England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
THE COURT OF APPEAL (CIVIL DIVISION)

		Royal Courts of Justice
		16 April 1973

1. Lord Denning, M.R.: The china clay industry has been very active in Cornwall in recent years. So much so that a firm at St. Stephen in the South has drawn men from Port Isaac in the North. That is thirty miles away along the narrow winding roads of those parts. There is no public transport. So the firm provided a bus to take the men to and from the works. This was imported as a term in their contract of employment. So they were entitled by contract to free transport to work. The tribunal so found.
2. In March, 1972, there were ten men regularly travelling by the bus from Port Isaac to St. Stephen and back. Then there was a trade recession in the china clay industry. The firm decided to dismiss twelve out of their 220 men. Nine were selected because they were over age and due for retirement. That left three to be made redundant. The firm selected the three with the shortest service. All three happened to be men from Port Isaac. Those three got redundancy payments. But the dismissal of those three had an unfortunate result on the bus service. It cost the firm £20 a week. That expense was justified when the bus carried ten men to and fro, but it was not economic for seven men. So the firm decided to cut off the bus service and leave the seven men to find their own way to work. The firm told these seven that work was still available for them if they were prepared to make their own arrangements to get to work. But none of them could make such arrangements. Only two had cars, and those were old and unsuitable and the insurers refused to give passenger cover. So those seven told the firm that they could not get to work and would have to give up. The firm were reluctant to lose them as they were good men, but they could not see their way to pay the expense of the bus. So the seven men left and the firm replaced them by seven other men who lived at or near St. Stephen.
3. The seven Port Isaac men then claimed that they had been dismissed for redundancy. They claimed redundancy payments. The industrial tribunal rejected the claim. Their decision was affirmed by the Industrial Court. The men appeal to this court.
4. There is no doubt that the seven men were "dismissed" by the employer. The employer's conduct (in withdrawing the bus in breach of the contract) amounted to a repudiation which entitled the men to terminate their contract - see section 3(l)(c) of the 1965 Act.
5. Although the seven men were "dismissed", the question is whether they were dismissed "by reason of redundancy". This depends on section 1(2) of the Act which, so far as material, says that:

"... an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to . . .

"(b) the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish".

6. Taking those words as they stand, this case is not one of dismissal for redundancy. The requirements of the business - for the work of these seven men - continued just the same as before. After they stopped work, the firm had to take on seven other men to replace them and to do the work that they had been doing. The requirements for work of that kind in that place had not ceased or diminished, nor were they expected to do so. So it would seem that the case does not come within the statute.
7. But the men say that the words of the section cannot be taken as they stand. They point out that the employers sought to alter the terms of the contract of employment to the disadvantage of the men. They took away the free transport and left the men to pay their own travelling expenses. This free transport cost the firm £2 a week for each man (£20 for 10 men, £2 for each man). It would cost the men much about the same. So it would mean that the men would take home £2 a week less. If the employers sought to reduce wages by that sum - and the men refused to accept the reduction - would not it be a dismissal for redundancy? So say the men.
8. There are two cases in the Divisional Court which support the men's case. The first is Dutton vs. C. H. Bailey Ltd.^[1] Dutton had been employed for nearly twenty years as a boiler maker. In 1967 the employers considered that there were too many restrictive practices and tried to get the employees' society to agree to do away with them. The employees' society refused. Thereupon the employers told the men that, if they wished to continue to work, they would have to agree to new working rules and conditions. Dutton refused to agree. So did all the other boiler makers. In consequence, the employers told him that his labour was not required. The industrial tribunal held that he was not dismissed by reason of redundancy. They said :

"We find that the reason for the employers' termination of the old contract is that they wished - wisely or unwisely - to impose or attempt to impose new terms upon their work force. It was not because of any existing or expected reduction in the need for boiler makers".

9. The Divisional Court reversed the tribunal. Lord Parker, C.J., said that:

"the proper approach is to say what in all the circumstances would have happened if these men had been retained on the old terms".

