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
MR JUSTICE ELIAS, PRESIDENT
UKEAT/0453/06/DA

		Royal Courts of Justice Strand, London, WC2A 2LL
		7/02/2008

Lord Justice Mummery :

Introduction

1. The workplace ideal is self-discipline on the part of both employers and employees. Internal procedures designed to deal fairly and effectively with suspected misconduct feature in cases of unfair dismissal brought by employees under the Employment Rights Act 1996 (the 1996 Act).
2. The practical points for determination in this appeal are (a) the alleged disparate treatment of employees for the same misconduct; and (b) the disputed relevance of an employee's previous misconduct, for which he had received a time-limited final written warning, when, by the date of his subsequent dismissal following the recurrence of similar misconduct, the final written warning has expired.
3. The provisions of the ACAS Code on keeping records of warnings and on disregarding them for disciplinary purposes state that

"22. .. A record of the warning should be kept, but it should be disregarded for disciplinary purposes after a specified period (eg six months)

24. The final written warning should normally be disregarded for disciplinary purposes after a specified period (for example 12 months)."

4. The question is whether the employer, when considering dismissal of an employee for misconduct, must, for all purposes and in all circumstances, ignore an employee's previous misconduct because a final written warning received for it has expired.
5. In a reserved judgment sent to the parties on 16 June 2006 the employment tribunal (ET) held (by a majority) that the appellant, Airbus UK Limited (Airbus), had unfairly dismissed Mr MG Webb from his employment on 20 September 2005.
6. On 14 February 2007 the Employment Appeal Tribunal (EAT) dismissed the appeal by Airbus, but, in granting permission to appeal, the President (Elias J) said that the issue in the case was a difficult one of some practical importance.
7. The general nature of the problem is easy to understand. Almost everyone in the workplace is certain to have a view about it. It is the finely balanced legal arguments, which are reflected in the authorities, that inject difficulty into reaching a reasoned decision. If Elias J, with his deep understanding and exceptional experience in current employment law, says that a point is difficult, we can be sure that it really is difficult.
8. Elias J put the point in this way in the first paragraph of the EAT judgment prepared by him-

"1. Is a dismissal necessarily unfair if the employee would not have been dismissed but for the employer taking into account an expired disciplinary warning?"

9. Mr Webb's counsel, Mr Short, put the point in the same way when responding to this appeal. He said that the correct answer to the question posed by Elias J is "Yes" for the reasons given by both the ET and the EAT. He submitted that this is the approach laid down in the authorities, both in the EAT and in the appellate courts, and that it is in accordance with good industrial relations practice and general concepts of reasonableness. This is evidenced by the ACAS Code of Practice on Disciplinary and Grievance Procedures (2000 edition), as approved by the Secretary of State and subject to negative resolution of both Houses of Parliament. The correct approach, he argued, is that it is never reasonable for an employer to dismiss an employee, who would not otherwise be dismissed, in reliance on an expired final written warning. This appeal should therefore be dismissed and Mr Webb's claim should now proceed in the ET for a decision on remedy.
10. The helpful short summary on the front of the EAT judgment puts the general question into the particular case.

"The employer dismissed the employee for not working when he ought to have been. Others in the same position were not dismissed. The disparity of treatment was because he had been given a final warning for a similar act of misconduct some 13 months earlier whereas the others had clean disciplinary records. However, the final warning given with respect to the earlier misconduct had expired after 12 months. The majority of the Employment Tribunal considered that although dismissal would have been fair had all been dismissed, it was not permissible to distinguish him in this way because once the warning had expired, he had to be treated as someone with a clean record. The warning could not be relied on for any purposes. They considered themselves bound to reach this conclusion in the light of the decision of the Inner House of the Court of Session in Diosynth Ltd v. Thomson [2006] IRLR 284."

11. In dismissing the appeal the EAT held that, although it is not strictly bound by decisions of the Inner House of the Court of Session, it should ordinarily follow them. I agree. Otherwise a confused situation is liable to develop in which the law in England and Wales would differ from the law of Scotland on the meaning of the provisions of the 1996 Act, which extend to all parts of Great Britain. The ET and the EAT apply the same law whether they are sitting in Scotland or in England and Wales. In this case the EAT held that the decision in Diosynth, although technically distinguishable, should be followed. It was in line with the recent EAT authorities discussed later. It followed that there was no error of law in the decision of the ET, which rightly treated Diosynth as requiring it to find that Mr Webb was unfairly dismissed.
12. On the basis of its analysis of the law the EAT added some helpful observations, with which I agree, on the possible ramifications of this ruling for future practice-

"61. Perhaps the lesson for employers is to take care when giving warnings, particularly final warnings, to tailor them to the circumstances-as indeed this employer did in other contexts. As we have said, para 24 of the ACAS Code indicates that although final warnings should normally have a time limit of 12 months, that need not always be so. There is in our view no reason why it should not be longer if the nature of the misconduct justifies it, and in particular if the imposition of a lesser penalty is an act of leniency. An employer might also be justified in extending the period of the warning with respect to a later act of gross misconduct which is the same or substantially the same as that for which the earlier final warning was given.

