Wheeler v Qualitydeep Ltd. (t/a Thai Royale Restaurant)

This is an appeal against an order made on 16 April 2004 by the Employment Appeal Tribunal (“the EAT”) dismissing the appellant’s appeal from the decision of an Employment Tribunal (“ET”) sitting at Sheffield dated 29 October 2003. The tribunal unanimously dismissed the appellant’s complaints on the grounds that it could not allow the appellant to enforce the consequences of what it found to be an “illegal contract” with her employer. But for that finding the ET would have found that the appellant was unfairly dismissed and would have found in her favour on her complaint that the employer had failed to provide payslips (contrary to section 8 of the Employment Rights Act 1996).

The appellant submitted a skeleton argument to the EAT prepared by her husband and asked for the matter to be dealt with by written submissions.

The respondent employer did not appear before the ET, the EAT or before this court, it being in liquidation and the liquidators not wishing to take part. The ET took the illegality point “of its own motion”.

Miss Dina Rose has been appointed by the Attorney General to act as advocate to the court. She submits, as does Mr Horan, that the ET should not, on the limited findings of fact which it made, have found against the appellant in the way which it did and submits that this court should not only allow the appeal, but quash the decision of the ET and not order a rehearing.

The appellant, of Thai origin, was employed as a cook at the Thai Royale Restaurant in Sheffield between 18 November 1999 and 28 January 2003. In her originating application it was asserted that she is not fluent in English. She gave evidence to the ET via an interpreter. The ET described her knowledge of the English language as “limited”.

Her husband, Mr Timothy Wheeler, has represented her throughout these proceedings until now. In this court he has had the good fortune to be represented pro bono by Mr Horan, to whom we are grateful.

The only involvement which the respondent has had in the case was to issue a notice of appearance. In her IT 1 Form the dates of the appellant’s employment were stated to be from 18 November 1999 to 28 January 2003. This was not disputed by the respondent. According to the IT 1 she worked 38 hours per week, normally from 6pm to midnight on Tuesday to Saturday and on Sunday from 4pm to midnight. In box 8 under the pre-printed words “Basic wage or salary”, one sees “£220 per week” and under the words “average take home pay”, “£220 per week”. Under “Other bonus or benefits”, one sees “£40 per week”. The details of the claim made it clear that the £40 was her (approximate) share of the service charge.

The respondent employer stated in its Notice of Appearance that the details given by the appellant in her IT1 about her wages and other bonus were incorrect. The employer stated that the correct figure for the basic wages was £180 per week and the average take home pay £155.23 per week. No corrected figure was entered for “other bonus or benefits”. The respondent accepted that it had not provided to the appellant a written statement of the terms and conditions of her employment. In paragraph 9 the respondent stated that the appellant had always received proper wage slips.

During the course of the hearing the appellant produced what she said were the only two pay slips which had been given to her. One was dated 30 March 2001 and the other 14 September 2001. No other tax or national insurance documents were produced.

The ET found that the appellant had received payment from the respondent amounting to £220 per week plus £40 tips. The ET found that “no deductions were made from this income by way of tax or national insurance.” If by this the ET meant that no payments were made to Inland Revenue by the employer, Miss Rose rightly pointed out that it is not clear on what this finding was based. The employer was not represented and had made no such admission. According to the notice of appearance, the employer had made deductions. Apart from the two payslips produced by the appellant, there was no documentary evidence (albeit much suspicion) to support such a finding. The ET appears to have meant by this finding that the employer had paid the appellant the gross amount due without deductions. That finding could perhaps have been based (although it was not) on the IT 1. To rely on the IT 1 the appellant would have to have been given an opportunity to deal with it, given, in particular, that the ET took the “illegality point” of its own motion.

As to the pay slips the ET said, under the heading “Facts found”:

“Part of Mrs Wheeler’s application was made on the basis that only one payslip had been issued to her. In fact during the course of the hearing Mrs Wheeler produced 2 payslips which were issued to her. These wrongly show the gross wages of £72 per week which is also the net wage on those payslips. The slips are dated 30 March 2001 and 14 September 2001. The annual figures for earnings on both of those payslips total what is the equivalent of £72 per week. One of the payslips is a complete tax year and the other for the part of a tax year from April to September.”

