Complainant

Respondent

Anonymised Parties

Health and Safety Director

Company

Representatives

Lisa Conroy Peninsula Group Limited

Act

Complaint/Dispute Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under section 6 of the Payment of Wages Act, 1991

CA-00019904-001

20/06/2018

The Complainant was employed as Health and Safety Director with the Respondent from 6th December 2016 until the employment terminated on 21st December 2017. The Complainant was paid €70,000 plus €15,000 (expenses) and she worked 40 hours a week. The Complainant referred a complaint to the Workplace Relations Commission on 20th June 2018 alleging the Respondent had breached Section 5 of the Payment of Wages Act, 1991 and she is claiming payment of unpaid wages of €4970.40.

The Complainant stated that she was employed on an annual salary of €85,000.00 but that the named Managing Director of the Respondent only wanted to pay her €70,000 through the books and that she would be paid the €15,000 as a travel allowance. From this allowance she stated the monthly cost of her company car would be deducted leaving a total to be paid of €9690.00.. The Complainant stated that she was paid her salary and was paid two other payments off the books of €5329.60 which left €4270.40 outstanding to be paid to her. She also stated that she returned the Company car in October 2017 so she was also due payment of a further €700.00 leaving a total outstanding to be paid to her of €4970.00. The Complainant stated that she was assured that she would be paid this money on leaving the Company on 21st December 2017. The Complainant provided evidence of emails she submitted to the Respondent Company.

The Respondent stated that the Complainant was provided with a written statement of her Terms and Conditions of Employment – copy provided to the Hearing. This provides that the Complainant was to be paid €70,000 salary per annum. This Contract of Employment is not signed and dated by the Respondent. The Respondent did not dispute the email from the named MD of the Company to the Complainant dated 21st October 2016 in which he sets out the package as follows – The package on offer is as follows €70,000 salary plus a €15,00 expense budget towards the use of your car also including a phone, diesel card, laptop and easy pass car tag. The Complainant responded by email dated 9th November 2016 stating the email from the MD should read €15,000 not 15,00.

The Respondent provided a print out of expenses paid to the Complainant cited as subsistence as follows – €1458.00 paid 16/6/2017 – €1337.30 paid on 14/7/2017 – €1197.00 paid 17/8/2017 and €1337.30 was paid on 15/9/2017.

On the basis of the evidence from both Parties a number of preliminary issues arise – Definition of Wages as set out in Section 1(1) of the Act and Public Policy and Enforcement of the Contract of Employment.

Preliminary Issue – Section 1(1) of the Act.

This Section defines Wages as follow – “means any sum payable to the employee by the employer in connection with his employment, including (a) any fee, bonus or commission or any holiday, sick or maternity pay or any emolument, referable to his employment, whether payable under his contract of employment or otherwise………Provided however that the following payments shall notbe regarded as wages for the purpose of this definition”.

Preliminary Issue – Enforceability of Contract of Employment.

This raises questions as to whether the complainant can obtain redress under the statutes upon which her complaints were made. This could arise either because the contract under which she worked at the material time was an illegal one or because, on grounds of public policy, she is debarred from obtaining statutory relief.

Entitlement to redress under the Payment of Wages Act, 1991 is dependent upon the existence of a contract of employment between the parties. That must mean a lawful contract of employment. A contract, including a contract of employment, can be rendered unlawful in three principal types of situation. Firstly, a contract which is prohibited by law is illegal and unenforceable. Secondly, a contract, the object of which is unlawful, such as where it is for the sale of drugs or for the sale of stolen property, is unenforceable. The third category of unenforceable contract is where the performance of an essential term of the contract involves illegality, such as a fraud on the revenue.  

In the case of a contract which is neither entered into for an illegal purpose nor prohibited by statute, the performance of the contract will not render it unenforceable unless in addition to knowledge of the facts which make the performance illegal the employee actively participated in the illegality. I refer to the comments of Peter Gibson LJ in Hall v Woolston Hall Leisure Ltd [2000] 1 W.L.R. 225, at p236 – A British Decision). The requirement of active participation was adopted in this jurisdiction by Laffoy J in Red Sail Frozen Foods Ltd (in receivership) and the Companies Act [2006] IEHC 328.

