England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL

		Royal Courts of Justice Strand London WC2
		18th October 2002

LORD JUSTICE WARD: I will ask Lord Justice Mummery to give the first judgment.

LORD JUSTICE MUMMERY:

The Appeal

1. This is an appeal by Sainsburys Supermarkets Limited ("Sainsburys"). It is brought, with the permission of this Court, against the order of the Employment Appeal Tribunal on 20th December 2001 dismissing Sainsburys' appeal from the decision of the Employment Tribunal sitting at Exeter. In extended reasons sent to the parties on 12th June 2000 the Employment Tribunal, by a majority, decided that Sainsburys had unfairly dismissed Mr P J Hitt from their employment.
2. Mr Hitt was employed by Sainsburys as a baker from 29th April 1991 until 30th September 1999, when he was dismissed for alleged misconduct. He was suspected of stealing at a time when he was employed by Sainsburys in their store and warehouse in Barnstaple.
3. In his originating application on the IT1 form presented on 1st December 1999 he denied that there had been any misconduct in respect of missing items found in his locker on 11th September 1999. He alleged that they had been put there by someone else. He alleged that Sainsburys had failed to carry out a reasonable procedure when the loss of the items was discovered and that there were no reasonable grounds for Sainsburys to disbelieve him.
4. Sainsburys denied unfair dismissal. Their case, as appears from their notice of appearance, was that there was a suspected theft of a box of razor blades from Mr Hitt's place of work in the warehouse at Barnstaple; that the missing razor blades were found in his locker; that he was suspended on full pay pending an investigation; and that the investigation confirmed that there were grounds for believing that the allegations against him were true. He was dismissed following a disciplinary hearing. The decision to dismiss him was upheld on a later internal appeal. In those circumstances Sainsburys' contention was that the decision to dismiss him was for a fair reason within the meaning of section 98 of the Employment Rights Act 1996 and that the decision was fair and reasonable in all the circumstances.

The Facts

5. In the Employment Tribunal there was little dispute between the parties on the relevant facts appearing from the documents, from the evidence of Mr Hitt and from the evidence of three witnesses called on Sainsburys' behalf. The tribunal found the following facts. On 11th September 1999 an assistant in the Barnstaple store reported that a box of razor blades, which she had hidden in the health and beauty aisle while taking a tea break between 5.30am and 6.35am, was missing on her return from the tea break. On this being reported, the duty manager started a security search of the lockers of the 22 employees who had checked in for work at the store between 5.30am and 7.30am. In the presence of Mr Hitt the missing razor blades were found concealed beneath some spare overalls in his locker. He disclaimed all knowledge of how the razor blades came to be there and suggested that they must have been planted. He later named a number of employees who had keys which fitted his locker. Further investigations were made and Mr Hitt's trade union representative was involved in them. It was established that the bakery manager, Mr Tucker, was the only person in the store at the relevant time who had a key to Mr Hitt's locker. The security officer obtained statements from Mr Tucker as well as from the assistant who had reported the loss of the blades. It was established that Mr Hitt left the bakery department at least twice to obtain stores from the bakery aisle, which was adjacent to the health and beauty aisle where the assistant had hidden the razor blades. It was common ground at the hearing in the Employment Tribunal that Mr Hitt had had the opportunity to take the blades found in his locker.
6. On 16th September 1999 a disciplinary hearing took place. Mr Hitt's defence was that the blades had been planted in his locker. The hearing was adjourned for two weeks to enable the store manager to investigate the matter further, including an investigation of the locker keys. The store manager spoke to Mr Tucker and ascertained that he had remained in the bakery throughout the period from 5.00am to 7.30am on that day.
7. On 30th September 1999 the disciplinary hearing was reconvened. Mr Hitt was dismissed for gross misconduct. He then appealed. There was an appeal hearing on 24th November 1999 by the district manager for the south-west region. Before reaching his decision to dismiss the appeal, the district manager adjourned the hearing to consider Mr Hitt's explanation. In reaching his decision to dismiss Mr Hitt's appeal, he concluded that Mr Hitt had taken the razor blades.
8. Although they were in agreement on these primary facts, the members of the Employment Tribunal disagreed on the outcome of the complaint. It is fair to say that, with justification, the Employment Tribunal found the then current state of the law to be somewhat confusing. This was expressly stated in paragraph 3 of their extended reasons, in the passage leading up to their quotations from section 98 of the Employment Rights Act 1996 and from the decision of the Employment Appeal Tribunal in British Home Stores Ltd v Burchell [1980] ICR 303.

