1. Mr Glyn contends that the issue in this case is a question of fact not to be interfered with by an appellate court. The Judge made findings of fact and made an assessment, which is the unique province of a Judge at first instance. The Respondent was not obliged to provide work for the Claimant to do on the nights she danced, and she could earn no money and even suffer a loss. Taking a broader view, it is the widespread practice in this business for dancers to be self employed, and it is in the public interest that they should be, rather than under an employment contract.

1. The principles to be applied in this appeal emerge from the following authorities. In Clark v Oxfordshire Health Authority [1998] IRLR 125 CA the approach to appeals was described as follows:

35. Principles governing appeals from an industrial tribunal

At first impression one might suppose that the question whether one person is 'employed' by another under a 'contract of employment' within the meaning of s.153(1) of the 1978 Act would in any case be regarded by the court as a bare question of law, since it raises the question whether there exists between the two parties the legal relationship of employer and employee. And indeed exceptionally, if the existence or otherwise of the relationship is dependent solely upon the true construction of a written document or documents, the question is treated by the court as being one of law, so that an appellate tribunal or court is free to reach its own conclusion on the question without any restriction arising from the decision of the tribunal below (Davies v Presbyterian Church of Wales [1986[ IRLR 194).

36. But in the more ordinary case, where the determination of the question depends not only on reference to written ten documents but also on an investigation and evaluation of the factual circumstances in which the work is performed, a quite different situation arises: (see Lee Ting Sang v Chung Chi Keung [1990] IRLR 236 at p.240; Clifford v Union of Democratic Mineworkers [1991] IRLR 518 at p.520 per Mann LJ). In such a case, as these two authorities show, the responsibility of determining and evaluating all the relevant admissible evidence (both documentary and otherwise) is that of the tribunal in the first instance; an appellate tribunal is entitled to interfere with the decision of that tribunal, that a contract of employment does or does not exist, only if it is satisfied that in its opinion no reasonable tribunal, properly directing itself on the relevant question of law, could have reached the conclusion under appeal, within the principles of Edwards v Bairstow [1956] AC 14. An illuminating summary of the legal position in this context is also to be found in the judgment of Sir John Donaldson in O'Kelly v Trusthouse plc [1983] IRLR 369 at pp. 381 393."

1. In addition to the three conditions set out by MacKenna J in Ready Mixed Concrete there is this:

"There must be a wage or other remuneration. Otherwise, there will be no consideration, and without consideration no contract of any kind. A servant must be obliged to provide his own work and skill."

1. As to this, Stephenson LJ in Nethermere (St Neots) Ltd v Gardiner [1984] ICR 612 at 613C said, "there must […] be an irreducible minimum of obligation on each side to create a contract of service". He also considered that a contract could arise over time (626 627):

"I cannot see why well founded expectations of continuing home work should not be hardened or refined into enforceable contracts by regular giving and taking of work over periods of a year or more, and why outworkers should not thereby become employees under contracts of service like those doing similar work at the same rate in the factory."

1. That was in a case where home workers provided regular work and they could refuse where and were held to be employees under an umbrella contract. To similar effect Dillon LJ said in Nethermere (634G 635A):

"For my part I would accept that an arrangement under which there was never any obligation on the outworkers to do work or on the company to provide work could not be a contract of service. But the mere facts that the outworkers could fix their own hours of work, could take holidays and time off when they wished and could vary how many garments they were willing to take on any day or even to take none on a particular day, while undoubtedly factors for the industrial tribunal to consider in deciding whether or not there was a contract of service, do not as a matter of law negative the existence of such a contract.

I see no reason in law why the existence of a contract of service may not be inferred from a course of dealing, continued between the parties over several years […]."

1. In Clark there was no issue as to the instigation of a contract of employment during the time work was actually performed by a nurse. The issue was whether there was an umbrella contract such as to provide continuity of service, and the lack of mutuality of obligations during the gaps defeated the claim. Sir Christopher Slade, with whom the other members of the court agreed, went on to say:

"41. On the findings of the industrial tribunal, the authority was at no relevant time under any obligation to offer the applicant work nor was she under any obligation to accept it. I would, for my part, accept that the mutual obligations required to found a global contract of employment need not necessarily and in every case consist of obligations to provide and perform work. To take one obvious example, an obligation by the one party to accept and do work if offered and an obligation on the other party to pay a retainer during such periods as work was not offered would in my opinion, be likely to suffice. In my judgment, however, as I have already indicated, the authorities require us to hold that some mutuality of obligation is required to found a global contract of employment. In the present case I can find no such mutuality subsisting during the periods when the applicant was not occupied in a 'single engagement'. Any obligation of confidentiality binding her during such periods would have stemmed merely from previous single engagements. Apart from this, no continuing obligation whatever would have fallen on the authority during such periods."

