Unlawful contracts

A contract, a term or the performance of a contract or term may be illegal on one of three broad grounds. First, it may be contrary to public policy. Second, it may be expressly or impliedly prohibited by statute. Third, it may be contrary to the purpose or policy of a statute. This final ground is founded on public policy and thereby the common law, but its scope and content depends on the statute concerned. The second and third grounds known as statutory illegality account for the overwhelming majority of employment law cases on this topic.

Authored by Nicholas Ellery, Partner, and Alannah Hogan, Lawyer, Corrs Chambers Westgarth. Updated by the LexisNexis Legal Writer team.

A contract, a term or the performance of a contract or term may be illegal on one of three broad grounds. First, it may be contrary to public policy. Second, it may be expressly or impliedly prohibited by statute. Third, it may be contrary to the purpose or policy of a statute. This final ground is founded on public policy and thereby the common law, but its scope and content depends on the statute concerned. The second and third grounds known as statutory illegality account for the overwhelming majority of employment law cases on this topic.

Statutory illegality

A contract may be unlawful on the grounds that it is contrary to statute in a range of circumstances — eg, because:

• the contract is to do something that is forbidden by statute;
• the contract is expressly or impliedly prohibited by statute;
• the contract is for a purpose which is rendered unlawful by statute, even though on its face the contract is lawful; or
• the contract may be performed in a manner which is unlawful, even though on its face it is lawful.

Situations where a contract may fail on one or more of these grounds include:

• where a non-citizen is working illegally in Australia (Hussein v Secretary, Department of Immigration & Multicultural Affairs, in which the employee was denied payment for work done while a detainee in immigration detention because the contract under which he performed the work was rendered illegal by s 235(3) of the Migration Act 1958 (Cth) (Migration Act).