Tainted with illegality
Labour & European Law Review Weekly Issue 493 26 October 2016
It is well established in law that courts and tribunals will not allow claimants to rely on a contract that is illegal to support a claim. In Hughes v The Coupers Partnership Ltd, the Employment Appeal Tribunal (EAT) confirmed that the claimant could not rely on an agreement that amounted to a fraud on Her Majesty’s Revenue and Customs (HMRC).
Mr Hughes was employed from 1999 as the firm’s commercial director under a written contract of employment which entitled him to the use of a “fully expensed private car (including private motoring)” and the right to be reimbursed for all reasonable expenses.
In 2002, the company decided to withdraw the benefit of a company car but agreed to increase his salary and allow him to claim a mileage allowance when he used his car for business purposes. Over the ensuing years, Mr Hughes duly submitted expenses claims for business mileage which were processed by the company.
By 2011 the company was having financial problems and by 2013 could barely meet its payroll responsibilities. After relations between Mr Hughes and the managing director, Mr Stevens, became strained, Mr Stevens started to examine Mr Hughes’ business claims and found that he had been claiming business mileage on dates when he was in the office. Mr Hughes admitted that he had not made the journeys claimed for but argued that the 2002 agreement allowed him to claim business mileage at the fixed rate of £480 every month in order to compensate him for the loss of the company car, even if he had not actually done the miles.
After being dismissed for gross misconduct, Mr Hughes brought a claim of unfair dismissal.
Rejecting Mr Hughes’ version of events, the tribunal held that, as the company had conducted a fair investigation and a reasonable disciplinary procedure, dismissal fell squarely within the range of reasonable responses. His claim of unfair dismissal could not therefore succeed.
It then went on to hold that even if it had believed Mr Hughes’ version of events, his case could not succeed as it relied on an agreement “tainted with illegality” and was therefore unenforceable because it amounted to a fraud on HMRC. Mr Hughes appealed, arguing among other things, that the company administrator and Mr Stevens both knew he was not using his car at times when he was claiming mileage.
The EAT agreed with the tribunal’s decision to accept Mr Stevens’ evidence, not least because Mr Hughes’ version of events was not consistent.
It was clear that Mr Hughes intended to deceive someone – either his employer or the tax authorities. The amounts that he claimed varied from month to month; they were not for any regular amount; and were signed off by him in his capacity as a director. Although they were processed by an administrator, it was not her job to authorise his expenses. Nor was it Mr Stevens’ job to query the expenses of another director. The simple fact was that his claims were dishonest and there was no reason why the tribunal should have found that the administrator and/or Mr Stevens had colluded with him.
Even if his employer had known that the claims were false, the EAT was at a loss to understand how Mr Hughes could think that providing dishonest expenses claims could be viewed as anything other than a fraud against HMRC. As such, the agreement was tainted by illegality.