1. Of most assistance in dealing with a case where there has been found to be a contract of employment on each occasion, and the secondary issue is whether there is an umbrella contract, is the Judgment of the Court of Appeal in Prater v Cornwall County Council [2006] 2 All ER 1013. The claimant was an out of school tutor (home tutor). She had a long relationship with the Council, which was not obliged to provide her with pupils to teach nor was she under a contractual obligation to accept. The Court upheld the Employment Tribunal's finding that the claimant was engaged on a series of contracts of employment and that she had continuity of service, for Mummery LJ said this:

"40. […] (5) Nor does it make any difference to the legal position that, after the end of each engagement, the council was under no obligation to offer her another teaching engagement or that she was under no obligation to accept one. The important point is that, once a contract was entered into and while that contract continued, she was under an obligation to teach the pupil and the council was under an obligation to pay her for teaching the pupil made available to her by the council under that contract. That was all that was legally necessary to support the finding that each individual teaching engagement was a contract of service. Section 212 took care of the gaps between the individual contracts and secured continuity of employment for the purposes of the 1996 Act."

1. Longmore LJ went further and held as follows:

"43. […] There was a mutuality of obligation in each engagement namely that the county council would pay Mrs Prater for the work which she, in turn, agreed to do by way of giving tuition to the pupil for whom the council want her to provide tuition. That to my mind is sufficient 'mutuality of obligation' to render the contract a contract of employment if other appropriate indications of such an employment contract are present."

1. And Lewison J identified a question similar to the question in the present appeal when he said the following:

"49. The starting point for the argument in this case is that each individual assignment was itself a contract of employment. The cases recognise that this is a permissible legal conclusion and may be the right conclusion on the facts […].

50. The employment tribunal applied the test: was there sufficient mutuality of obligation in relation to each individual engagement so as to amount to a contract of service? They held that there was.

51. The question whether there is mutuality of obligation is not the complete test for determining whether a contract of service exists. I would have thought that the question of mutuality of obligation goes to the question whether there was a contract at all, rather than what kind of contract there was, if a contract existed. However the lack of mutuality of obligation is the only ground of appeal."

1. That strain was taken up by Elias J (as he then was) in Stephenson v Delphi Diesel Systems Ltd [2003] ICR 471 on behalf of the EAT:

"11. The significance of mutuality is that it determines whether there is a contract in existence at all. The significance of control is that it determines whether, if there is a contract in place, it can properly be classified as a contract of service, rather than some other kind of contract.

12. The issue of whether there is a contract at all arises most frequently in situations where a person works for an employer, but only on a casual basis from time to time. It is often necessary then to show that the contract continues to exist in the gaps between the periods of employment. Cases frequently have had to decide whether there is an over-arching contract or what is sometimes called an "umbrella contract" which remains in existence even when the individual concerned is not working. It is in that context in particular that courts have emphasised the need to demonstrate some mutuality of obligation between the parties but, as I have indicated, all that is being done is to say that there must be something from which a contract can properly be inferred. Without some mutuality, amounting to what is sometimes called the "irreducible minimum of obligation", no contract exists.

13. The question of mutuality of obligation, however, poses no difficulties during the period when the individual is actually working. For the period of such employment a contact must, in our view, clearly exist. For that duration the individual clearly undertakes to work and the employer in turn undertakes to pay for the work done. This is so, even if the contract is terminable on either side at will. Unless and until the power to terminate is exercised, these mutual obligations (to work on the one hand and to be paid on the other) will continue to exist and will provide the fundamental mutual obligations.

14. The issue whether the employed person is required to accept work if offered, or whether the employer is obliged to offer work as available is irrelevant to the question whether a contract exists at all during the period when the work is actually being performed. The only question then is whether there is sufficient control to give rise to a conclusion that the contractual relationship which does not CHK exist is one of a contract of service or not."

1. Paragraphs 13 and 14 above were relied on by the Judge in our case, but significantly and probably leading to error, I think, is the omission of paragraphs 11 and 12.

1. The Judgment of Elias J was applied by Langstaff J and members in Cotswold Developments Construction Ltd v Williams [2006] IRLR 181:

"47. Mutual obligations are necessary for there to be a contract at all. If there is a contract, it is necessary then to determine what type of contract it is. If it is a contract of employment, consequences will follow of the greatest significance - not only in terms of whether the employee is entitled to, and the employer subject to, those rights and duties conferred by statute upon employees and employers alike, … . These matters are determined by the nature of the mutual obligations by reference to which it is to be accepted that there is a contract of some type.

48. We therefore do not see any necessary inconsistency between paragraph 18 of the judgment in Bamford when contrasted with paragraphs 11-14 of Stephenson or paragraphs 60 and 86 in Dacas. It cannot simply be control that determines whether a contract is a contract of employment or not. The contract must also necessarily relate to mutual obligations to work, and to pay for (or provide) it: to what is known in labour economics as the "wage-work bargain".