We have looked at the pay slips. They are not easy to follow. A reader of the forms, having applied some simple arithmetic to the figures on the forms, given an understanding of pay slips of this kind and given a rudimentary knowledge of tax and national insurance, could reach the conclusions reached by the ET. It is a little strange that the appellant, if knowingly involved in fraudulent conduct, produced them from her handbag during the hearing. Both payslips contain the same tax reference and a NI Code. Each payslip contains a tax coding in the standard form, 438L in the case of one and 453L in the case of the other.

The ET went on to say that it believed that the appellant had asked for further payslips and had been told that “it would be ‘straightened out’ in January 2002”. The ET continued:

“She received nothing in writing from the employer, such as P45/P60 tax forms and more pointedly as well she received nothing from the Inland Revenue in terms of tax codes and other correspondence during the course of her employment”.

The ET described the appellant’s knowledge of tax and national insurance in the United Kingdom as “limited” and found that Mr Wheeler was well acquainted with the need to pay tax and National Insurance and “he clearly had a good grasp of written and spoken English and a knowledge of the world and its affairs in the United Kingdom”.

The ET found that the appellant had herself received nothing from the Inland Revenue in terms of tax codes or other correspondence during the course of her employment.

The ET stated its belief “that Mrs Wheeler was assisted by her husband throughout her employment.” It continued in an important passage:

“Had Mrs Wheeler not had the assistance of her husband we may have taken a different view of her situation in view of her limited knowledge of tax and National Insurance in the United Kingdom and her limited knowledge of the English language”.

It follows that, in the view of the ET, that it must be her husband’s assistance which gave her the necessary information to put her in a position where she could not enforce the contract of employment.

The ET went on to say:

“As a result over a course of three years Mrs Wheeler received her payment of wages without any deductions for tax and National Insurance. Mrs Wheeler clearly relied upon her husband for advice on reading documents and letters and so forth. We believe it having been flagged up by the payslips showing a net and gross pay of £72 per week that there was an awareness within the family that there was something awry.”

The ET said that it seemed that Mr Wheeler encouraged his wife to ask about being given pay slips:

“but all in all it seems that Mr Wheeler at least was quite willing to acquiesce in the situation and for the arrangement to continue. No referral was made to the tax office to see whether there had been any accounting for tax by Mr or Mrs Wheeler.”

A little later the ET said:

“We believe that Mrs Wheeler may have initially have followed this in all probability innocently but we do not believe that Mr Wheeler misunderstood and we believe, in all probability, that he chose to ignore the situation. No course of action was taken with the authorities. “

According to the ET, Mrs Wheeler had expressed no fear of the consequences of potentially losing her job if she had pressed the matter with her employers. The ET then continues:

“Therefore over the course of this more than three years both the respondent and the applicant had benefited from this arrangement”.

The ET stated that the length of time of the arrangement was “highly significant” and continued: “between them Mr and Mrs Wheeler must have known something was wrong. They will have made a choice to acquiesce.” The ET concluded that the contract was illegal and “we cannot allow the applicant to enforce it”.

I distil the findings leading to the conclusion that the contract was illegal and could not be enforced by the appellant:

“an awareness within the family that there was something awry”

“Mr Wheeler was at least quite willing to acquiesce in the situation and for the arrangement to continue.”

“Mrs Wheeler may well have initially followed this in all probability innocently.”

“Mr Wheeler did not misunderstand the situation and he chose to ignore it.”

“Both the respondent and the applicant had benefited from this arrangement”.

“Between them Mr and Mrs Wheeler must have known something was wrong. They would have made a choice to acquiesce.”

The ET’s conclusion that the contract itself was illegal is not supported by these findings. The ET did not investigate the terms of the contract when she originally took employment in November 1999. Indeed the ET found that at least “initially” the appellant was acting “in all probability innocently”.

In the words of Peter Gibson LJ giving leave:

“The ET unfortunately has not made clear findings as to what were the terms of the contract of employment.”

As Peter Gibson LJ pointed out, one of the difficulties with the ET’s judgment is that it does not distinguish between illegality of a contract and illegality in the performance in a legal contract. He said that the EAT “generously construed the ET’s decision to amounting to a finding that the performance of the contract was illegal.” Given my conclusions, I shall also adopt that generous construction.