10. In Line vs. C. E. White & Co.^[2] two men were employed in a joinery shop at time rates. The employers were dissatisfied with the work being turned out on that basis and offered the men piece rates instead. The men refused to accept it and were dismissed. The industrial tribunal found that the men were dismissed because they would not accept the new terms. It was not because there was any falling off in work. So the tribunal rejected the claim for redundancy payment. The Divisional Court reversed the tribunal. They held that the case was governed by Dutton vs. C. H. Bailey Ltd.
11. If those two cases were correctly decided, they do show that if an employer seeks to alter the terms and conditions of employment - to the disadvantage of the men: and the men do not accept it: they can treat themselves as dismissed for redundancy.
12. The Industrial Court held, however, that those two cases were wrongly decided. They declined to follow them. The question for us is whether those two cases were right or wrong.
13. Mr. Peter Pain, Q.C., sought to uphold the decisions in those two cases. He submitted that section l(2)(b) of the Act is to be read with section 2, subparagraphs (3) and (4), and other sections of the Act. So read, he says that section l(2)(b) is to be read as if it included the words: "on the existing terms and conditions of employment" at an appropriate place.
14. During the argument I was much attracted by this submission, but, on further consideration, I do not think it is right. I will take section 2 subparagraph (3) and (4) on which Mr. Pain principally relied. Those subparagraphs are intended to cover cases where a man has been given notice by reason of redundancy but afterwards, before he actually leaves, the employer makes a new offer to him. Thus section 2(3) is apt to cover a case where, owing to lack of orders, an employer gives notice to a number of his men. But afterwards, before they leave his employ, more orders come in and the employer changes his mind. He offers the men, or some of them, to renew their contract or to re-employ them on the same work at the same place on the same terms. If the employee unreasonably refuses the offer, it is a bar to redundancy payment.
15. Section 2(4) is apt to cover similar cases, but the employer does not offer the employee the same, but different. He offers him other work which may differ in kind and place and on different terms. If the work is suitable for him and he unreasonably refuses it, it is a bar to redundancy payment. So construed, section 2(3) and 2(4) do not affect section l(2)(b). They only apply atjer a man has been dismissed for redundancy: whereas section 1(2) applies at the time when he is dismissed. It defines the cases in which a man is to be taken to be dismissed for redundancy.
16. I come back, therefore, to section l(2)(b): and I am afraid that I cannot read into it the words "on the existing terms and conditions of employment". I think the two cases were wrongly decided. I have less hesitation in overruling them because I notice that Lord Parker, C.J., himself decided as he did with reluctance: and I can see why. It is very desirable, in the interests of efficiency, that employers should be able to propose changes in the terms of a man's employment for such reasons as these: so as to get rid of restrictive practices: or to induce higher output by piece work: or to cease to provide free transport at an excessive cost. Take an instance very like the present case. The employers are able to obtain all the labour they need from places .near their works without paying travelling expenses. So, as vacancies occur, they replace them locally and gradually reduce the number of men coming from a distance. The number falls so low that it is an unwarranted expense to provide a bus to bring them. Are employers then to keep on a bus so as to bring 7, 6, 5 or less number of men to work? Clearly not. The employers can properly say to the men :

"You have not lost your jobs because you are redundant. You have lost your jobs because you live so far away that it is not worth our while paying the cost of bringing you here - when we can get all the men we need nearby".