49. Mr Lemer argued that the obligations which identified a contract as one of employment, on this approach, were flexible. They differed according to the context. He relied upon that part of the judgment of Buckley J in Montgomery v Johnson Underwood at paragraph 23 where he said:

'Clearly as society and the nature and manner of carrying out employment continues to develop, so will the Court's view of the nature and extent of "mutual obligations" concerning the work in question and "control" of the individual carrying it out. In the nature of things the lead in this process will be taken by Employment Tribunals and the Employment Appeal Tribunal.'

Later he referred to the Ready Mixed Concrete test as permitting a Tribunal "appropriate latitude in considering the nature and extent of mutual obligations in respect of the work in question and the control an employer has over the individual." Although we accept that there is room for the obligation resting upon an employer to vary, as between the provision of work, payment for work, retention upon the books, or the conferring of some benefit which is non-pecuniary, we cannot see that such elastic as there may be in the idea of mutuality of employment obligations can be stretched so far that it avoids the necessity for the would be employee to be obliged to provide his work, personally. The old fashioned description of a contract of employment as one of service (still retained by Section 230 of the Employment Rights Act) puts "service" (ie the obligation to work, personally, for another) at the heart of the relationship. We do, however accept that when considering a statutory definition such as that of "worker" what matters are the words of the statute. They focus not upon any obligation owed by the employer (save sufficient to ensure that there is a contract between the "employer" and the "worker"), but upon the nature of the obligation resting upon the worker."

1. In a development of the wage-work bargain Lady Smith, in Cormie v Robert Rodger UKEATS/0036/11, held that the relationship of employment existed even though pay did not come from the would-be employer.

1. Finally, in Autoclenz Lord Clarke agreed with the concept of deciding what the reality of a situation in written terms was rather than following it precisely (see paragraph 30).

1. The Employment Judge in our case followed Cheng Yuen v Royal Hong Kong Golf Club [1998] ICR 131, which concerned the status, found to be of self employment, of caddies at a golf club. That finding was based upon the method of payment, which was that members' accounts were debited with the fee that was paid to the caddie to the full amount. There was no obligation on the caddie to attend or to do the work. He was not subject to the golf club's control when out with the member on the course.

1. In Sarker v South Tees Acute Hospitals NHS Trust [1997] IRLR 328 the EAT (Keene J and members) held that a person who had entered into a contract of employment but who was dismissed before she started work was entitled to make a claim for breach of contract (and obiter) for unfair dismissal. This is because the definition of an employee in Employment Rights Act 1996 s 230(1) includes a person who has entered into and a person who works under a contract of employment.

1. I prefer the argument of Mr Hendy QC and Ms Rayner on the appeal, and have decided that this part of the case should succeed.

1. The first question is whether I have a licence to enter this territory. It seems to me that the vista has changed in the light of the realistic concession, properly made by Mr Glyn that on each night the Claimant was engaged she had a contract. It must at the least involve the payment over to the Claimant of money stemming from the vouchers which she earned by dancing. She is paid for work done. This contract, as Mr Hendy puts it, is synallagmatic, which means it has obligations on both sides. The Judge's repeated conclusion that there was no mutuality of obligation is frankly wrong. This is not a question of fact but is to be derived by an analysis of the documents and of the working relationship. The judge on her own findings was bound to decide there were mutual obligations. Her straightforward holding to the contrary in several places is therefore open to appeal in a jurisdiction restricted to question of law.

1. Applying Stephenson, once there is a contract to be paid for work done, the only issue is whether there is sufficient control by the paymaster to connote a contract of employment. If that is right, the Employment Judge's findings answer that in favour of the Claimant. Mr Glyn depicts this as a binary analysis: yes or no. However he contends that is wrong and the correct approach is found in Cotswold. The nature of the mutual obligations in the (admitted) contract must be analysed in addition to control. The mutual obligations must be those found in a contract of employment. I myself detect no difference, and nor did Langstaff J in following Stephenson in Cotswold.

1. If the contract is the wage/work bargain as I describe it below, a convenient and commonplace shorthand expression, and there are control and personal service, employment status is established. If the term is changed to a less pithy money's-worth-for-work's-worth bargain, the resolution of the question is it something for service or for services? is found in the answer to the control issue. Langstaff J, ahead of US presidential candidate Obama, reached for the hypothetical plumber. As I see it, a contract exists between me and an emergency plumber. It contains mutual obligations: the plumber must turn out and fix the leak and I must pay her. She is not my employee because control is wanting. The finding of mutual obligations to do with work does not go far enough without control; this is the ratio of Stephenson.