The Law

9. Section 98 of the 1996 Act states as follows:

"(1) In determining for the purposes of this Part whether the dismissal of an employee was fair or unfair, it shall be for the employer to show -

(a)what was the reason (or, if there was more than one, the principal reason) for the dismissal, and

(b)that it is ... a reason falling within subsection (2) ...

(2) A reason falls within this subsection if it -

(a)...

(b)relates to the conduct of the employee,

(c)...

(4) Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) -

(a)depends on whether in the circumstances ... the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and

(b)shall be determined in accordance with equity and the substantial merits of the case."

10. The tribunal then stated that their confusion about the state of the law arose from the decisions on the interpretation of those statutory provisions. They first cited the following test laid down by the Employment Appeal Tribunal in Burchell as having been cited with approval by the Court of Appeal and regarded as the leading authority on the provisions now in section 98(4) of the 1996:

"What the Tribunal have to decide every time is, broadly expressed, whether the employer who discharged the employee on the ground of the misconduct in question (usually, though not necessarily, dishonest conduct) entertained a reasonable suspicion amounting to a belief in the guilt of the employee of that misconduct at that time. That is really stating shortly and compendiously what is in fact more than one element. First of all, there must be established by the employer the fact of that belief; that the employer did believe it. Secondly, that the employer had in his mind reasonable grounds upon which to sustain that belief. And thirdly, we think, that the employer, at the stage at which he formed that belief on those grounds, at any rate at the final stage at which he formed that belief on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case. It is the employer who manages to discharge the onus of demonstrating those three matters, we think, who must not be examined further."

11. The tribunal went on to refer to the more recent case decided in the Employment Appeal Tribunal, Midland Bank plc v Madden [2000] IRLR 288, as stating that, in relation to the passage cited from Burchell, "it was, so to speak, a section 98(1) and (2) question that was then being addressed". The tribunal continued in their extended reasons:

"That is to say it is to be applied to the reason for the dismissal shown by the employer under section 98(1) and (2) and not the reasonableness of the dismissal under section 98(4). Thus Mr Justice Lindsay states in Madden that `It [the Burchell test] does not require the Tribunal unquestioningly to accept the employer's alleged reason; on the contrary, each of the three parts of the test requires an evaluation of the relevant evidence by the Tribunal and in each case that is an evaluation which can, on proper evidence, conclude contrary to the employer's assertions.'"

12. That approach, as laid down by the Appeal Tribunal in Madden, was followed by this Employment Tribunal in seeking to apply the law relating to dismissal for misconduct to the particular facts.
13. The ground of this appeal is that the decision of the majority was wrong in law, as it applied an interpretation of the law laid down in Madden, which has been subsequently reversed by the Court of Appeal.
14. On 31st July 2000 the Court of Appeal handed down judgments in two cases, one of which was HSBC Bank plc (formerly Midland Bank plc) v Madden [2000] ICR 1283. It is submitted by Mr Galbraith-Marten, on behalf of Sainsburys, that the Employment Appeal Tribunal was, in the light of that decision of the Court of Appeal, also in error of law in dismissing Sainsburys' appeal from the Employment Tribunal.

Analysis

15. It is now necessary to consider, first, the reasoning of the majority in the Employment Tribunal and, secondly, the effect upon that reasoning of the decision of the Court of Appeal in Madden. The reasoning of the majority was that the investigation by Sainsburys of Mr Hitt was flawed and was inadequate. The majority were of the view that Mr Hitt's claim that someone else had put the razor blades into his locker was not adequately investigated. In the view of the majority, Sainsburys should have investigated all the employees in the Barnstaple store at the relevant time to identify those who had a key fitting Mr Hitt's locker and, within that category, those who could have been in the warehouse at the relevant time. In the view of the majority, there had also been inadequate investigation of the whereabouts of Mr Tucker at the relevant time to eliminate the possibility that he had planted the blades in Mr Hitt's locker. The conclusion was that all of these matters should have been the subject of a full and thorough investigation carried out by Sainsburys "before it labelled the applicant a thief for the rest of his life" (paragraph 6 of the extended reasons).
16. The chairman, who was in the minority, concluded, apparently on the application of the then Madden test, that Sainsburys had done all that they could reasonably have been expected to do in investigating the apparent theft and that the facts established in the course of the investigation were sufficient to found Sainsburys' belief in the probable guilt of Mr Hitt.
17. I turn now to the judgments of the Court of Appeal in Foley v The Post Office and HSBC Bank plc v Madden. Mr Galbraith-Marten has cited several passages from the judgment which I delivered and which was concurred in by Nourse and Rix LJJ. He first of all quoted from the passage on pp.1287-1288, under the heading "General introduction". The effect of the general introduction was to disapprove of the reasoning of the Employment Appeal Tribunal in Madden and of the earlier Employment Appeal Tribunal case of Haddon v Van den Bergh Foods Ltd [1999] ICR 1150 and to affirm the binding authority of the earlier Employment Appeal Tribunal decision in Burchell, which I have already cited, and in Iceland Frozen Foods Ltd v Jones [1983] ICR 17.
18. Another passage cited by Mr Galbraith-Marten was on p.1293, dealing with what is headed the "Substitution point":