17. So, in Dutton vs. C. H. Bailey Ltd.^[3] the men did not lose their jobs because they were redundant. They lost them because they were parties to restrictive practices and refused to alter them. Likewise in Line vs. C. E. White & Co.^[4] the men lost their jobs, not because they were redundant, but because they insisted on being paid on a time basis which was unproductive.
18. I would, however, remark that if an employer sought to reduce the wages of his men on the plea that otherwise he could not keep the business going - or if he employed women in the place of men to save expenses - with the result that some men lost their jobs, then I think the employer would have difficulty in resisting a claim. There is a presumption that the men were dismissed by reason of redundancy, see section 9(2)(b). I expect that the tribunal would in those circumstances hold that the presumption was not rebutted. The reduction in wages would probably be because a redundancy situation had arisen, or was expected to arise. Such is not the case here. These men did not lose their jobs because they were redundant. They lost them because they lived too far away to make it worthwhile to pay the cost of bringing them in.
19. I agree with the Industrial Court and would dismiss the appeal.
20. Buckley, L.J.: The question for decision in this case is whether the seven plaintiffs, who are appellants in this court, are entitled to receive redundancy payments from the defendant company under the Redundancy Payments Act, 1965. They had all been in the defendant company's employment for the requisite period. Under section 1(1) of the Act such an employee is entitled to receive a redundancy payment from his employer if he has been dismissed by his employer by reason of redundancy. Dismissal for the purposes of the Act can occur in four ways: (1) by summary dismissal, (2) by dismissal on notice, (3) by effluxion of a fixed term of employment, (4) by the employee summarily determining the contract of employment where the conduct of the employer entitles him to do so (section 3(1)). Section 9(2)(b) provides that an employee who has been dismissed by his employer- shall, unless the contrary is proved, be presumed to have been so dismissed by reason of redundancy. The plaintiffs were dismissed from their employment by the defendant company, and accordingly the burden of proving that they were not dismissed by reason of redundancy lies upon the defendant company. Section 1(2), so far as relevant to the present case, provides that for the purposes of the Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to the fact that the requirements of the business for the purposes of which he was employed for employees to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish. So the burden resting upon the defendant company in the present case is to establish that on the facts of the case that criterion is not satisfied.
21. My Lord has already recounted the history of the matter and I need not repeat the facts.
22. Mr. Pain, for the plaintiffs, has contended that upon the facts the plaintiffs were dismissed because the requirements of the defendant company's business for employees to carry out the work which the plaintiffs were doing was expected to cease or diminish. Such expectations must depend upon the circumstances and manner in which it is anticipated that the employer will carry on the business in the future. Mr. Pain contends that upon the true interpretation of the Act it should be assumed for this purpose that the employer will continue to carry on the business as it was carried on during the employment of the claimant of the redundancy payment, that is to say, continuing to employ the claimant upon the terms and conditions upon which he was employed down to the date of his dismissal. In support of this contention, Mr. Pain relied upon the context of the Act as a whole and in particular of section 2(3) and (4). He also relies upon two decisions of the Queen's Bench Divisional Court to which I will refer later. Stated shortly and in colloquial terms, section 2(3) provides that an employee shall not be entitled to a redundancy payment if before his dismissal takes effect his employer has offered that he shall have his job back upon the same terms as before without any interruption of employment and the employee has unreasonably refused that offer. Section 2(4) provides that an employee shall not be entitled to a redundancy payment if before his dismissal takes effect his employer has offered to re-employ him, not necessarily in the same job, but in suitable employment to take effect not more than four weeks after the date of his dismissal and the employee has unreasonably refused that offer. Mr. Pain contends that these two subsections should be read as provisos to, or modifications of, the provisions of section 1 conferring the right to a redundancy payment. He suggests that, so read, those provisions of the Act demonstrate that the policy of the legislature was that the employee should be safeguarded in a job at least as beneficial to him as his job was before his dismissal.
23. Section 2(3) and (4) are complementary to section 3(2)(a) and (b). I have already referred to section 3(1) which defines dismissal for the purposes of the Act. Section 3(2) deals with cases which would otherwise fall within subsection (1) of the section, in which the employee is not to be treated as having been dismissed. Sub-section (2) reads as follows :

"(2) An employee shall not be taken for the purposes of this Part of this Act to be dismissed by his employer if his contract of employment is renewed, or he is re-engaged by the same employer under a new contract of employment, and -

"(a) in a case where the provisions of the contract as renewed, or of the new contract, as the case may be, as to the capacity and place in which he is employed, and as to the other terms and conditions of his employment, do not differ from the corresponding provisions of the previous contract, the renewal or re-engagement takes effect immediately on the ending of his employment under the previous contract, or

"(b) in any other case, the renewal or re-engagement is in pursuance of an offer in writing made by his employer before the ending of his employment under the previous contract, and takes effect either immediately on the ending of that employment or after an interval of not more than four weeks thereafter".