1. In this case, mutuality of obligations to do with work existed on the night. The Claimant had to turn up pursuant to her contractual commitment to the rota. The duty corresponding to the Claimant's right to attend personally and supply services, or perform as a dancer (the two phrases occur throughout), is that she be given the opportunity to earn money. It is held by the judge to represent the Respondent's view that it was "consideration". That is my view, too, and it might be expressed as money's-worth-for-work's-worth. The Claimant gives up her night to be available for something provided by the Respondent.

1. In my judgement, the Judge was wrong to focus narrowly on the wage/work bargain. The problem with it is that it does not encompass all forms of bargains within employment relationships. Arguably, it answers itself: only employees get wages. More systematically, though, the signpost to this is the citation of Buckley J by Langstaff J in para 47 of Cotswold (above). These days, it is not uncommon to find a person agreeing to work for no pay (to gain work experience), or to attend for the mere opportunity of being given work for which remuneration would be available. The wage/work bargain would be satisfied if Ms Quashie agreed to dance in exchange for accommodation, for free meals, for fees paid directly to her university, or even for payment of 1p a night. She could make the bargain to dance to the Respondent's tune if the Respondent agreed to let her be seen at the club so as to enhance her reputation, or to keep her hand in, or even just to maintain networking in a congenial workplace.

1. She had to perform at the direction of the Respondent's management. The findings above under the heading of control indicate plain obligations on the Claimant deriving from the Respondent's right to control her activities. On the nights the Claimant attended, the Respondent was obliged to provide the opportunity for her to dance. It imposed a requirement to dance on the stage at various times during the night without pay. This provided a showcase for the customers so that she could herself earn money by personal invitation to a booth and generate the commission that the Respondent would take. Provision of the opportunity to attract customers was very definitely a mutual benefit. The Claimant would not attend, I infer, if it were permissible under the contract for the Respondent to make her sit with the house mum throughout the night. The Respondent was obliged to exchange the vouchers she earned into sterling, deducting only that which had been agreed between them and to pay the rest to her, and in respect of fines the Respondent was limited by the agreement between them as to the amount and the occasions.

1. Mr Glyn to some extent sought to backtrack on the unchallenged finding that the Claimant was required to provide personal service by saying that she could instead of attending incur the fine. I do not accept that. Mr Hendy is correct when he says that the imposition of fines or deductions by agreement implies the existence of an ongoing relationship; it is a form of discipline built into the contractual relationship, and that is consistent with a contract of employment. Agreed deductions for lateness or poor work are recognised elements in a contract of employment, and enforceable by statute. The fact that the Claimant might incur a fine for non attendance does not mean that she was not obliged to give personal service; she was, and would suffer a deduction, or pay a fine, if she did not. She could not send a friend to do the work for her.

1. I accept Mr Hendy's deconstruction of the four points that led the Judge to conclude that there was no mutuality. There plainly was an obligation to pay the Claimant. That it came about as a result of the Claimant obtaining vouchers from a customer is simply an expression of how business works when collection of moneys is in the hands of an employee of an employer. The fact that her pay came indirectly through vouchers from the customers is not material: see Cormie. An insurance collector who is paid by an insurer out of the premia he collects on the doorsteps of customers, a bartender paid out of the till from takings on the night, is in reality paid by the insurer or bar-owner. Employment status is not decided by reference to the source, or the route, of the payment. Although occasionally cash was given to the Claimant, the vast majority of her earnings was distilled through the voucher system and the filtering out of the Respondent's commission and other payments, to the house mum, the DJ and so on. The Respondent was obliged to pay the Claimant by virtue of the Westminster City Council licence at least £10 for each dance and was obliged to redeem the vouchers less the agreed deductions. There is nothing inconsistent with the wage/work bargain in a requirement that wages will not be paid unless a certain performance, whether by volume produced or time or quality, is achieved.

1. On each night she attended the Claimant was obliged to work as directed by the management. If she did not provide the free dances or other duties, she could be fined. I infer from the findings that if the Claimant were directed to a customer, she could not refuse. It seems to me that mere attendance on the night is pursuant to a requirement that she work; that is, that she turn up and stay throughout the night shift on pain of fine or deduction. She takes the risk that there will be no remunerative work, but she is willing to accept that on the basis that she is available for it, and indeed she accepts the obligation to do free dances. All of those conclusions point ineluctably towards a finding that on the night the Claimant was an employee.