62. We recognise that to some extent there is tension between the flexibility allowed to employers to consider expired warnings and the complexity of the warning provisions prescribed by the ACAS Code. If employers are going to be denied the right to have regard to expired warnings in any circumstances, then they must be allowed reasonable flexibility to formulate their rules to allow for exceptional cases. This will inevitably make them more complex. Of course, whatever the rules, they must always be carefully drafted and clearly drawn to the attention of employees."

13. This is sound practical guidance for employers and employees, whether or not this court upholds the decisions of the ET and the EAT. The question confronting this court is whether the unfair dismissal provisions in the 1996 Act have been correctly interpreted and applied by the ET in the light of the recent decisions of the Inner House and the EAT. What is the legal principle to be applied by this court to Mr Webb's case and by the tribunals to future cases in which an employer has taken account of an expired final written warning in dismissing an employee after further misconduct?
14. This court has had the advantage of excellent submissions on the law from Mr Thomas Linden QC for Airbus and Mr Andrew Short for Mr Webb.

Background facts

15. From August 1990 Airbus employed Mr Webb as an aircraft fitter at its Filton site. He was subject to the employer's written disciplinary procedures and its Employee Roles and Responsibilities. Airbus was entitled to dismiss an employee summarily for gross misconduct, which was defined as "Theft or fraud or dishonesty involving the company, its employees, customers or visitors." In exceptional cases an alternative to dismissal was a final warning.
16. In July 2004 Mr Webb was accused of gross misconduct involving the misuse of Airbus premises and equipment and the fraudulent misuse of company time. He was summarily dismissed. The decision was overturned on an internal appeal. He was subjected to the lesser penalty of a final written warning under Stage 3 of the company's disciplinary policy.
17. The disciplinary procedure provided that

"As an alternative to dismissal and only in exceptional cases where mitigating circumstances make the dismissal inappropriate, with the agreement of both the Head of Department and the employee this may be reduced to a Stage 3 warning."

18. The provisions in the Disciplinary Procedures relating to Stage 3 warnings provide for written notification to be given indicating, inter alia, "the date when the warning will cease to be live." It is also provided that, in relation to records, the written notes will be placed on the employee's personnel file held in the Human Resources department and, "in the absence of any further endorsement the warning will be removed from the employee's personnel file by the Human Resources department up to 12 (twelve) months following issue."
19. The Disciplinary Procedure explains that

"12. Warnings will cease to be "live" following the specified period of satisfactory conduct and should normally be disregarded for future disciplinary purposes. There may, however, be occasions where an employee's conduct lapses once the warning is no longer in force. Where a pattern emerges and there is evidence of abuse, the employee's disciplinary record should be borne in mind in deciding the entry level for disciplinary action and therefore the length of time the warning is in force."

20. In this case Mr Webb was sent a letter on 6 August 2004 confirming the decision taken that he be given a final written warning under Stage 3 of the Company Disciplinary Procedure. The nature of the unsatisfactory conduct was identified. It included "Fraudulent use of company time." The letter went on to state that

"This warning will be placed on your personal file for a period of twelve months and subsequently removed provided your conduct reaches the standards detailed below."

21. The letter concluded that the likely consequence of further misconduct or insufficient improvement is dismissal. Nothing specific was stated in the letter that the final written warning would always be disregarded for disciplinary purposes after the 12 months time limit had expired.
22. The final written warning expired at the end of August 2005.
23. About three weeks later, on 20 September 2005, Mr Webb and four other staff members of the night shift were found apparently watching TV in a locker room outside the normal break time. Following an interview and an investigation there was a disciplinary meeting on 10 November 2005. Mr Webb was summarily dismissed for gross misconduct. His appeal was rejected on 22 November 2005.
24. His employment had ended on 10 November 2005 in accordance with the summary dismissal letter of that date. The stated reason for dismissal was being "found watching television during company time whilst on night shift." Nothing was said in the dismissal letter about the expired final written warning. No reference was made to the letter of 6 August 2004, or to any previous misconduct of Mr Webb.
25. His four colleagues involved in the same incident on 20 September 2005 were not dismissed. They were made subject to a written warning under the Stage 3 procedure.

