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Introduction

A contract of employment may be (or become) illegal when the contract is expressly prohibited by statute, in which case it cannot be relied upon by either party (‘statutory illegality’). Furthermore, a contract may be unenforceable at common law by the principle of illegality if the contract, or some provision in the contract, has a criminal purpose or requires criminal action (‘common law illegality’).

Common types of illegal contractual terms are:

1. •

   terms relating to pay which try to evade tax laws (eg by paying cash in hand)

2. •

   contracts with people who are not legally entitled to work in the UK

3. •

   contracts to do types of work which are illegal or contrary to public policy, such as prostitution

There are a number of factors that will affect whether a contract is deemed unenforceable by reason of illegality, as set out below.

Factor-based approach

Prior to 2016, any contract tainted by illegality was unenforceable. The rules-based approach sometimes led to injustices and counter-intuitive decisions. In Patel v Mirza,