1. This is not a difficult conclusion as Elias J said in Stephenson. In Cotswold, Langstaff J examined the principal authorities and explained that most of them deal not with employment status on the days when work was done, but with the need to fill the gaps between them. The point can be made by the findings of the Claimant's actions in this very case. She entered what she thought was self-employment but over time questioned this in light of the level of control the Respondent exercised over her (para 70). Given the axiom that this contract had mutual obligations, which included attendance in order to have the chance of payment when work was done, the degree of control over her determined whether it was a contract of employment. The findings on control are critical and they put mutuality of obligation in a secondary position, rather than at the forefront, of the legal analysis in this case. I have indicated that the findings by the Judge seem to run together findings in relation to nightly engagement and during the gaps. Her self-direction in paras 6 and 72 include the passage I have emphasised. There really is no difficulty in finding mutuality of obligation on the night as Elias J made clear in Stephenson. A continuing overriding arrangement does not make sense when we are dealing with a night's work. Insofar as the judge applied her first self-direction in the emphasised passage to the night's work I consider she erred. She does so in paras 79 and 80 since she deals there with rotas and work spread over many weeks. The judge makes these findings immediately following her citation from Stephenson para 14 which makes clear that such matters are irrelevant to "the period when work is actually being performed". Employment status can be in place for one night, with mutual obligations on the night of the wage/work bargain, yet be subject to no continuing or overriding arrangement between the parties at all.

1. I turn, then, to consider the findings in relation to an overarching or umbrella contract. These are specifically in paras 81-85. The finding was that there was an expectation on both sides of continued engagements. The word is used in paras 39, 41. That certainly existed between the dates on the rota. Mr Hendy submitted that there was a contract in existence prior to each nightly engagement. I accept that; it was a contract to turn up at the time, which was enforceable. From what I have said above, it was for employment on the night. According to Sarkar it was a contract of employment. Sarkar was a contract claim and so the principle applies in this case, but the reasoning is apt for unfair dismissal, too. At first sight that is surprising, since a person employed by A, who accepts an offer with B and gives proper notice to A, cannot simultaneously be a servant of two masters. It does however make sense when it is recalled that Employment Rights Act 1996 s 230 says a person who has entered into a contract of employment is an employee. This is for the purposes of making a contract claim against B based on employment status before taking up the work. If the engagement on the night is itself a contract of employment, it includes also the period from the date of acceptance. That happened when the rota was published and agreed by the Claimant.

1. On that basis most of the short gaps between engagements would constitute periods of employment. I note from the dancers' report that the intervening periods, which are marked on my copy and amount to six, and the Employment Judge found 10, are of comparatively short durations of between two and six weeks. Otherwise, they show a pattern of fairly regular attendances consistent with the rota described in the Judgment. While the particular Monday and Saturday, occurring twice a month, were subject to final listing, as was engagement one night a week at the Angels club, it is plain that there was a contractual obligation.

1. The separate question is whether there was a single contract covering the whole of the period of 80 weeks of the relationship between the Claimant and the Respondent. In addition to the contractual commitment once the rota was fixed, there was an obligation to turn up each Thursday for the meeting without pay. It was in every sense an obligation, for the Claimant suffered sanctions if she did not attend by reason of fines, suspension or, as it was put, dismissal. The Respondent could terminate the relationship if the Claimant failed to attend the Thursday meetings.

1. The Claimant was in an employment relationship between Thursdays and between the rotas when they were fixed. The existence of the continuing obligation week in, week out to attend on Thursdays would be sufficient, in my view. It would be artificial to say that the employment relationship on each night was broken whenever there was no rota specifying the Saturdays and the Mondays. I suppose it could be said that if there were a time when the forthcoming Saturday and Monday rota were not published, the Claimant would at least have the expectation that if not this Saturday and Monday, then it would be the next. This is because she was obliged to do two Saturdays and two Mondays each month.

1. Added to these are two other features. The Claimant could not take an extended holiday. She was obliged to notify the Respondent when she was going on holiday and on her return, and to dance the next day. If the period extended more that four weeks, she was required to audition again. Without such a break her initial audition entitled her to appear at the Respondent's premises and dance without further audition. With those obligations in place, the Claimant was under an employment status during holidays.

1. Standing back and looking at the 80 weeks of this relationship, the combination of nights actually worked, periods between nights booked on the rota and at Angels, attendance at the Thursday meetings, holidays, agreed changes and absences may mean there are no gaps between them (or no gaps of a week for the purposes of s 212). But if there are, applying Nethermere, by the regular performance of work and/or by the judge's findings on the Claimant's expectation of work, in my view the relationship had enured into an employment relationship under the one umbrella contract.

1. The only contra indication is the fact that the Claimant could dance elsewhere during her off-nights. Mr Glyn did not make much of this point, and in my judgement it is not sufficient to counterbalance the important findings above. I am also sure that had the Employment Judge found there were periods of employment, and gaps between them when no contract of employment was in place, she would have considered s 212(3)(c) and found there was a temporary absence which did not break continuity.

1. The finding against employment status is set aside. Both parties accept that if that is the finding the case should proceed to a hearing on unfair dismissal. It seems to me that on the Judge's own findings there were mutual obligations on the nights. These mutual obligations subsisted between the periods that I have found to be periods of employment each night, sufficient to give the Claimant an umbrella contract. As Mr Glyn accepts, that would mean the Claimant had one year's continuous employment.