The ET decision

26. The ET found that the reason for the dismissal was the belief of Airbus that on 20 September 2005 Mr Webb was guilty of the fraudulent use of company time in that he was not at work when he should have been. The reason related to the conduct of Mr Webb. It was a potentially fair reason for dismissal under section 98 of the 1996 Act.
27. It was not disputed that this belief of Airbus was genuine. It was found that it was reasonably held after a reasonable and proper investigation. The familiar questions to be addressed in cases of dismissal for misconduct, as laid down in British Home Stores Limited v. Burchell [1980] ICR 303, were satisfied. The ET also held that the statutory requirements for disciplinary procedures introduced by the Employment Act 2002 had been met.
28. On turning from the reason shown for the dismissal to the question whether dismissal fell within the range of reasonable responses available to an employer faced with this situation, the ET identified two issues. The first was the general issue of reasonableness, on which the ET reached the unanimous conclusion that it was certainly reasonable for an employer to regard such conduct as gross misconduct and, in the absence of mitigation, to dismiss for it (paragraph 20). The sanction of dismissal was thus generally within the range of reasonable responses to the dismissal reason shown by Airbus.
29. The second issue was the specific question on the expired final written warning. It arose from the finding that the employer's approach was to regard all five men involved as liable to dismissal, unless there was some good reason to the contrary, and that the employer then concluded that, as the other four all had good disciplinary records, the usual penalty of dismissal could be mitigated by substituting a lesser penalty. In the case of Mr Webb, however, he had previously been dismissed for doing other things when he should have been working, so that the mitigating factor was not present and the normal penalty of dismissal for gross misconduct would apply.
30. It was argued for Mr Webb that Airbus acted unfairly in taking into account the spent final warning for the purpose of deciding what should be the penalty for his later misconduct. On his case the only proper course was for Airbus and the ET to ignore the expired final warning for all purposes and in all circumstances.
31. The members of the ET disagreed on this point. The majority treated Diosynth as authority for the proposition that an expired final warning should be disregarded for all purposes and in all circumstances. This meant that, in the case of a repetition of gross misconduct by the employee, it was always unfair to dismiss him, if the dismissal only took place because there was on his record a spent final warning for misconduct.
32. The majority had some sympathy with the argument of Airbus that Diosynth could be distinguished, but concluded that, upon close analysis, the case had decided that "a previous spent warning should be ignored for all purposes." (paragraph 25). In this case the dismissal was unfair because the expired final warning was not ignored by Airbus:

"…on the contrary, the fact that there had been such a warning features largely in the investigatory process. In the final analysis, if the claimant had not had that previous warning against him, then he would not have been dismissed, but would have been treated like his colleagues and subjected to some lesser penalty."

The EAT decision

33. The EAT found considerable force in the employer's arguments. Mr Webb's previous dismissal for misconduct had been reduced to a final warning on appeal. Shortly after that final warning had expired he had committed a very similar act of misconduct, which would have justified dismissal independently of the warning. He had not been treated differently from the other employees who received a lesser penalty. He had been given another chance (ie on the first occasion of his misconduct in July 2004) before he was dismissed. Airbus gave his fellow employees another chance on the first occasion of their misconduct on 20 September 2005.
34. On the other hand, the EAT noted that it was clear from the treatment of the other four employees that, but for the final warning, Mr Webb would not have been dismissed.
35. Elias J confessed to finding this a difficult point and commented that the arguments were finely balanced. He considered that it was inappropriate to depart from earlier decisions of the EAT and it was particularly undesirable to part company from a decision of the Inner House of the Court of Session, even though it was not binding.

Airbus submissions

36. Mr Thomas Linden QC, who appeared on behalf of Airbus on the appeals to the EAT and to this court (though not in the ET), contended that the ET had erred in law. He went back to the basic law in section 98(4) of the 1996 Act-

" …the determination of the question whether the dismissal is fair or unfair (having regard to the reasons shown by the employer)-

(a) depends on whether in the circumstances (including the size and administrative resources of the employer's undertaking) 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."