We turn briefly to the law. There was no dispute that the only principles relevant to the resolution of this case in this court are those set out in Hall v Woolston Hall Leisure Centre Ltd [2001] 1 WLR 225 (CA). The facts may be shortly stated. The employee, Mrs Hall made complaints of unfair dismissal by reason of pregnancy and of sex discrimination against her employer. The employee negotiated £250 per week net of deductions and that is what she received in cash from the employer. The weekly payslips which accompany her pay, however, showed gross pay of £250, deductions of £63.35 and a net sum paid of £186.65. She said that when she queried this with her employer he said “it’s the way we do business”.

Peter Gibson LJ said (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. ...”

It follows that the ET had to be satisfied that the performance of the contract was illegal, that the appellant knew of the facts which made the performance illegal and actively participated in the illegal performance.

Not only did the ET not apply the right test it did not make the necessary findings. The only finding which comes anywhere near the necessary findings is the enigmatic finding that: “Between them Mr and Mrs Wheeler must have known something was wrong. They would have made a choice to acquiesce.” That is clearly not sufficient.

It follows that the appeal from the EAT should have been allowed unless, given the findings made, the application of the right test would have led to the same conclusion as that reached by the ET. Thus I turn to the decision of the EAT.

Having given a brief summary of the facts, the EAT said that the ET had held: “Between them Mr and Mrs Wheeler must have known something was wrong. They will have made a choice to acquiesce”.

The EAT said (paragraph 23):

“The starting point must be the unchallenged finding that the performance of the contract was illegal. No payments were made for tax or National Insurance. The consequence was that both the applicant and the respondent benefited. Both these propositions appear to have been accepted in ground 3 of the Notice of Appeal.”

Ground 3 stated:

“No reasonable tribunal could have reached the decision they did on the facts before it. On the facts although the contract may have been performed illegally in that the employer did not make the correct deductions of tax or National Insurance, the appellant did not know that there had been illegal performance and although she may have benefited as a result of the employer’s illegal actions, she did not actively participate in that illegal performance, and as such the contract was not illegal in law.

Ground 3 does not concede the illegality of the performance and I have already referred to Miss Rose’s criticisms of the finding of the ET on which this conclusion is based. It is not necessary for me to reach any definitive conclusion on this issue.

The EAT continued (paragraph 24):

“... the tribunal made the free-standing finding that ‘between them’, by which we understand the Tribunal to mean both of them, they “must have known something was wrong They acquiesced in the illegal agreement”.

Even construing the EAT’s finding in this generous way, the finding is still inadequate.

The EAT continued:

“Evidence of the illegal agreement was plain to anyone receiving a pay slip for £72 said to constitute both gross and net pay, and receiving in cash £260 (using the latest wage rate for convenience) on at least two occasions when pay slips were given. Further, since those payslips apparently recorded a cumulative figure of respectively one year’s and six months’ gross pay at £72 per week, it would be instantly visible to the applicant that she was receiving in her hand each week £190 more than the printed record showed.”

We understand that the EAT did not look at the payslips. We have done. As I have said, they are not easy to follow. I am not prepared to say that it would be instantly visible to the appellant, given her “limited knowledge of tax and National Insurance in the United Kingdom and her limited knowledge of the English language”, to use the ET’s words, that in 2001 she was receiving in her hand each week £190 more than the printed record showed. I would not be prepared to “bolster” the ET’s findings by relying on the impact of the payslips on the appellant, something upon which the ET did not rely and about which there is no recital of any evidence which she (or her husband) gave about them. I note also that her evidence was that she received assurances that in 2002 everything would be put right.

The EAT continued (paragraph 25) :

“Naturally she asked her husband who was well acquainted with employment matters and relied upon him but also herself made requests relating to pay slips. It was of course open to the tribunal to decide that the applicant, by reason of her status or language, may not have had any proper involvement. But it did not. The tribunal found that both she and her husband acquiesced.”

The EAT went on to ask this question:

“Is acquiescence enough to make the contract illegal in its performance?”

The EAT then set out passages from the decision in Hall.

In paragraph 29 the EAT concluded:

“It seems from those statements that knowledge and participation of the illegality are essential. Those are issues of fact. Whether the employee benefits is obviously a very significant factor …”

In paragraph 30 the EAT said that the tribunal was entitled to give weight to the length of time in which the illegal arrangement continued and continued:

“It must be borne in mind that every week the applicant received payment in cash and twice received pay slips which were plainly wrong for each of the relevant weeks and by analysis reflected such incorrect figures throughout, respectively, the previous year and six months.”