24. So, if an employee before his dismissal takes effect gets his old job back on the same terms as before he is not to be treated as dismissed (section 3(2)(a)); but if he is offered this and unreasonably refuses, his dismissal takes effect but he is entitled to no redundancy payment (section 2(3)). If, on the other hand, before his dismissal takes effect he is offered a new job by his employer or his old job on different terms, to start not later than four weeks after his dismissal takes effect, he is not to be treated as having been dismissed (section 3(2)(b)). If the employer makes such an offer as last referred to and it is an offer of suitable employment in relation to the employee and the employee unreasonably refuses it, his dismissal takes effect but he is entitled to no redundancy payment (section 2(4)).
25. In a case falling within section 3(2) the employee is not to be treated as having been dismissed, and so no question of dismissal by reason of redundancy can arise. Section 2(3) and (4) on the other hand both start with the words "an employee shall not be entitled to any redundancy payment by reason of dismissal if . . .". Here "dismissal" must of necessity refer to dismissal by reason of redundancy, for it is only in that case that an employee can be entitled to a redundancy payment. Starting from the statutory presumption under section 9(2)(b) that an employee who has been dismissed by his employer has been so dismissed by reason of redundancy, the next logical step is to consider whether the employer can displace that presumption by establishing that the criterion contained in section 1(2) is not satisfied. It is only if the employer is unsuccessful in doing so that section 2(3) or (4) can come into play. There is consequently, in my judgment, no justification for giving to section 1(2) by reason of the provisions contained in section 2 any other meaning than that which its language primarily bears unless such a construction of section 1(2) would produce results which it cannot reasonably be supposed that Parliament intended.
26. I will therefore first consider the terms of section 1(2) without reference to the provisions of section 2. Where an employer has ceased or intends to cease to carry on the business in which the employee has been employed, either altogether or in the place where the employee was so employed (see section l(2)(a)), it seems to me that there is likely to be little difficulty in establishing the relevant facts. So also, where the requirement of the employer's business for employees to carry out work of a particular kind has ceased, either altogether or at the place where the employee is employed, proof of the relevant facts should cause no probable difficulty. We are concerned, however, with a case in which it is said that the requirement of the employer's business for employees to carry out work of a particular kind was expected to cease or diminish. Whether such an expectation can justifiably be said to have existed must depend upon the circumstances in which it was supposed that the business would be conducted in the future. The test cannot, I think, be a purely subjective one, depending only upon the apprehensions, justified or unjustified, of the employer. The employer must, I think, justify his expectation by reference to objective circumstances relating to the commercial situation of his business and those commercial and economic conditions which exist generally at the relevant time or which could then reasonably be anticipated in the future. There seems to me, however, to be nothing in the language of the section to suggest that the employer should be treated as bound or likely to carry on his business in all, or indeed in any, respects in precisely the way in which he was carrying it on at the time when the facts have to be considered.
27. Suppose, for instance, that the employment is of a kind for which there is a recognised rate for the job, and that an employer in a period of affluence and in the interests of good staff relations has been paying his employees more than that rate. If a time comes when he can no longer afford to pay his employees more than the recognised rate for the job but he is prepared to continue to employ them at that rate, there is nothing in section 1 of the Act to suggest that for the purpose of considering whether his requirement for employees to do that particular job is likely to cease or diminish he must be treated as an employer who is going to continue to pay the higher rate. This, however, as I understand Mr. Pain's argument, would be the consequence of the view which he propounds. The facts would not, it seems to me, establish that the employer's need for employees to carry out work of the particular kind was expected to cease or diminish, but only that the employer was no longer able to pay his employees on so generous a scale as before. The position would be quite different if an employer dismissed his employees because he was no longer able to pay them either the recognised rate for the job, where one existed, or a fair wage at which he could secure the services of other employees in the labour market.
28. In Dutton vs. C. H. Bailey Ltd.^[5] the respondent company attempted to impose upon its boilermaker employees, including the appellant Dutton, new terms of employment which seem to have affected not rates of pay but conditions of employment involving the removal of restrictive practices, the increase of mobility, the discontinuance of the employment of mate to work with each boilermaker and matters of that sort. The changes were no doubt designed to make the company's labour force more productive and less expensive without altering rates of pay. The industrial tribunal decided that the case was not a redundancy case because the reason for the termination of the old contracts of employment was not any existing or expected reduction of the need for boilermakers. On appeal the Divisional Court reversed the decision of the industrial tribunal. Lord Parker, C.J., said^[6]:

"In my judgment, however, the tribunal approached this in the wrong way. It seems to me that the proper approach is to say what in all the circumstances would have happened if these men had been retained on the old terms. To that there is only one answer it seems to me, and that is that the requirements for boilermakers would diminish and possibly cease in that the employers would no longer be able, as they themselves said, to offer a competitive service. In other words, this was a case where, if instead of saying "unless you enter into new terms you will be dismissed" they at first dismissed these men and later on sought to negotiate new terms, it would then, as it seems to me, be perfectly clear that the dismissal was one on account of the expected diminution or cessation in the work of boilermakers. It is in my judgment nihil ad rem to look to the future and say what would have happened if this man had accepted these new terms. It may be then that the employers would have had so much work that they would even want more boilermakers. The test, it seems to me, is what would have happened if termination of the contract had not been effected."

29. In the later case of Line vs. C. E. White & Co.^[7] the appellants were employed by the respondent company in its joinery shop on time rates. The company, being dissatisfied with the amount of work turned out for the hours worked, decided to offer them new contracts on piece rates. The appellants refused to accept the change in their contracts, and were thereupon dismissed. The industrial tribunal held that the cases were not cases of redundancy, but on appeal the Divisional Court followed its earlier decision in Dutton vs. C. H. Bailey Ltd.^[8]
30. With the utmost respect to the learned judges who were concerned with those two decisions, I am unable to see any justification in the language of section 1 for the test adopted by the Divisional Court. The section does not pose the question, what might be expected to happen if the employees were not dismissed but continued under their prior contracts of employment? It poses the question whether the employers' requirement for employees to carry out work of the particular kind in question is expected to cease or diminish. That is a question which needs to be answered objectively in the light of all the circumstances affecting the employers' business, but not, in my opinion, with any special relation to the particular contracts of employment under which the dismissed employees were previously employed. It may be that on their particular facts, which are shortly recorded in the books, Dutton vs. C. H. Bailey Ltd. and Line vs. C. E. White & Co. were correctly decided, but, in my judgment, they should not be taken as laying down a general principle.
31. Assuming then that I am right in thinking that section 1 should be interpreted in the way I have indicated, can section 2(3) and (4) operate in conjunction with section 1 in a sensible manner, or do they give rise to any consequences of so surprising a character as to suggest that section 1 must have been misinterpreted?
32. At first impression it may seem strange that, where an employee immediately upon the termination of his existing contract of employment could get his job back upon the same terms, a redundancy situation can exist; and yet section 2(3) and (4), as I have already indicated, postulate a redundancy situation. It is a mistake, however, to think of the Act as operating in relation to one employee alone. It must normally operate in circumstances in which an employer is reducing his labour force by laying off a number of workpeople. We are not, I think, concerned under section 2(3) and (4) with cases in which the contract of service is summarily determined by either the employer or the employee. We are concerned with cases of dismissal on notice or termination of employment by effluxion of time.
33. Suppose an employer to employ 20 men on a particular type of work and to wish to reduce that number to 15 because he has not, or does not expect to have, work for more. He may give five men a month's notice, but before the month is out he may lose two of the remaining fifteen men for some reason or other and so want to retain two of the five. He offers to renew the employment of two of them on the same terms as before If they accept, their employment will continue as though they had never been given notice. They will be treated as though they had never been dismissed (section 3(2)(a)). But if, when he is offered his job back, one of the two unreasonably refuses the offer, hs will fall within section 2(3). He will have been dismissed by reason of redundancy because, when he was given notice, the employer expected that the need for his services would cease, but he will not qualify for a redundancy payment because, notwithstanding his dismissal by reason of redundancy, he need not have lost his job in consequence.