37. The law, Mr Linden submitted, was clear: the ET had to consider all the circumstances of the case in order to decide whether dismissal was within the range of reasonable responses to the situation as it was known to the employer. Objective standards of reasonableness were applicable to all the facts of each case. There were no hard and fast rules. Section 98(4) did not provide that any one factor was to be decisive in determining whether dismissal was within the range of reasonable responses. The expired final warning was only one of the circumstances of Mr Webb's dismissal. It was not necessarily decisive on the question whether his dismissal was fair or unfair.
38. Mr Linden submitted that, instead of applying the provisions of section 98(4) to all the circumstances of this case, the ET fell into the error of regarding itself as bound by the decision in Diosynth to single out just one circumstance (the fact that the final warning had expired) and to hold that Mr Webb was unfairly dismissed solely because Airbus had taken into account an expired final warning in deciding to dismiss him. This was an error of law. The ET was not bound either by section 98(4) or by Diosynth to find unfair dismissal for that reason.
39. In brief, Mr Linden's argument was that the misconduct for which the final warning was given was a relevant circumstance in the ET's determination whether dismissal of Mr Webb was within the range of reasonable responses; that it was not the decisive factor on that question; and that it was clear from the ET's reasons that, had it not been for the majority's understanding of Diosynth, it would have held unanimously that the dismissal of Mr Webb was, in all the circumstances, fair. Accordingly, this court should allow the appeal by Airbus, hold that the dismissal of Mr Webb was fair, and dismiss his claim.
40. Mr Linden took the court through the ET decision in detail in order to demonstrate that, although divided on the outcome, the members of the ET had unanimously found in favour of Airbus on the tripartite Burchell test in misconduct cases. The ET was only divided on the impact of the "expired warning point", in the light of Diosynth, on whether dismissal was a reasonable response to Mr Webb's further misconduct.
41. As to the reasonableness, equity and substantial merits of the particular circumstances of this case, Mr Linden emphasised that this was not the first time that Mr Webb had fraudulently misused company time. He had already been given the chance that was being given to the other four employees involved in the later misconduct. In holding that Diosynth "effectively said that a previous spent warning should be ignored for all purposes" and that the dismissal was unfair because Airbus had not ignored the expired warning, the majority had erroneously focused on the expiration of the final warning itself rather than on the misconduct for which he had received the final warning. This mistaken approach led the majority decision into the error of holding that, as the expired warning had not been ignored, the dismissal was unfair.

Discussion

42. It is common ground that section 98(4) of the 1996 Act is the law applicable to the question whether it was fair or unfair to dismiss Mr Webb for misconduct. But for the majority's understanding of Diosynth the ET would have been unanimous in holding that, on the application of section 98(4) to the circumstances of the case, Mr Webb's dismissal was fair. The key question is to identify the legal proposition for which Diosynth is authority. Is it a proposition which must lead to the conclusion that Mr Webb's dismissal was unfair?
43. First, stare decisis. Strictly speaking Diosynth is not binding on this court, but it is highly persuasive (see Marshalls Clay Products Ltd v. Caulfield & Ors [2004] ICR 1502). The recent decisions of the EAT, which are enhanced by the expertise of specialist judges and by the wide experience of the lay members, are valuable guides to wise decisions. Even if their decisions on the construction of the 1996 Act are not binding on this court, consistency of approach is, in general, to be preferred, particularly if there is a risk that unsettling a generally accepted view will lead to uncertainty in the handling of disputes in the workplace and in the tribunals.
44. Secondly,the general merits of the case. I agree with Elias J that the arguments on the final warning point are finely balanced. On the one hand, if the employer has chosen to impose a time-limited final warning, it can be argued that it would be unfair to allow him to go back on that and to escape from the consequences of his decision to deal with an employee in that way. On the other hand, if an employee has been previously disciplined for misconduct for which he could have been fairly dismissed, it can be argued that it is not necessarily unfair for the employer to take into account, on a later occasion of similar misconduct, the fact that employee has done this sort of thing before.
45. The Court's decision on the competing arguments ultimately depends on the construction of the legislation, bearing in mind that the tort of unfair dismissal is entirely the creation of statute and that contractual considerations are not, as such, necessarily determinative of the issue whether a particular dismissal was unfair.
46. Thirdly, with the benefit of full legal argument on the correct construction of section 98 of the 1996 Act, I am persuaded that it is open to a tribunal to find that a dismissal for misconduct is fair, even though the employer, in his response to the reason for which the employee is dismissed, has taken account of the employee's previous similar misconduct, which was the subject of an expired final warning.
47. Having regard to the reason for dismissal shown by the employer the question to be determined under section 98(4) is whether, in the circumstances, the employer acted reasonably or unreasonably in treating the reason as a sufficient reason for dismissing the employee and this shall be determined in accordance with equity and the substantial merits of the case. I see nothing in the very wide wording of these provisions as laying down a rule for tribunals that the circumstance of the employee's previous misconduct must be ignored by the employer, if the time-limited final warning had expired at the date of the subsequent misconduct, which was the reason, or principal reason, shown by the employer for the dismissal. The fact of the previous misconduct, the fact that a final warning was given in respect of it and the fact that the final warning had expired at the date of the later misconduct would all be objective circumstances relevant to whether the employer acted reasonably or unreasonably and to the equity of the case and the substantial merits. The legislation does not single out any particular circumstance as necessarily determinative of the questions of reasonableness, equity, merits or fairness.
48. The fourth point is that, in this case, the ET held that Airbus had shown potentially fair reason for dismissing Mr Webb i.e. his misconduct in September 2005 and that, in relation to it, Airbus had a genuine belief on reasonable grounds and had conducted a fair investigation. Under the terms of section 98(4) it was then open to the ET to hold that, having regard to the reason shown, Airbus acted reasonably in treating it as a sufficient reason for dismissing Mr Webb. The ET held, however, that it was bound by authority to hold the dismissal was unfair because account was taken of the spent final warning in the decision to dismiss only Mr Webb and it should have been ignored. It is necessary to consider the state of the authorities on this point.
49. The first authority is UK Coal Mining Limited v. Mr DC Raby (EAT/1124/02 RN 30 January 2003). This was an unfair dismissal case in which two employees were involved in a fight at work. The employer dismissed one of them for a conduct reason. He had an expired formal written warning on his record. It had been reduced on appeal from a final warning. His disciplinary offence was of a different nature than the later misconduct.
50. Under the disciplinary regime, which was modelled on the ACAS Code of Practice, it was provided that the formal written warning would be disregarded after one year. The other employee, who had a clean disciplinary record, was not dismissed. The ET's majority decision was that the dismissal was unfair. The two lay members held that there were no rational reasons for distinguishing the two cases. The employer should have disregarded the previous record of one of them. Both should have been given credit for an unblemished record. The Chairman of the ET disagreed, holding that the employer was entitled to have regard to the personal file on an indefinite basis. He drew a distinction between the use of the previous record as background and its purpose in "totting up" and said that it would be standing logic on its head to say that the employee who was dismissed was a man of previous good character when there had been a past disciplinary offence, albeit of a different character.
51. The ET majority decision was upheld by the EAT. Section 98(4) was cited, as were authorities on disparity of treatment. The EAT judgment prepared by HHJ McMullen QC held that the ET Chairman was incorrect in the light of the language of the Code and the disciplinary rules.