That type of arrangement gave rise to the decision of the Employment Appeals Tribunal in Lewis v Squash (Ireland) Ltd. [1983] I.L.R.M 363. Here, Mr Lewis was managing director of the respondent company until his dismissal on or about 5th November 1981. He claimed redress for unfair dismissal pursuant to the Unfair Dismissals Act 1977. His salary at the material time was £16,000 per annum. However, £2,000 of this amount was treated, contrary to the reality, as ‘expenses’ and was not subject to tax deductions.  

In reliance on a number of UK authorities the EAT concluded that as an essential term of the contract involved a fraud on the Revenue, it was tainted with illegality and unenforceable. That decision predated the amendment of the Unfair Dismissals Act 1977, at Section 8(11) so as to provide, in effect, that a contravention of the Income Tax Acts or the Social Welfare Acts does not deprive a person who is unfairly dismissed from obtaining relief under that Act.   There is, however, no corresponding provision in the statute, namely the Payment of Wages Act, 1991, upon which the current complaint is grounded.

The effect of a similar type of arrangement was considered by Barron J in Hayden v Sean Quinn properties Limited [1994] E.L.R 54. In this case the plaintiff brought proceedings claiming wrongful dismissal at common law. The Court found that the plaintiff’s basic salary was agreed at £22,000 but added to this was a sum of £6,000 non-taxable allowance to cover expenses. In the course of his evidence the plaintiff said that this was never intended to cover expenses of which there were none.

The High Court found that the plaintiff’s dismissal was wrongful but because the performance of his contract involved a fraud on the Revenue it was illegal and unenforceable. Barron J expressed theposition as follows: -

The defendant is clearly in breach of contract in that the plaintiff's dismissal was wrongful. However, the contract itself was an illegal one. It contained a term designed to lessen the defendant's liability at the expense of the Revenue, something with which the plaintiff concurred. In Napier v National Business Agency Ltd [1951] 2 All ER 264 the facts were almost identical. Part of the plaintiff's salary purported to be in respect of expenses, which at best were only minimal. The plaintiff had claimed to have been dismissed wrongfully. He sued for damages. His claim was dismissed upon the ground that the contract was unlawful and so unenforceable. Sir Raymond Evershed said at page 266: ‘[i]t must surely be that, by making an agreement in that form the parties to it were doing that which they must be taken to know would be liable to defeat the proper claims of the Inland Revenue and to avoid altogether, or at least to postpone, the proper payment of income tax. If that is the right conclusion, it seems to me equally clear … that the agreement must be regarded as contrary to public policy. There is a strong legal obligation placed on all citizens to make true and faithful returns for tax purposes, and, if parties make an agreement which is designed to do the contrary, i.e. to mislead and to delay, it seems to me impossible for this Court to enforce that contract at the suit of one party to it.’ The learned judge then went on to consider whether or not the fraudulent part of the agreement could be severed and held that it would not

The Judge then continued: -

In my view that case would have been decided in the same way and upon the same grounds in this jurisdiction at that date. Notwithstanding the very great changes that have occurred in society in this country since then I do not believe that public policy on this issue would have changed in any way. The plaintiff allowed himself to agree to something which would benefit the defendant at the expense of the Revenue. Such an agreement is unenforceable and the plaintiff's claim must therefore fail.

Applying this principle to the instant case, I am satisfied that at all material times the complainant was engaged in an arrangement with her then employer whereby she would receive part of her wages off the books without deduction of income tax. In that context I am satisfied that the complainant was fully complicit in this arrangement.

In these circumstances I am further satisfied that the complainant’s contract of employment became tainted with illegality. The events giving rise to the complaint under the Payment of Wages Act, 1991 occurred during this illegality. An entitlement to redress under the Act of 1991 is contingent upon the existence of a contract of employment between the parties. As was held by the British EAT in Hyland v J H Barker (North West) Limited [1985] IRLR 403, that must mean that the complainant was employed under a lawful contract of employment.

On the basis of the evidence, my findings above and in accordance with Section 41(5) of the Workplace Relations Act, 2015 I declare this complaint is not well founded.

Payment of Wages – Enforceability of Contract of Employment. – Section 1(1) of the Act