What constitutes an illegal contract of employment?

A contract of employment will be illegal if it is any of the following:

- Immoral
- For an illegal act e.g. fraudulent or criminal activity. A court will not enforce a contract made for an illegal act. The person contracted under such a contract will not be able to enforce any of their rights under the contract.
- Cash in hand and/or not paying tax. Both employees and employers are under obligations to pay tax and National Insurance (NI) contributions.
- Hiring illegal immigrants. Under immigration law employers can receive substantial penalties for employing illegal migrant workers, including a maximum two year prison sentence and/or an unlimited fine for knowingly employing illegal workers.

A contract of employment will not be illegal if only one of the parties is not declaring the income and/or making the correct tax payments. It will only be illegal if all of the following circumstances exist:

- The employer pays all or part of the employee’s wages cash in hand
- Applicable tax and NI contributions are not paid on the wages
- The employee was aware they were being paid in this way in order to avoid paying tax and/or NI contributions.

It is possible that if only a clause, or clauses, in a contract are illegal, they could be declared to be void without tainting the whole contract with illegality. This could only occur if the clauses are separable from the rest of the contract and the contract could stand without them.

If an employment contract is not illegal for any of these reasons, but it purports not to provide an employee’s statutory rights, it will not be legally enforced by the courts. If you are concerned about the legality of an employment contract, whether as an employee or an employer, you should get legal advice from an employment solicitor. An employment solicitor will assess the contract and suggest changes to ensure it complies with employment law.

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