"29. …. "Disregard" must mean what it says and the scope of the formal warning is finite, being on the record for 12 months. In these circumstances the majority view that a reasonable employer should treat the two men equally is one which is entirely rational."

52. The EAT upheld the result in this difficult case as one that was "freely open to the majority" and that there was no irrationality or perversity in it.
53. The second unfair dismissal case is also an EAT decision, William Grant & Sons Limited v. Joseph Devlin (EATS/0074/03 25 March 2004). The EAT upheld the ET's decision that the employee's dismissal had been unfair on various grounds, including that the employer had taken account of an expired warning. Lord Johnston presiding in the EAT said (at paragraph 10) that

"…a final written warning, which is given a time limit, becomes null and void at the expiry of that time limit and should not be used for any purpose. Accordingly, we agree with the Tribunal that the employer should not have taken this into account and undoubtedly did. "

54. In neither case was the point of the spent final warning analysed in the detail in which it has in this case both in the EAT and in this court. Both cases dealt with the earlier warning (a formal warning in the first case and a final written warning in the second case) as a time-limited penalty, which, as the time limit had expired, had to be treated as totally irrelevant to a later decision to dismiss. The warning penalty was something that was to be "disregarded" or which had become "null and void" in relation to a later decision to dismiss.
55. I agree that in those cases, after the time limit imposed on the penalty had expired, the penalty itself was spent. The warning penalty ceased to be relevant as such. However, neither judgment explored the possibility of the earlier underlying misconduct, in respect of which the warning penalty was imposed, itself being and surviving the spent penalty as a circumstance, which is relevant to reasonableness or unreasonableness of employer's later action in dismissing the employee for similar subsequent misconduct. Although the warning penalty and the record of it on the file was time-limited, the misconduct in respect of which it was given was not itself time-limited. The warning ceased to have effect as a penalty which could be relied on as a conduct reason for dismissal. It did not necessarily follow that the misconduct, in respect of which the penalty was imposed, ceased to have any relevance to the reasonableness of the employer's response to later misconduct. The previous misconduct was a fact which was not necessarily eradicated by the penalty itself or by its expiration or by its removal from the record. In this case the possible survival of the relevance of the misconduct after the expiration of the penalty is contemplated in the Disciplinary Procedure and in the terms of the warning letter sent by Airbus to Mr Webb (see paragraphs 19 and 20 above).
56. Although there are general statements in the EAT judgments supporting Mr Webb's contention that an expired warning should be disregarded for all purposes, neither case is in fact authority for a proposition of law that, if an employer takes account of the earlier misconduct for any purpose, in respect of which a final warning was given but has expired, that fact alone necessarily means that the employer has acted outside the range of reasonable responses and that the dismissal is for that reason unfair. The language of section 98(4) is wide enough to cover the employee's earlier misconduct as a relevant circumstance of the employer's later decision to dismiss the employee, whose later misconduct is shown by the employer to the ET to be the reason or principal reason for the dismissal. The expired warning does not make the earlier misconduct an irrelevant circumstance under the subsection. I very much doubt whether in either case the EAT intended to cut down the width of section 98(4), which I regard as the key to the resolution of this difficult case. In my view, this appeal turns on the broad range of relevant circumstances to be taken into account rather than on the contractual treatment and effect of the final warning, or on any possible distinctions between the final warning and the conduct for which it was received.