"In one sense it is true that, if the application of that approach leads the members of the tribunal to conclude that the dismissal was unfair, they are in effect substituting their judgment for that of the employer. But that process must always be conducted by reference to the objective standards of the hypothetical reasonable employer which are imported by the statutory references to `reasonably or unreasonably' and not by reference to their own subjective views of what they would in fact that done as an employer in the same circumstances. In other words, although the members of the tribunal can substitute their decision for that of the employer, that decision must not be reached by a process of substituting themselves for the employer and forming an opinion of what they would have done had they been the employer, which they were not."

19. The next passage cited was from the part of the judgment dealing with the appeal in Madden, under the heading "Reasonableness of the dismissal", at p.1294:

"In the circumstances did the bank act reasonably or unreasonably in treating that reason [ie a conduct reason] as a sufficient reason for dismissing Mr Madden?

In holding that the dismissal of Mr Madden for that reason was unreasonable the employment tribunal erred in law. It did not correctly apply the law as laid down in the authorities already discussed in the Post Office case. It impermissibly substituted itself as employer in place of the bank in assessing the quality and weight of the evidence before Mr Fielder, principally in the form of the investigating officer's report. Instead, it should have asked whether, by the standards of the reasonable employer, the bank had established reasonable grounds for its belief that Mr Madden was guilty of misconduct and whether the bank's investigation into the matter was reasonable in the circumstances."

20. Finally, there was a quotation from p.1295, expressing my conclusions on the appeal in Madden:

"In my judgment no reasonable tribunal, properly applying the approach in British Home Stores Ltd v Burchell ... and Iceland Frozen Foods Ltd v Jones ... to the facts, could have concluded either (a) that the bank had failed to conduct such investigation into the matter as was reasonable in all the circumstances or (b) that dismissal for that reason was outside the range of reasonable responses. Instead of determining whether the bank had made reasonable investigations into the matter and whether it had acted within the range of responses of a reasonable employer, the tribunal in effect decided that, had it been the employer, it would not have been satisfied by the evidence that Mr Madden was involved in the misappropriation of the debit cards or their fraudulent use and would not have dismissed him. The tribunal focused on the insufficiency of the evidence to prove to its satisfaction that Mr Madden was guilty of misconduct rather than on whether the bank's investigation into his alleged misconduct was a reasonable investigation.

This case illustrates the dangers of encouraging an approach to unfair dismissal cases which leads an employment tribunal to substitute itself for the employer or to act as if it were conducting a rehearing of, or an appeal against, the merits of the employer's decision to dismiss. The employer, not the tribunal, is the proper person to conduct the investigation into the alleged misconduct. The function of the tribunal is to decide whether that investigation is reasonable in the circumstances and whether the decision to dismiss, in the light of the results of that investigation, is a reasonable response."

21. It was for those reasons that the appeal in Madden was allowed. The decision of the Employment Appeal Tribunal, relied on by this Employment Tribunal in this case, was reversed.
22. Following the Court of Appeal decision in Madden, there was a petition to the appellate committee of the House of Lords for leave to appeal. It was refused.
23. The only other authority cited by Mr Galbraith-Marten was the later decision of the Court of Appeal in Whitbread v Hall [2001] ICR 699, in which Hale LJ, in paragraph 2 of her judgment, with which the other two members of the court agreed, identified the issue in that case in these terms:

"The issue is whether, in a case where misconduct is admitted by the employee, the requirement of reasonableness in section 98(4) of the Employment Rights Act 1996 relates only to the outcome in terms of the penalty imposed by the employer, or whether it relates also to the process by which the employer arrived at that decision. Put another way, should the employment tribunal simply ask whether the outcome fell within the `band of reasonable responses' test, laid down in Iceland Frozen Foods Ltd v Jones ... and recently reaffirmed by this court in Foley v Post Office; HSBC Bank plc v Madden ..., or should it also apply that test to the procedure used in reaching that decision?"