34. Or suppose that the 20 men in the previous example are all employed for fixed periods and that the periods of employment of seven of them are due to expire on the same day. Two of these are re-employed on the same terms as before and the other five are not re-engaged. All seven would have been dismissed within the meaning of that word in this Act (section 3(1)) and all such dismissals would have occurred in a redundancy situation. Were it not for section 2(31, it might be difficult to say that the two who were re-engaged were not entitled to redundancy payments
35. I have no doubt that a number of other examples could be devised in which section 2(3) could serve a useful purpose without, as it seems to me, in any way conflicting with the interpretation of section 1 which I have suggested.
36. Section 2(4) appears to me to be primarily, though not exclusively, concerned with a situation in which the employer is re-organising his business or some part of it It wo aid apply in a case in which an employer was no longer able to continue to employ an employee in the job in which he was previously employed but was able to offer him suitable alternative employment. Under this sub-section it is not necessary that the re-employment should take effect immediately upon the termination of the prior employment. It must, however, take effect not later than four weeks after that determination. This seems to me to be designed to give the employer a reasonable interval for re-organisation of his business or that part of it which is affected. It would seem, however, that the sub-section would also operate in a case in which the employer offered to re-employ the emplo>ee in the same capacity and place as before but upon different terms of service or remuneration. To fall within the subsection the offer must be one of suitable employment in relation to the employee. If an offer is made before the termination of the prior employment and is accepted, no question will arise as to suitability or dismissal (section 3(2)); but if the offer is refused, section 2(4) will only apply if such refusal is unreasonable. These provisions appear to me to indicate that the Act does not give an employee any vested right to be employed upon the same terms and conditions as those obtaining during his prior employment or other terms at least as beneficial as those obtaining during his prior employment, and to negative rather than to support the views expressed by the Divisional Court in the two cases to which I have referred. I cannot discern that section 2(4) is likely to operate in a way which would be inimical to the interpretation of section 1 which I have suggested.
37. I accordingly reach the conclusion that the question whether an employee has been dismissed by reason of redundancy must be answered in the light of the relevant surrounding circumstances not on the basis of any hypothesis but on a basis of actuality.
38. Section l(2)(a) cannot apply to the facts of the present case. As regards section l(2)(b), the defendant company's requirement for employees to carry out the work previously carried out by the plaintiffs have neither ceased nor diminished. The company has employed seven other men in their place to do that work. Nor were the plaintiffs dismissed because the company expected its need for employees to do that work to cease or diminish. What has happened is that the company has succeeded in securing the services of seven employees at the same wage but in respect of whom the company does not have to incur the cost of providing free transport to their work. The plaintiffs were unwilling to continue in the employment of the defendant company unless the company continued to supply them with free transport. In these circumstances, in my judgment, the plaintiffs are not entitled to be treated as having been dismissed by reason of redundancy. Accordingly in my opinion this appeal fails.
39. Lord Denning, M.R.: Orr, L.J., is unable to be here this morning, but he says he has read the judgments which have been delivered and agrees with them.

Appeal dismissed with costs

Leave to appeal to the House of Lords

Note 1    (1968) 3 I.T.R. 355    [Back]

Note 2    (1969) 4 I.T.R. 336.    [Back]

Note 3    (1968) 3 I.T.R. 355.    [Back]

Note 4    (1969) 4 I.T.R. 336.    [Back]

Note 5    (1968) 3 I.T R. 355.    [Back]

Note 6    (1968) 3 I.T.R. 355 at 357.    [Back]

Note 7    (1969) 4 I.T.R. 336.    [Back]

Note 8    (1968) 3 I.T.R 355.    [Back]