1. The Respondent criticised the Claimant's relationship with HMRC. It contended that the contract was unenforceable since it was directly prohibited by statute or it became illegal in its performance. The performance consisted of the returns by the Claimant to the HMRC, for income tax and child tax credit. The Judge directed herself as follows:

"8. Illegality outside the contract will not normally make the contract of employment illegal in performance. Illegality requires a misrepresentation of facts and bad faith rather than a mistaken categorisation of an individual employee's employment status. There must be some attempt to conceal the true facts of a relationship before a contract is rendered illegal. A Tribunal should not search for illegality."

1. The Judge considered the record of the Claimant's correspondence with her accountant and with the Revenue and between her accountant and the Revenue. It considered her evidence as to her understanding of what she was doing during the relevant period which was from June 2007 until the middle of 2009. It will be recalled that her relationship with the Respondent spanned June 2007 to 12 December 2008. The Judge of course did not have to decide illegality having decided against the Claimant on the employment issue. But she did say this:

"87. The Respondent alleges that the contract was illegal on the basis that it had become illegal in its performance by her falsely representing non taxable expenses on what was in fact taxable salary and in the way she estimated her income in her tax returns, profit and loss account and application for child tax credit. The Respondent also alleges that the contract is illegal on the basis that it is directly prohibited by statute on the basis that the Claimant has an obligation to pay her taxes and has not done so, which is prohibited by statute.

88. I have not started to consider whether the way the Respondent has put their case on illegality is supported by case law because based on my findings of fact, the Respondent's arguments do not get past the starting line. I have not found that the Claimant falsely represented her non-taxable expenses so that she claimed non-taxable expenses on what is in fact taxable salary. Nor have I found that the Claimant made serially untrue representations about her accounts, her earnings, her expenses and her taxable income to the HMRC.

89. There is insufficient evidence for me to establish whether or not the Claimant had misrepresented her tax position. I accept the evidence given by the Claimant that she was guided by her accountant; that she finds the whole tax returns and estimate of her income confusing and that she felt she could not finalise her account until the outcome of this case. I accept the Claimant's evidence that she is aware that she is required to amend her accounts and that she will be penalised for failing to do so by the original deadline. I have also taken account of the evidence given by Mr Palmer, who was a very good witness, but find that his evidence merely raises questions about the Claimant's accounts but does not provide answers to those questions for me.

90. ….I have insufficient evidence to find that the Claimant's contract is illegal."

1. These findings followed a very close examination of the Claimant's tax record (paragraphs 51-66). They include findings about the reliance by the Claimant upon her accountant together with the material she unilaterally provided to him so that he could make the returns she signed.

1. A difficulty which arises is the approach which should be taken to the changing attitude of the Claimant to her status. She previously had regarded herself as self employed whilst engaged elsewhere and that was the position when she joined the Respondent. Yet at one stage during her early career she regarded the payments which were taken by way of commission by the Respondent on the money she earned as being for tax. The Judge did not believe that. Thereafter she understood she had to account to the Revenue for tax and did so on the basis that she was self employed. During the latter stages of her career, given the degree of control over her, she questioned her status as self employed and began to think she was employed.

1. The Respondent's cross appeal is expressly contingent on the finding that the Claimant was an employee, a finding which I have made above. Mr Glyn contends that the contract was unlawful in its performance. Since the only figures provided by the parties relate to what they understood as self employment status, this contention must be based on the fact that while the Claimant considered herself to be self employed she made false representations to the Revenue as to her income and expenses. In simple terms the contention must be that since the Claimant has now been held to be an employee, her previous representations as to being self employed are wrong, yet if she was self employed those representations are false and should drive her from the judgment seat in any court.

1. Although Mr Glyn argued for the proposition that a contract which evaded tax was itself contrary to public policy, the primary argument is as to the performance of this contract which was carried out unlawfully. The battleground over which this allegation was fought was the Claimant's relationship with HMRC. At no stage was the Respondent involved. From the Respondent's perspective this is of course understandable. This is not a case where it is suggested both parties were together involved in an attempt to misrepresent the employment status to the Revenue. Thus the focus is entirely upon the actions of the Claimant. It is upon the performance by one party to the contract, illegally. He says the illegality consists of the Claimant's representations as to her earnings and her expenses to the Revenue.

1. It follows that it is not necessary to investigate the juridical basis of this approach. Mr Hendy at one stage contended that the relationship between the Claimant and HMRC was entirely outside the contract, a matter solely between the Claimant and a third party and nothing to do with the performance of the contract. I reject that as a matter of commonsense. The contract was performed by the Respondent providing the Claimant with earnings. She had to account to the Revenue for those earnings. She was entitled to set off against the taxation of those earnings moneys properly paid out as expenses in the performance of her duties. These included motor expenses, clothing, depreciation and so on. Important is the payment of commission and charges to the Respondent.