24. After setting out the facts and the relevant statutory provisions and authorities, Hale LJ said, in paragraph 16 of her judgment:

"For my part, I find it impossible to read into these cases the proposition that the employer is free from any requirement to act in a reasonable fashion once the alleged misconduct is admitted. Section 98(4) of the 1996 Act requires the tribunal to determine whether the employer `acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee' and further to determine this in accordance with `equity and the substantial merits of the case'. This suggests that there are both substantive and procedural elements to the decision to both of which the `band of reasonable responses' test should be applied."

Decision of Appeal Tribunal

25. The Employment Appeal Tribunal, in considering Sainsburys' appeal on 8th November 2001, started from the position, as stated in paragraph 9 of the judgment given on behalf of the tribunal by His Honour Judge Reid QC, that:

"... the Employment Tribunal's decision was flawed in the way it approached the law because it was constrained to follow the Madden heresy. The majority therefore wrongly took the view that the finding of an inadequate investigation meant that it had failed to show a reason for the dismissal which satisfied the Burchell test as restated by the EAT in Madden and so acted unreasonably in dismissing the applicant because its belief in his guilt was flawed. The question that then arises is whether the error of law might have made a difference to the outcome of the hearing in the Employment Tribunal."

26. In paragraph 10 of the decision the Employment Appeal Tribunal drew a distinction between what had happened in this case and in the Madden case, stating that in the Madden case the tribunal had substituted its view of the evidence for that of the employer. The Employment Appeal Tribunal then quoted from two passages in my judgment in the Madden case, which I have already cited in paragraphs 19 and 20 above, and continued, in paragraph 10:

"In the present case the Tribunal did not seek to weigh the evidence available to the employer. The issue before it was not whether the decision made by the employer was within the band of reasonableness on the material before the employer but whether the decision was vitiated by the failure of the employer to make reasonable investigations."

They continued, in paragraph 11:

"What the Tribunal was concerned with in this case was the first of the two elements with which Mummery LJ was concerned in para 78 of his judgment in the Madden case. The `range of reasonable responses' test is relevant to the second of those elements, not the first. In dealing with the first the Employment Tribunal is concerned with the adequacy of the investigation process: ie `that the employer, ... at the final stage at which he formed that belief [of guilt] on those grounds, had carried out as much investigation into the matter as was reasonable in all the circumstances of the case.' The Tribunal is required to form a view on this issue by the words of section 98(4)(b)."

They then quoted the relevant parts of that subsection.

27. The Employment Appeal Tribunal referred to the views of the majority of the Employment Tribunal, stating:

"12.It may well be that at any rate some members of this panel of the EAT would have come to a different decision from that of the majority of the Employment Tribunal on the adequacy of the investigation in this case, but it is not for us to substitute our view of the facts for that of the Employment Tribunal and we do not think we can properly say that the decision of the majority on the adequacy of the investigation was perverse.

13.The position in this case is that the Employment Tribunal came to a conclusion by a wrong route to which the majority would have come if the right route had been followed. The equity and substantial merits of the case demanded that there be such investigation of the allegation as was in all the circumstances reasonable before the dismissal. On the finding of fact by the majority, there was not such an investigation. The error of law merely led the Tribunal to address the correct issue of law at the wrong stage. It did not affect the outcome. In those circumstances the appeal will be dismissed."

