Klusova v London Borough of Hounslow

An employer may rely on section 98(2)(d) of the Employment Rights Act 1996 only where continued employment would actually contravene a statutory duty or restriction. A reasonable but mistaken belief in illegality is insufficient for that ground, although a genuine mistaken belief may amount to some other substantial reason under section 98(1)(b).

Where an employee with limited leave makes a valid application for variation before that leave expires, the statutory extension permits continued employment while the application remains undecided. An immigration officer cannot cancel that entitlement by imposing an inconsistent condition on release from detention. A dismissal for some other substantial reason remains automatically unfair where the applicable statutory dismissal procedure was not completed.

A Russian national employed by a local authority was summarily dismissed after parts of the Home Office informed the authority that she was prohibited from working. The employment tribunal found that she had made a valid application before her limited leave expired. Her entitlement to remain and work therefore continued pending determination of that application. It held that her dismissal was substantively and procedurally unfair.

The Employment Appeal Tribunal allowed the authority's appeal. It held that the finding of an in-time application was perverse and substituted a finding that the dismissal was fair. It also held that the authority genuinely believed continued employment would contravene immigration restrictions.

The employee appealed. The principal issues were whether an actual statutory restriction prevented her continued employment, whether the authority genuinely held a mistaken belief that employment was unlawful, and whether its failure to use the statutory dismissal procedure rendered the dismissal unfair.

1. Appeal allowed in part and matter remitted for remedies. The employee's dismissal was automatically unfair because the authority failed to complete the statutory dismissal procedure applicable to a dismissal for some other substantial reason. The Employment Appeal Tribunal's contrary conclusion on the section 98(2)(d) issue was set aside, although its conclusion that the authority held a genuine belief in illegality was affirmed.

2. Section 98(2)(d) of the Employment Rights Act 1996 requires an actual statutory bar to continued employment. A reasonable belief that employment is unlawful does not satisfy that provision. There was sufficient evidence, including evidence from the Home Office, for the employment tribunal to find that the employee had made a valid application before her limited leave expired. The Employment Appeal Tribunal therefore erred in treating that finding as perverse.

3. Under section 3C of the Immigration Act 1971, an in-time application for variation extends limited leave while the application remains undecided and unwithdrawn. The employee consequently retained her right to remain and work. An immigration officer's discretionary powers had to be construed within that statutory scheme. The officer had no power to counter or cancel the continuing statutory entitlement by imposing a condition prohibiting employment.

4. A genuine but mistaken belief that continued employment would contravene a statutory restriction can amount to some other substantial reason under section 98(1)(b). The authority's inquiries and the information supplied by the Home Office compelled the conclusion that its belief was genuine. The employment tribunal's contrary inference was perverse. Its reliance on the absence of consultation and the authority's failure to consider the Code of Practice concerned procedural shortcomings, not the genuineness of the belief.

5. The success of the section 98(1)(b) ground did not make the dismissal procedurally fair. The exemption in regulation 4(f) of the Employment Act 2002 (Dispute Resolution) Regulations 2004 applied to a dismissal under section 98(2)(d), not to a dismissal for some other substantial reason. The authority's failure to complete the applicable procedure therefore made the dismissal automatically unfair. Illegality and frustration did not arise because no legal impediment prevented continued employment.

6. The employee was also permitted to adduce a later Home Office letter. It provided authoritative, current clarification of earlier evidence, required neither further fact-finding nor an adjournment, and did not disturb the employment tribunal's key findings.

1. Court of Appeal (Civil Division): The employee's appeal was allowed on the section 98(2)(d) issue, but the Employment Appeal Tribunal's conclusion on genuine belief under section 98(1)(b) was affirmed. The dismissal was held automatically unfair for non-compliance with the statutory procedure, and the matter was remitted for a remedies hearing: [2007] EWCA Civ 1127.

2. Employment Appeal Tribunal: On 6 October 2006 the tribunal allowed the employer's appeal, set aside the employment tribunal's decision and substituted a finding that the employee had not been unfairly dismissed. It held that the finding of a valid in-time immigration application was perverse and that the employer genuinely believed continued employment was unlawful.

3. Employment Tribunal: The tribunal found that a valid in-time application extended the employee's entitlement to remain and work. It held that no actual statutory prohibition existed, rejected the employer's case based on a genuine belief in illegality, and found the dismissal substantively and procedurally unfair.