1. If there is falsehood in the representations made by the Claimant to the Revenue, it seems to me that that is a falsehood in the performance of the contract which makes it unlawful. I accept Mr Glynn's submission that illegal performance "may arise because one or both of the parties may intend to perform the contract in an illegal manner" [citing Chitty on Contracts at paragraph 16/009]. It follows that when the illegality in unknown to the innocent party the innocent party is not defeated by that illegality: Davidson v Pillay [1979] IRLR 275 para. 4. By implication the person committing the illegality may not enforce the contract.

1. It also seems to me that the enforcement of the right to claim unfair dismissal is integrally linked to the contract of employment: Tinsley v Milligan [1994] 1 AC 340 HL and Hall v Woolston Hall Leisure [2000] IRLR 579 CA. As is clear from the foregoing part of this Judgment, in order to obtain a right to claim unfair dismissal a claimant has to succeed in her contention that she has a contract of employment. Only then may she assert the right to unfair dismissal. Thus the contract of employment, and it follows the legality of its performance, are both pre-conditions to the enforcement of the statutory right. This puts in context the statement in Newland v Simons & Willer [1981] IRLR 359 CA by May LJ.

"We have no doubt that Parliament never intended to give the statutory rights provided for by the relevant employment legislation to those who were knowingly breaking the law by committing or participating in a fraud on the Revenue."

1. Only one exception has been provided in the authorities to me which is McConnell v Bolik [1979] IRLR 422 where the EAT held:

"Nothing has been said to us to suggest that the appellants were in any way privy to such an arrangement and in our opinion it could never be said that where an employee without the knowledge of his employer fails to disclose to the Inland Revenue authorities in his income tax return the details of a benefit he has received this automatically makes his whole contract of service an illegal one: we therefore feel that there are no circumstances which would justify in any way a remit back for any further evidence to be heard in this case."

1. Clearly in that case the value of the benefit was small and there would be no automatic disqualification of the Claimant's right to claim unfair dismissal by such a small indiscretion.

1. The matter was taken further in Enfield Technical Services Ltd v Payne [2008] ICR 1431 by Pill LJ at paragraph 18 who said the following:

"A contract of employment may, as the cases show, be unlawfully performed if there are misrepresentations, express or implied, as to the facts. An obvious example occurs when what is in fact taxable salary is claimed to be non-taxable expenses. That is, however, distinguishable from an error of categorisation (as in the present cases) unaccompanied by such false representations, even if the employee had claimed the advantages of self-employment before the dispute arose. I accept that there are limits to that principle and that the circumstances in which a miscategorisation is made may amount to misrepresentation and bad faith which would deprive the employee of the right subsequently to claim the benefits of employment."

1. This approach also follows that of Lord Mansfield CJ in Holman v Johnson [1975] 1 COWP 341 at 343 to the effect that the court should not lend its aid to a claimant when the cause of the claim arises from an immoral or illegal act. As Langstaff J said recently in [Zarkasi v Anindita]() UKEAT/0400/11 which I drew to the attention of the parties, Lord Mansfield's observation deserves repetition.

"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiffs' own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendants."

1. I prefer to base my judgment on the second of Mr Glyn's propositions, but I would observe that the circumstances in this case do fit the primary policy objection set out by Lord Mansfield. The Claimant who seeks the protection of the Employment Tribunal in the enforcement of her rights against the Respondent should pay the taxes properly due upon her earnings which themselves support the administration of the tribunal system. If she is not paying her way, why should she be entitled to free access to the administration of justice? Obviously the approach is different in a criminal jurisdiction where a defendant is summoned to a court. The Employment Judge's summary of the propositions in para 8 of her judgment above largely follows Peter Gibson LJ's in Hall v Wooltson Hall at paras 30-32. In my view, it cannot be said the contract "from the outset" was illegal. I agree that by statute the Claimant was required to account for tax on her earnings, and not paying proper tax is prohibited by statute, but no wrong even on Mr Glyn's case was committed until she made representations, during the contract, to the Revenue. His policy based submission can easily be fitted into the authorities dealing with tax returns during the currency of the contract eg Newland. I would therefore dismiss Mr Glyn's first illegality argument.

1. Applying the above principles to his second point, a contract is performed illegally if the claimant knowingly makes false returns to HMRC on a scale above what might be described as the minor faults in McConnell. Avoidance of tax is not in issue. Evasion of tax on the small scale in McConnell does not "automatically" bar the claimant from the courts. Miscategorisation of an item declared to HMRC would not be illegal.

