Illegal and unlawful contractual terms in employment

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Illegal and unlawful contractual terms in employment
  • The effect of illegality
  • Knowledge of illegality
  • Illegality by one party only
  • Illegality and discrimination
  • Ultra vires
  • A reconsideration of the illegality doctrine
  • Contracting-out provisions
  • Post-termination restrictions (restrictive covenants)
  • Confidentiality provisions

Illegal and unlawful contractual terms in employment

This Practice Note considers the issues that arise in relation to illegal and unlawful contractual terms that may be encountered in an employment context.

The contract of employment may be tainted with illegality in the same way as any other contract. Traditionally, one of the most important areas of illegality in this context has been covenants in restraint of trade (see Post-termination restrictions (restrictive covenants) below). 

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

The contracting-out provisions in various employment legislation may render void any contractual term that purports to take away certain statutory rights.

A post-termination restriction (restrictive covenant) will be unenforceable unless it falls within one of the lawful exceptions to the restraint of trade principles of common law.

The effect of illegality

Illegality as a general doctrine may not only taint the contract, it may also undermine the whole of the employment protection rights afforded to the employee by statute. This is because in order to gain the rights given by the Employment Rights Act 1996 (ERA 1996) and other legislation, the employee must show that they

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