The EAT stated (paragraph 31):

“The applicant benefited from this arrangement. That was a factor to which the tribunal gave weight. She was paid well above the National Minimum Wage. The tribunal found that she knew something was wrong. That is a finding of fact in a highly fact-sensitive domain. Quite properly, the applicant herself raised questions about this arrangement but was content to acquiesce in the continuation of it even after she had been assured that the problem had been ‘straightened out’ for at least a year. Although the applicant was under no duty herself to account to the Revenue, an assurance that the matter would be straightened out was not followed by any communication from the Revenue relating to pay codings nor did she receive a P60 at the end of the three tax years which ended during her career. The tribunal regarded this too as ‘pointed’.”

The EAT said the tribunal directed itself correctly as to the test to be applied (paragraph 32):

“It obviously equated knowingly being a party to acquiescence in the form in which it was used in its reasons. The applicant knew there was something wrong since nothing changed and she received no communications from the Revenue or her employer.”

The EAT also said (paragraph 33):

“The Tribunal was entitled to find that these facts demonstrated knowing acquiescence in the continuation of wrongdoing and that the contract was illegal in its performance. Although expressed as acquiescence, the reality of the Employment Tribunal expression is that the applicant participated.”

It follows, the EAT said, that the contract could not be enforced and that this was a conclusion open to the tribunal on the facts before it. The appeal was therefore dismissed.

I cannot agree. The ET applied the wrong test and I, for my part, cannot reach the conclusion that if the right test had been applied, the result would necessarily have been the same. I am fortified in that view by the conclusions which I have reached on the second ground, to which I now turn, a ground upon which Peter Gibson LJ also gave permission to appeal.

In ground 2 of the grounds of appeal to the EAT, the appellant claimed that the finding of illegality was a finding which the ET ought not to have made on the evidence. Mr Horan submits that the EAT did not allow the appellant a “fair chance to make representations”.

The effect of ground 2 was that an analysis of the evidence given by the appellant and her husband to the ET did not support the factual findings. I add that the ET did not, in large measure, set out the evidence upon which it relied for the conclusions and thus the merits of this ground (upon which HHJ Prophet had ordered a full hearing) required particular consideration.

In ground 2 b it is said that the evidence was that the appellant had little or no knowledge of the English language such that she was incapable of understanding written language including the two payslips. If this is what she said, then the appellant was entitled to have the point considered, given the reliance placed on the payslips by the EAT.

In ground 2 c it is said that no evidence was given that the appellant’s husband had previously seen any of the appellant’s payslips. On the contrary he gave evidence to the effect that he had only recently obtained direct knowledge of the appellant’s earnings from employment at the time he lodged an application for tax credits on behalf of the family. It is said that prior to making that application he had no knowledge as to what the appellant was earning from her employment. “The limit of his knowledge was on the evidence that the appellant was paid in cash rather than by cheque and because of this he had told the appellant to require that her employer provide her with wage slips.” The appellant’s husband gave evidence that he had developed suspicions that the employer may not have been making correct deductions but that he had no knowledge. The evidence was that the appellant had consistently requested her employer to provide her with proper wage slips and that whilst these had not been forthcoming she had been told by her employer by January 2002 that her wages were in order.

Given that the ET did not set out the evidence and if, as we must assume, this ground correctly summarises the evidence given by the appellant’s husband, this matter calls for consideration.

In ground 2 d it is said that although she gave evidence that her husband had told her to keep requesting pay slips from her employer, there was no evidence given that the appellant had been advised by her husband of any suspicions that he himself had as to the deductions being made by her employer. There was no evidence of any knowledge on her part of the fact that she was not being paid correctly. Again this would merit consideration.

In ground 2 e it is said that no evidence was given to the effect that the appellant was or had been assisted by her husband throughout her employment. The appellant’s husband gave evidence that he could not say anything about the terms and conditions of the appellant’s contract of employment as this had been negotiated by the appellant herself in Thai with the employer without any input or assistance from her husband. Her husband gave evidence that he had been distracted by his own personal difficulties and had not paid sufficient attention to the appellant’s affairs. Although evidence was given that the appellant’s husband would assist the appellant with postal correspondence in English, the evidence was that nothing of any relevance had been received. Again it is said that there was no evidence that the appellant was knowingly a party to any illegality:

“The evidence given by the appellant’s husband was limited to the period following her dismissal and the only evidence given was to the effect that he had assisted the appellant in discussions with her employer which took place immediately after the dismissal.”

This likewise would merit consideration.