Diosynth

57. In the light of these earlier cases and of my comments on them I turn to the judgment in Diosynth given by Lord Philip. He cited section 98(4) and the two EAT decisions discussed above. I agree with Mr Linden that, as the judgment was relied on by the majority in the ET for their decision that the dismissal was unfair, it must be analysed carefully. General statements in it on the topic of expired warnings must be read in context. In particular, it must be remembered that the judgment of the Inner House was given on an appeal on a question of law and the issue was whether the decision of the ET was perverse. The relevant decision was that of the ET, which was split on the result, the appellate function of the EAT and the Inner House being confined to questions of law. The issue before the court was whether a question of law arose from the decision of the ET holding (by a majority) that the dismissal for misconduct was fair. The majority took the view that the warning to the dismissed employee, which was limited to twelve months and had expired before the dismissal, was part of the overall context in which management had come to a conclusion about how to deal with the employee, who claimed that he was unfairly dismissed. In their view it was reasonable to take account of the fact that a warning had been issued in the past, even though it had expired, as part of the relevant history of events, and concluded that dismissal was within the band of reasonable responses (see paragraph 16 of the judgment of Lord Philip).
58. The minority in the ET held that the dismissal was unfair: the employer had not been entitled to take account of the previous warning because it had expired; it was not stated to be a final written warning; a reasonable employer would not have dismissed the employee; and the dismissal was therefore unfair (see paragraph 17 of the judgment).
59. On the employee's appeal to the EAT the majority decision was reversed and it was held that the decision to dismiss, which took into account the expired warning, was unfair and that to hold otherwise would be perverse. (see paragraph 18 of the judgment)
60. On the employer's appeal to the Inner House the EAT decision allowing the appeal from the ET was upheld. The Inner House received a submission from the employer that the EAT had wrongly treated the issue of the expired warning as "one of absolute principle" when the decision whether the dismissal was fair depended on whether the employer had acted reasonably in all the circumstances of the case, including the terms of the warning letter. It was argued that the EAT had wrongly substituted its own decision for that of the ET, when it ought to have asked itself whether the ET's majority decision was one to which no reasonable tribunal could have come. There was no legal principle involved in the expired warning point. It was argued that the William Grant case was wrongly decided, being based on too wide a statement of the effect of an expired written warning by elevating one factor relevant to reasonableness into a legal principle.
61. On behalf of the employee it was argued that "as a matter of principle an employer was not entitled to rely on a time-expired warning as a determining factor in reaching a decision to dismiss for misconduct" (see paragraph 21) and that the EAT was entitled to reverse the ET majority on the ground of perversity and substitute a finding of unfair dismissal. The employer had made it clear that the employee would not have been dismissed, if he had not been the subject of a previous warning. By tipping the balance in favour of dismissal the warning was used as a basis for taking more severe disciplinary action than otherwise might have been taken. If the employer intended to rely on a warning he should have issued one without a time limit. The employee had a reasonable expectation that the employer meant what he said. It was a contravention of the principle of fairness for an employer to put a time limit on a warning and then to take the warning into account as a determining factor in a dismissal for misconduct after the expiry date.
62. The Inner House concluded that "the submissions for the respondent [employee] should be given effect to" (paragraph 26) and referred to the guidance in the provisions of the ACAS Code that all warnings, including final written warnings, should be disregarded for disciplinary purposes after a specified period. Twelve months was given as an example of an appropriate period for a final written warning to remain in force. It would be contrary to the spirit of the ACAS guidance and to good industrial relations to have a warning which remains hanging over an employee's head for an indefinite period.
63. The key passage in the judgment of Lord Philip states

