Hall v Woolston Hall Leisure Ltd [2000] IRLR 578
In this case the Court of Appeal looked again at the impact of illegal contracts on an individual's right to claim in an employment tribunal. The general rule is that if a contract is illegal, then it cannot be sued on in the courts and is void, but as a claim for discrimination is not based on the law of contract, the rule does not apply.
This case concerned a woman who was successful in her claim for sex discrimination after she was dismissed on the grounds of pregnancy. At the remedies hearing the employers successfully argued that her contract of employment was illegal because she was not paying tax on her earnings and she was therefore not entitled to compensation.
The EAT dismissed Mrs Hall's appeal on the grounds that to order compensation for loss of earnings based on an illegal contract would offend the basic principles of justice. As such the court would not enforce a contract involving a fraud on the Inland Revenue.
The Court of Appeal allowed Mrs Hall's appeal and in doing so upheld the EAT's decision in Leighton v Michael [1996] IRLR 67 that the fact that a contract was tainted with illegality did not disqualify someone from bringing a claim of sexual harassment against her employers.
In reaching their decision the CA considered that
 where the performance of a contract involves illegality, public policy does not bar an employee from recovering compensation under the Sex Discrimination Act. a complaint of sex discrimination is not based on any obligations arising from the contract of employment.as sex discrimination is a statutory tort, the correct approach is to consider whether the claim arises out of, or is so closely connected with, the illegal contract that the court could not allow someone to recover compensation without appearing to condone that conduct.
In this case the illegality related to the way the employers paid her wages. While Mrs Hall knew they were not making the proper deductions from her wages that was in no way causally linked with her sex discrimination claim.
Unscrupulous employers who think that they can defend sex discrimination claims on the basis that their employees don't pay tax and therefore have illegal contracts had better think again.