In ground 2 f it is said no evidence was given that it “had been flagged up by the pay slips showing net and gross pay of £72 per week that there was an awareness within the family that there was something awry”. There was no evidence to show that anyone other than the appellant, who could not understand them, had seen any payslips relating to her employment before these proceedings. The only evidence was that the appellant’s husband had developed, sometime during her employment, a suspicion that correct deductions might not be being made by the employer based on his understanding that the appellant was being paid in cash. There was no evidence that the appellant herself had any awareness or knowledge that her contract of employment was illegal. On the evidence, the limit of her knowledge was that her husband had told her to request wage slips from her employer which she had consistently done and by January 2002 she had been told by her employer that her wages were in order. The evidence of her husband’s suspicions did not, so it is said, amount to an awareness on his part of any wrongdoing or illegality and there was no evidence of any such knowledge on the part of the appellant herself.

This again would merit consideration.

As to this ground, the EAT said (paragraph 7):

“The applicant was seeking an expedited hearing, directions were given in chambers by HHJ Prophet. Because the case was expedited, no specific directions were given about evidence or fresh evidence, but paragraph 7 and 8 of the Practice Direction applied. These set out the procedure which must be followed if there is to be an assertion on appeal about the nature of the evidence below.”

The EAT went on to say (paragraph 22):

“The applicant’s second ground of appeal is based upon a contention as to the material put before the Employment Tribunal. Six separate assertions are made. In the absence of compliance with the procedures set out in practice direction paragraphs 8 and 9, these contentions cannot be accepted.”

The EAT thus refused to consider ground 2 at all, notwithstanding the absence of any order by HHJ Prophet.

Paragraph 8 to which the EAT referred is concerned with fresh evidence and is not relevant Paragraph 9 is concerned with Directions for case management and is not relevant.

I turn to the Practice Direction (Employment Appeal Tribunal – Procedure) 2002 which came into force on 9 December 2002

It contains 19 paragraphs. Paragraph 7(1) provides:

“An appellant who considers the point of law raised in the Notice of Appeal cannot be argued without any reference to any matter of, or relating to, evidence adduced at the Employment Tribunal, which does not sufficiently appear from the Decision and Reasons, must ordinarily submit an application with the Notice of Appeal. If (exceptionally) such application is not so made, then it should be made –

a….

b if the case is listed for FH [Full Hearing] without a PH [Preliminary Hearing] then within 14 days after service of the order so providing.”

Whilst I, as a judge who has sat in the EAT, understand this, I am not sure that the average lay litigant would understand it. Many litigants might not even understand that there is no record of the proceedings in the Tribunal other than the Chairman’s notes. An explanatory note might help. I would also invite the President to consider whether the judge who conducts the “sift” and orders a full hearing might not also be asked to consider whether the Chairman’s notes could be required in the light of the grounds of appeal (assuming that this is not already done).

Peter Gibson LJ said that it seemed open to argument whether paragraph 2 of the Grounds of the Notice of Appeal prepared not by lawyers but by a lay person should have been construed as coming within the paragraph 7 of the Practice Direction. He also said that it was open to argument whether the EAT should have considered ordering the Chairman’s notes of evidence.

Whilst fully accepting the difficulties faced by the EAT in dealing with a large volume of appeals and whilst fully accepting the important role which the Practice Direction plays, it seems to me that the EAT should not have peremptorily dismissed this ground. Nor am I able to say that the result would necessarily have been the same even if the Chairman’s notes of evidence had been made available.

For these reasons I would allow the appeal and quash the decision of the ET. That leaves perhaps the most difficult decision. Should we order a rehearing? Miss Rose and Mr Horan sought to persuade us that we should not. Miss Rose points out that the respondent, which took no part in the hearing before the ET, did not in its notice of appearance raise illegality. It was the ET, of its own motion, which raised the issue at the hearing. In the light of that and the limited findings of fact made by the ET, I have reached the conclusion that the matter should not be sent back for a rehearing.

I would therefore allow the appeal and would quash the decision of the Employment Tribunal sitting at Sheffield dated 29 October 2003. I would remit the matter to the Employment Tribunal for a hearing on the merits of the appellant’s claims.

I add this final comment. This is a very unusual case concerning as it does a foreign national working in this country in that language with limited knowledge of the English language and of the tax and national insurance provisions of this country. Had she not had that limited knowledge, she may well not have succeeded.

I agree.

I also agree.