" 27. In this case the relevant warning was not stated to remain in force for an indefinite period but, according to the letter of 20 July 2000, was to stay on the respondent's record for 12 months, a period which had expired before the acts of misconduct took place. Nevertheless, in regarding the warning as tipping the balance in favour of dismissal, the appellants acted as if it remained in force beyond the expiry of the 12-month period. Their position was that the other factors, taken together, would not have justified that course of action. In these circumstances, the majority of the employment tribunal were, in our view, wrong to say that the warning was not used in the "traditional" sense of forming the basis of more severe disciplinary action than might otherwise have been taken. It clearly was." [Italics added for emphasis]

64. The judgment added that the employee was entitled to assume that the warning letter meant what it said and that it would cease to have effect after one year. It was unreasonable for the employer to extend the effect of the warning beyond that period. The existence of the warning was crucial to the ET's decision. Without it the employee would not have been dismissed. If the warning was removed from consideration the employee would not have been dismissed. That meant that it was unreasonable to dismiss the employee.
65. None of the following comments on Diosynth is intended to cast doubt on the correctness of the decision in that case. I also agree with Elias J and with Mr Short that on this point it would be undesirable for the interpretation of the 1996 Act to differ according to whether the case was being heard in England and Wales or in Scotland.
66. In my judgment, Diosynth does not lay down a legal proposition which determines the outcome of this case as one of unfair dismissal. I make the following points on Mr Short's submissions.
67. First, Diosynth is distinguishable. It was a case in which, but for the previous warning, the employer would not have shown a reason for dismissing the employee. This appears from the statement of facts (see page 284) and from the judgment (paragraphs 13 and 22, the dismissal letter stating that the decision to dismiss the claimant was "in the light of the [warning] letter..".)
68. That is a significant distinction between Diosynth and this case. The generalisations about a time-limited warning which has expired must be read with that distinction in mind. The reason shown for Mr Webb's dismissal was that he was guilty of gross misconduct on 20 September 2005, not that he had received a warning for his July 2004 conduct.
69. Dismissal was unanimously held to be within the range of reasonable responses of the employer Airbus (paragraphs 18 to 21 of the ET decision). It was held that it would have been reasonable for an employer to regard such conduct as gross misconduct and, in the absence of mitigation, to dismiss him for it.
70. There is another aspect of this case which distinguishes Diosynth from this case. The disparate treatment point, which is relied on by Mr Webb, did not arise in Diosynth. In this case the other four employees were also guilty of gross misconduct. Mr Webb was dismissed, but they were not. They received only a Stage 3 warning. The reason for the difference in treatment was that "None of them had any prior disciplinary record." (paragraph 10 of the ET decision). The absence of previous misconduct and of a final warning was a reason for imposing a lesser penalty on the other four, who could also have been dismissed for gross misconduct.
71. Mr Short relied on this alleged disparity of treatment for the same misconduct to support his argument that Mr Webb was dismissed because of the expired final warning. As I shall explain below, there was in fact no disparate treatment here on which Mr Webb can base his claim of unfair dismissal.
72. Secondly, Diosynth is not authority for the general proposition of law that the misconduct, in respect of which a final warning was given, but has expired, can never be taken into account by the employer when deciding to dismiss an employee, or by a tribunal when deciding whether that employer has acted reasonably or unreasonably. It did not decide that the earlier misconduct and the expired warning are irrelevant circumstances of the case or are irrelevant to the equity and substantial merits of the case. It did not decide that the dismissal is necessarily unfair if account is taken of the expired warning. That would be difficult to reconcile with the flexible approach indicated by the broad terms of section 98(4).
73. Diosynth was addressing a different issue than that which arose in the ET in this case. As Lord Philip pointed out in paragraph 27, on the facts of that case, the position of the employer was that the expired warning "tipped the balance in favour of dismissal" as the other factors taken together would not have justified dismissal. In those circumstances the expired warning was part of the set of facts that operated on the mind of the employer in his decision to dismiss. It was the principal reason for the dismissal. As the warning had ceased to have effect, it was not reasonable for the employer to rely on it as the principal reason for the dismissal.
74. That was not the case here. The subsequent misconduct on its own was shown by Airbus to have been the reason, or the principal reason, for dismissal. Neither the expired warning nor the July 2004 misconduct were invoked as being within the set of facts constituting the reason, or the principal reason, for dismissal. The relevance of the previous misconduct and the expired warning was to the reasonableness of the response of Airbus to the later misconduct ie whether dismissal of Mr Webb for the later misconduct was within the range of reasonable responses.
75. Thirdly, as for the comparison between the dismissal of Mr Webb and the non-dismissal of the other four employees and the alleged unfairness arising from disparate treatment, Diosynth is not in point. Mr Short submitted that all the employees involved in the misconduct on 20 September 2005 were in the same position. Yet Mr Webb alone was dismissed and was not given a lesser penalty. This was because he had been given a warning and the others had not. As the warning had expired, it could not be relied on by Airbus to justify treating Mr Webb differently from the other four.
76. Mr Short added that to say that the other four employees had a good record and that Mr Webb did not was merely another way of saying the same thing. The position was that this justification for the difference in treatment was by reference to an expired warning that should have been removed from Mr Webb's record and not taken into account for any disciplinary purposes. The expired warning thus "tipped the balance" in favour of dismissal as much in this case as in Diosynth.
77. I do not agree with Mr Short. As I have explained, the expired final warning was not the reason, or the principal reason, shown for Mr Webb's dismissal. Its relevance was to whether the range of reasonable responses to the later misconduct included dismissal for that misconduct. In the context of the range of reasonable responses to the later misconduct of Mr Webb in September 2005, there was no disparate treatment of the employees involved. They were all treated the same. None of them were dismissed for a first offence of misconduct. It was the first misconduct of the four employees who were not dismissed, but received the lesser penalty of a final warning. In the case of Mr Webb it was repeated misconduct, for which he was then dismissed, having received the lesser penalty of a final warning on the previous occasion.

