Conditional contract

Blue Chip Trading Ltd v Helbawi

If an employee breaches a condition that applies to their contract of employment, does that make the whole contract illegal? In Blue Chip Trading Ltd v Helbawi, the Employment Appeal Tribunal (EAT) said that it didn’t as the contract could be severed into legal and illegal sections.

Basic facts

Mr Helbawi, a foreign student studying in the UK, was subject to certain immigration rules with regard to work. For instance, he was not allowed to work more than 20 hours per week during term time. However, he was allowed to work full time during holidays and for a few months following completion of his studies as long as he was not pursuing a career by filling a permanent full time vacancy.

He started working part time as a security officer for Blue Chip Trading Ltd (occasionally working more than 20 hours per week) and made a claim in a tribunal that his employer was paying him less than the minimum wage.

Blue Chip argued that because he had sometimes worked in excess of 20 hours and had filled a permanent full-time vacancy, the whole contract was tainted with illegality and he could not therefore pursue his claim.

Tribunal decision

The employment judge, however, disagreed. She said that as his visa allowed him to work without restriction on some occasions but not on others, she did not think that meant that the whole contract should be struck down for illegality.

In any event, she said that as the company had not done anything to find out whether Mr Helbawi actually had a right to work, then under the Asylum & Immigration Act 1996 they were just as liable as him.

The employment judge was also influenced by the fact that it was an important principle of public policy that people who worked should be paid the legal minimum wage.

She therefore held that the position in this case was similar to that of Colen v Cebrian (UK) Limited in which the Court of Appeal held that if a contract was lawful when entered into and was intended to be performed lawfully, then the fact that some work done during the contract was done illegally would not render the entire contract unenforceable.

EAT decision

The EAT did not entirely agree, however. It said that the tribunal’s analysis that the whole contract was lawful would “involve the court condoning the illegal contract if the claimant were allowed to recover in full for all the hours worked.”

But what was the solution? The EAT said there were two possibilities. One was to treat the whole contract as illegal, thereby depriving Mr Helbawi of any payment for the work he had done. The other was to “sever the unlawful elements of performance and to allow the claimant to recover for the remainder” but that depended on whether the legal and illegal parts of the contract could be treated separately.

And the EAT thought that they could, at least in respect of the holiday periods when there was no limitations on the hours Mr Helbawi could work and when he therefore was not in breach of any immigration rules.

However, the court acknowledged that the issue of severance was more complicated in relation to term time when the limit was 20 hours, particularly since Mr Helbawi was aware that he was acting in breach of those rules.

The EAT concluded therefore that it would not be in the interests of public policy for Mr Helbawi to recover payment for any of the work done during term time when he was knowingly acting in breach of the rules. He could, however, claim the minimum wage for the weeks when he was not in breach of the condition not to work more than twenty hours.