their status as instructions and not secondary legislation.

29. The ET found that when she started working for the Respondent the Claimant was in the country on a Student Visa. She had graduated from Hull University in the summer of 2006. The ET held that her visa allowed her to remain for a further year. The Claimant was aware that the student visa put limitations on the number of hours she could work per week during term time.  However she had graduated when she went to work for the Respondent.  The ET held of the period of the Claimant’s employment with the Respondent from September 2006 to March 2007:

“The Claimant was working in the UK under the authority of her student visa. As she had graduated she was not subject to the term time restriction of 20 hours per week. This element of the contract was not therefore illegal.”

30. The finding of the ET that the Claimant was entitled to remain in the UK for a year after graduation and during that period was not subject to a restriction on the number of hours for which she worked was not challenged by the Respondent at the hearing before it.  An application by the Respondent for a Review of this finding in the light of argument on immigration law was refused by the ET in its judgment of 2 April 2009. There was no appeal against that judgment.  If IDI Chapter 3 Section 3 paragraph 18.1 applied to the Claimant it may have been that, as in Blue Chip Trading, she was working for the Respondents in breach of the terms of her student visa and that her contract of employment in the period up to March 2007 was tainted by illegality. However in the light of the findings of fact made by the ET on the material before it the Respondent has not established that the ET erred in law in concluding that the contract of employment of the Claimant while she was the holder of a student visa was not unlawful.

31. As for the contention that the ET erred in failing to hold that the contract of employment was unlawful because the Claimant was paid less than the figure showed on her work permit, the ET made a finding of fact in paragraph 15 of its judgment that Claimant did not collude with the Respondent in making a false declaration of proposed earnings in order to obtain a work permit. That finding of fact was not appealed. In the light of that finding, the Respondent has not established that the ET erred in law in failing to hold that the Claimant’s contract was unlawful because of a false declaration to obtain the work permit.

32. The effect of a difference between the pay received by a worker and that stated in an application for a work permit is illustrated by R (Jimmy Ocheing) relied upon by Mr Cheung.  Mr Ocheing challenged the decision of the Secretary of State to cancel a work permit for an employee of his. It was found that the employee was not working in accordance with his work permit. He was not performing the work for which the permit had been sought and was being paid far less than had been stated. The deputy High Court judge referred to the non-statutory guidance published by Work Permits (UK) dealing with situations where working conditions do not accord with those outlined in the application for a work permit. He set out Section 4 of the Guidance for Employers which dealt with issues of verifying applications and abuse:

“17…At paragraph 151 it is stated:
“…we must also be confident that applications meet the work permit criteria, and that the statements and information that employers and representatives provide are a true reflection of what actually happens whilst the work permit holder is in the job concerned.”

1. In paragraph 171 the guidance says:

“If we find discrepancies on applications where the work permit has already been issued and the overseas worker has taken up the post, we will work with you to take steps to bring the employment back in line with the work permit arrangements if possible.”

The words “if possible” are there for a purpose.”

33. These paragraphs illustrate that working for less money than that stated in an application for a work permit does not automatically lead to its revocation.  In our judgment the ET did not err in failing to hold that her contract of employment was unlawful by reason of the Claimant working for a lesser salary than that stated in the application for the work permit.

Failure to consider material facts

34. The Respondent contends that the ET erred in failing to properly take into account an agreement signed by the Claimant to receive a lesser sum of money or a sum of money on a different basis than the £18,000 per annum referred to in the application for her work permit.  It is said that because Claimant signed such an agreement the ET should have held that she was colluding with the Respondent in misrepresenting the amount of pay which she was receiving under her contract in that the earnings shown on her work permit were different from the basis of salary that she had agreed to receive pursuant to the agreement.

35. The Claimant refers to the fact that the ET made specific findings of fact regarding the circumstances and sequence of events which led to her being required by her employer to accept a lesser salary than was recorded on her work permit. The ET also quite properly found as a fact that there was no fraud on the revenue. Claimant had agreed to and did pay tax on the basis of an £18,000 salary although she was receiving less.

Discussion

36. In our judgment, the fact that the Claimant signed an agreement to receive a sum which would probably lead to a lesser salary than that shown on her work permit does not indicate that she knowingly participated in illegality.  The work permit had already been obtained and the ET made a finding of fact that Claimant did not participate in any misrepresentation in obtaining it.

37. The conduct of Dr Wen in requiring Claimant to sign the agreement and the conduct of the Respondent in issuing false payslips showing pay in the sum of £18,000 on the English payslip and the accurate figures of a lesser sum on the Chinese payslips gives rise to certain questions.  Whilst a different ET may have made different findings, on the facts found by it the ET did not err in concluding that the Claimant had not participated in illegality by signing the agreement.

Conclusion
38. In our judgment the ET did not err in law or come to a perverse conclusion in its decision that the contract of employment between Claimant and the Respondent was not tainted by illegality.  Accordingly this appeal is dismissed.