Result

78. I would allow the appeal by Airbus and dismiss Mr Webb's claim.
79. The ET (by a majority) erred in law in holding that it was required by the authorities to hold that Airbus acted unreasonably in dismissing Mr Webb for a conduct reason, when the reason for dismissal shown by Airbus was the later misconduct and not the expired final warning given in respect of previous misconduct by Mr Webb. The majority wrongly treated Diosynth as holding that "a previous spent warning should be ignored for all purposes." It is not authority for such a broad proposition. Diosynth did not require the ET hold that the dismissal was unfair. It would be contrary to the correct construction of section 98(4) of the 1996 Act to hold that Mr Webb's dismissal was necessarily unfair.
80. Had it not been for the majority's misunderstanding of Diosynth, the ET would have held that Mr Webb's dismissal for misconduct in September 2005 was fair. It follows that the EAT ought to have allowed the appeal by Airbus.

Lord Justice Thomas:

81. I agree.

Mr Justice David Richards:

82. Like Elias J and Mummery LJ, but without their immense experience and expertise in employment law, I have found this a difficult case.
83. Common notions of fairness require that people should not go back on their word, to the detriment of others. This is particularly the case with those in authority, such as employers. If an employer states that a warning will be disregarded after 12 months, it is to be expected that he will then disregard it. If the employer nonetheless has regard to it after 12 months, this will normally strike the reasonable observer, to say nothing of the employees, as unfair. It is unlikely to be conducive to good employment relations. I am impressed by the view of Ms G Mills CBE who sat with Elias J in the EAT in this case, recorded at para 55 of the judgment under appeal:

"Ms Mills, who has extensive experience in this area, takes the view that employers and employees typically do act on the basis that the slate should be wiped clean once a warning has expired, and that it would undermine disciplinary procedures were it otherwise, even if minor or occasional blemishes or injustices may be produced by that principle. The employer can always give himself greater room for manoeuvre by drafting the procedural rules to cater for exceptional circumstances."

Elias J expressly did not dissent from this view: para 56.

84. There cannot, however, be exact prescription where fairness is the statutory test. To say that taking account of an expired warning, or the misconduct which gave rise to it, is invariably unfair is to read into the deliberately broad terms of section 98 of the Employment Rights Act 1996 a qualification which is not to be found there.
85. The circumstances of the present case are striking for all the reasons given by Mummery LJ. But for the employment tribunal's understanding that an expired warning could never be taken into account by an employer in a decision to dismiss, it would have found Mr Webb's dismissal to be fair, notwithstanding the part played by the expired warning. For the reasons given by Mummery LJ, the employment tribunal would have been entitled as a matter of law to make that finding.
86. I would not regard the decision in this case as encouraging reliance on expired warnings as a matter of course. Nor, like Mummery LJ, do I think that there is a real distinction in this context between a warning and the misconduct which gave rise to it. It is a distinction which, if relied on by employers, could lead to justifiable resentment.
87. I agree that the appeal should be allowed.