Conclusion

28. I am unable to agree either with the decision of the majority of the Employment Tribunal or with the decision of the Employment Appeal Tribunal. There is no doubt that the appeal from the Employment Tribunal raises a question of law. That question is whether the Employment Tribunal applied the correct legal test to decide whether Mr Hitt was unfairly dismissed for a conduct reason. The test applied by the majority in the Employment Tribunal and, I also think, by the dissenting chairman was that laid down by the Employment Appeal Tribunal in Madden. Applying that test, the majority considered that the investigation was not reasonable. They arrived at that conclusion by substituting their own opinion as to what was a reasonable and adequate investigation, instead of applying, as was required by the Court of Appeal in the subsequent decision reversing the Appeal Tribunal's decision in Madden, the objective standard of the reasonable employer as to what was a reasonable investigation.
29. The Employment Tribunal were understandably faced with a confusing state of the law as between, on the one hand, the long established approach laid down by Arnold J in the Employment Appeal Tribunal in Burchell and, on the other hand, the more recent decisions of the Employment Appeal Tribunal in Haddon and Madden. I had hoped that that confusion would have been removed by the subsequent decision of the Court of Appeal on the appeal in Madden, and that it had been made clear in the judgments that it was necessary to apply the objective standards of the reasonable employer to all aspects of the question whether the employee had been fairly and reasonably dismissed. Unfortunately, it appears that the law has not been made as clear as it should have been, since experienced members of the Employment Appeal Tribunal have in this case interpreted what was said in Madden, in relation to the objective standards of reasonableness and the range of reasonable responses test, as not applying to the question whether an investigation into the alleged or suspected misconduct was reasonable in the circumstances of the case.
30. In my judgment, the Employment Appeal Tribunal have not correctly interpreted the impact of the decision of the Court of Appeal in Madden. The range of reasonable responses test (or, to put it another way, the need to apply the objective standards of the reasonable employer) apply as much to the question whether the investigation into the suspected misconduct was reasonable in all the circumstances as it does to the reasonableness of the decision to dismiss for the conduct reason.
31. If the correct approach is taken to the application of the test laid down by the Court of Appeal to the facts of this case, the only conclusion which a reasonable tribunal could reach is that the investigation in this case was reasonable in all the circumstances. The position is that the Employment Tribunal's decision was legally flawed by the application of the wrong test. If one looks at the findings of fact, the position is as stated by the chairman in his dissenting conclusions. The investigation carried out by Sainsburys was not for the purposes of determining, as one would in a court of law, whether Mr Hitt was guilty or not guilty of the theft of the razor blades. The purpose of the investigation was to establish whether there were reasonable grounds for the belief that they had formed, from the circumstances in which the razor blades were found in his locker, that there had been misconduct on his part, to which a reasonable response was a decision to dismiss him. The uncontested facts were that the missing razor blades were found in Mr Hitt's locker and that he had had the opportunity to steal them in the periods of his absence from the bakery during the time they went missing. Investigations were then made, both prior to and during the period of an adjournment of the disciplinary proceedings, into the question whether, as Mr Hitt alleged, someone else had planted the missing razor blades in his locker. In my judgment, Sainsburys were reasonably entitled to conclude, on the basis of such an investigation, that Mr Hitt's explanation was improbable. The objective standard of the reasonable employer did not require them to carry out yet further investigations of the kind which the majority in the Employment Tribunal in their view considered ought to have been carried out.
32. In suggesting further investigations of the kind set out in paragraph 6 of the extended reasons, the majority of the Employment Tribunal were, in my judgment, substituting their own standards of what was an adequate investigation for the standard that could be objectively expected of a reasonable employer. On the decision of this Court in Madden, that is not the correct approach to the question of the reasonableness of an investigation.
33. For the reasons stated, the Employment Appeal Tribunal also fell into error in their interpretation of the two cited passages from my judgment in Madden.
34. In order to prevent further confusion, for which I may be thought to be partly responsible, I should emphasise clearly that, as held by the Court of Appeal in Whitbread v Hall, the range of reasonable responses approach applies to the conduct of investigations, in order to determine whether they are reasonable in all the circumstances, as much as it applies to other procedural and substantive aspects of the decision to dismiss a person from his employment for a conduct reason.
35. In all those circumstances I have reached the conclusion that this appeal should be allowed. The only conclusion that a reasonable tribunal could arrive at, applying an objective standard to the facts found by this tribunal, is that the investigation carried out by Sainsburys was reasonable in all the circumstances of the case and that it was reasonable to dismiss Mr Hitt for the conduct reason given by Sainsburys.
36. I should add that the respondent, Mr Hitt, took no part in the hearing of this appeal. He was represented in the Employment Appeal Tribunal at the preliminary hearing, when counsel, appearing under the ELAAS scheme, prepared a skeleton argument, which persuaded the Employment Tribunal at the preliminary sifting stage to allow the case to proceed to a full hearing. Mr Hitt was not represented at the full hearing of the Employment Appeal Tribunal, which dismissed Sainsburys' appeal. Mr Galbraith-Marten rightly drew our attention to the skeleton argument setting out Mr Hitt's case, that skeleton argument having been produced by counsel experienced in this area. Mr Galbraith-Marten pointed to parts of the skeleton argument which had clearly influenced the Employment Appeal Tribunal's decision in Mr Hitt's favour on the full hearing of the appeal.
37. For the reasons already given, I am unable to agree with the conclusion of the Employment Appeal Tribunal. I would allow the appeal.

LORD JUSTICE JONATHAN PARKER:

38. I agree that the appeal should be allowed for the reasons my Lord has given.

LORD JUSTICE WARD:

39. I also agree. The appeal is therefore allowed and, in the circumstances, the claim by Mr Hitt for unfair dismissal is dismissed.
Order: appeal allowed and claim for unfair dismissal dismissed.