1. All of that however appears to me to be settled by the decision of the Judge to approach the issue of illegality on the second basis put forward by the Respondent. This was that there were misrepresentations to HMRC, unilaterally by the Claimant and not known to the Respondent, which made the performance of the contract illegal. A weak challenge was made to that decision by Mr Hendy QC on the basis that there was nothing during the performance of the contract which was illegal. With respect, that argument cannot survive the finding that the Claimant signed tax returns during its currency, and if it were intended to cover the signature in January 2009, I would reject it because such signature should plainly relate to matters occurring during the subsistence of the contract and as I have said above in respect of expenses were incurred during the performance of the contract.

1. If the Employment Judge is to be taken as making a decision on the principles of illegality, albeit not necessary after her initial holding, it is in relation to a contract illegal in its performance and not from its inception.

1. The Respondent contends that the Judge erred in failing to recognise the force of the written material put before her and in failing to draw the conclusion that the Claimant has misrepresented her affairs to HMRC. This is slightly unfair. As the Judge correctly noted, it was not necessary for her to make a full decision on this given that the Claimant had failed to show that she was an employee. The Judge also had to consider the Claimant's evidence as to her reliance upon her accountant and her understanding of employment/self employed status. To some extent Mr Glyn recognises this situation for the height of his ambition is that if the cross appeal succeeds the claim should be remitted, now on the footing that the Claimant is an employee and entitled to a hearing on unfair dismissal, to a three person employment tribunal to hear both the illegality point and the unfair dismissal claim. That is right, since unfair dismissal must be tried by a three person tribunal.

1. In my judgment, the Judge considered entirely secondary the issues relating to illegality, the primary focus of the case being upon employment status. The findings as to tax formed part of her approach to the findings on employment status. Her findings upon illegality take up only three paragraphs. They are not strictly necessary for her decision and are not based on analysis of the law. On the other hand, there is much force in Mr Glyn's analysis of the documents and the figures which were put before the Judge. For the purposes of my decision I consider it necessary only to cite and accept the proposition advanced by Mr Glyn which is derived entirely from the material put to the Judge and her own findings. Mr Glyn says:

"a. In June 2009 she gave HMRC an estimation of her income on which they relied of

i. £0 between April 2007 and April 2008 whereas based on her own accounts and earnings data her made a profit of £49,274 plus another £7,020 in earnings net of commission;

ii. £25,000 between April 2008 and April 2009 whereas the profit on her own accounts was £30,901 to August 2008 alone with further earnings of £13,530;

b. She represented to the Revenue that her profit in the year to April 2008 was £9,825 whereas her profit on her own accounts was £49,274 plus another £7,020 in earnings net of commission;

c. Her accounts set out the following expenses in respect of dancing of £1,040 for premises, £2,272 for motor costs and £4,613 for depreciation and loss of profit whereas she could not explain any of these figures to the Tribunal and they are grossly excessive for a dancer."

1. To this can be added the Judge's finding that the Claimant was asserting losses based upon net pay of £2,200 weekly, roughly £140,000 gross a year. I accept what Mr Glyn with some indignation submits: the material above is based upon what the Claimant herself put forward and not upon any filtering of that material by her accountant. These stark figures required a more careful analysis together with an explanation as to how a person partly trained at university in accounts and law came to put forward those figures. The judge did not begin to analyse the law, which would include such issues as miscategorisation (Enfield), and scale (McConnell). It is not for me but for an employment tribunal to determine this matter. If the Employment Judge had found it necessary to look at the law, she would be bound to consider the factual material in that light.

1. Since this case is now going to a three person employment tribunal for unfair dismissal determination, there is no utility in holding a further PHR before a single Employment Judge. Mr Glyn is realistic in recognising on this footing that the matter should go forward to a three person tribunal to hear both unfair dismissal and illegality. It would be unfair for the EAT to impose upon the Employment Judge the duty of chairing a new Employment Tribunal determining this matter. I have already held that she came to the wrong conclusion in respect of employment status and did not examine carefully enough the material relating to illegality. It would be imposing too great a burden upon her and there is no utility in so doing at this stage of the proceedings late in the day as they are. I have every confidence in the Employment Judge in her ability to reach such a decision. But in fairness to her, and in order to be fair to the parties, it would not be right to put this matter back into a PHR for determination of the illegality point.

1. The appeal is allowed and the Claimant is declared to have continuous employment of over one year. The cross appeal is allowed. The case will be remitted to a three person Employment Tribunal for determination of the unfair dismissal claim and the Respondent's illegality contention. The Employment Tribunal will proceed on the footing that the representations to HMRC cited by the Respondent are capable of making the contract illegal in its performance, but not that it was illegal at the outset. This Judgment should assist it in its self-directions.

1. I would very much like to thank all three counsel and their solicitors in this case for their careful attention to the issues.