England and Wales Court of Appeal (Civil Division) Decisions

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

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th October 2013

Lord Justice Elias:

1. This case came before the court today in this way. There is a dispute about whether or not the employers were obliged to pay an enhanced redundancy payment – by that I mean a redundancy payment over and above the amount to which the employees would be entitled under statute. There is also a second dispute which would only arise if there was a legal obligation to make the payment, and that is whether the duty to make the payment involved an obligation to pay three elements under the terms of the particular policy or four elements under the terms of the particular policy.
2. The case was heard by the Employment Tribunal in September 2011, over two years ago now, before Employment Judge Garside. He concluded that there was no legal obligation to make the payment at all and set out reasons for that conclusion. He also held that were it relevant, as a matter of the proper construction of the policy, any obligation was to pay the three and not the four elements.
3. There was an appeal to the Employment Appeal Tribunal by the employees. That case came before the Employment Appeal Tribunal at the end of June 2012. Unfortunately there was some delay in handing down judgment which was on 17 January 2013. The Employment Appeal Tribunal agreed with the Employment Tribunal that as a matter of proper construction of the policy there was only the obligation to pay the three and not the four elements when that policy was properly construed, but it also concluded that the Employment Tribunal and erred in various ways in the way that it had approached the question whether the policy gave rise to legal obligations. The EAT therefore remitted the matter back to a fresh Employment Tribunal to consider again, in the light of all the evidence, whether or not there was a legal obligation to make the payment.
4. The employers then appealed that decision to this court. There was no cross-appeal brought in relation to the finding that there was an obligation to pay the three and not the four elements of pay under the policy. We were told today that there has in fact been a settlement of this claim in relation to all the employees save one, Mr Fellows, who appears before us today in person, assisted (and I am grateful for her assistance) by a McKenzie friend, Mrs Ridley. He is unhappy with the conclusion of the Employment Tribunal and the EAT that the obligation was to pay only three and not four elements, and he raised in a skeleton argument the reason why he considered that the tribunals below had both erred in law. As he accepted, there was no formal cross-appeal on this point, but without any objection from Mr Burns we have allowed Mr Fellows to pursue that argument before us this morning. We heard the argument; we indicated to him at the end of it that we thought the Employment Tribunal and the EAT had got it right and that, properly construed, there were only the three and not the four elements in respect of the payment. That left in issue potentially the question which the employers were in any event pursuing, namely whether there was a legal obligation to make a payment at all, but Mr Burns indicated to us during the course of today that in fact there is an offer on the table to Mr Fellows, which was made before the appellant came to court, which would in fact have given him the full amount which, following our construction of the agreement, he would be entitled to. That obviously raised some cost issues as far as Mr Fellows was concerned, because it might have been said against him, even if the appellants lost their appeal on the issue whether they were obliged to pay the enhanced payment, that they had offered him all that he had in fact recovered and therefore he ought to pay the costs.
5. In the light of all these developments there has been a fresh offer this morning to Mr Fellows, which he has accepted; it is on the basis that he will be paid a particular sum and that he will be liable for none of costs of the employers. The effect of that is that the issue whether or not the employers were ever obliged to pay anything by way of enhanced payment is no longer before us; it has no practical significance. But we should briefly indicate to Mr Fellows and his McKenzie friend why we have found against them in relation to the argument as to the question whether there were four or three elements in the payment. In order to do that it is necessary very briefly to set out the background to this case. The basic facts are found in the decision of the Employment Tribunal in paragraphs 4-7:

"4. The respondent is an international company supplying systems, modules and components to the automobile industry. All the claimants worked at the respondent's Stephenson plant producing engine valves. In Europe the respondent has manufacturing facilities in Germany, France and the Czech Republic.

5. There was a downturn in demand for engine components in the second half of 2008. A small number of redundancies were made by the respondent worldwide. In 2009 there was a further decrease in the requirement for valves and the European facilities had over capacity. The respondent proposed to close the Stephenson plant and transfer production to the other plants in Europe. The Stephenson plant was effectively closed in June 2010, the employees being made redundant.

6. A redundancy policy was produced in 1999. At the time the respondent did not recognise any unions. Another of the respondent's plans, at Wednesbury, did recognise unions. That plant had a redundancy policy agreed with the unions. The employees at the Stephenson plant pressed for a redundancy policy to be implemented for them.

7. Mr Randle, who was at the time the HR Manager for the Stephenson plant, obtained a copy of the Wednesbury redundancy policy and copied it for the Stephenson plant. This was shown to the plant advisory council who approved it. The advisory council did not have collective bargaining rights. As there were no unions the policy was not approved by the unions. The policy was signed and dated 22 January 1999, but it is accepted that in fact it was signed in June 1999 (page 324H)."

6. That policy was then applied in a number of redundancy exercises after it came into force in 1999. It was applied to a single individual, a Mr Grozier, in 2001; it then was applied to a group of some six employees in 2008; and again to a group of employees in 2009. There is another redundancy exercise in 2009 in which an entirely different set of rules were applied. The application of the policy on those various occasions, apart from the particular occasion when the wholly different set of rules was applied, was on the premise that there was an obligation to pay four elements of pay and not three. Subsequently, the management were alerted to the fact that, as a matter of construction, there was only ever an obligation to pay the three elements.
7. At this stage I will briefly summarise how the enhanced element of a redundancy policy is set out and indicate what the arguments were for the parties. The policy provides a procedure for selection criteria to be used in the event that redundancies are necessary. It then deals with the payments that are to be made by the respondent to an employee selected for redundancy. The relevant passage concerning payments is as follows: -

Severance Payments

To qualify for redundancy payments an employee must have been employed by the company for not less than 2 years continuous service and work over 16 hours per week. (NB service before the age of 18 does not count).

For each complete year of service, up to a maximum of 20, employees are entitled to:

a) For each year of service at age 18 or over but under 22 – half a week's pay

b) For each year of service at age 22 but under 41 – one week's pay

c) For each year of service at age 41 but under 65 (60 for women) – one and a half week's pay.

1. Statutory Redundancy

As per redundancy policy.

2. Pay in lieu of notice (4 weeks)

The amount of one weeks pay will be an average of the preceding 12 weeks and will include overtime and shift premium.

3. Special payment

a) £200 per year of service.

b) Lump sum payment £1300

(Less than 10 years service)

c) Lump sum payment £1500

(More than 10 years service)

Where an employee is within 12 months of state pensionable age, the statutory redundancy entitlement is reduced by one-twelfth for each complete month after the 64^th birthday (or 59^th for women)."

8. The argument for the employers was that there are only three elements here: the statutory redundancy payment, the pay in lieu of notice, and the special payments. Basically, the reference to redundancy policy under the heading "statutory redundancy" is a reference back to the very first paragraph of the severance payment document, and that simply sets out the way in which a statutory payment will be calculated. It is not intended to create a fourth element of payment. Mr Fellows does not as a matter of construction disagree with the submissions of Mr Burns for the employers that this would involve only three elements rather than four. It would not, as a matter of construction, require the full amount of a redundancy payment under the very first paragraph of the severance payments plus statutory redundancy and pay in lieu and special payments. But the argument advanced on his behalf has been this: that as a matter of practice the company did in fact intentionally pay four elements rather than three. That happened, as we have indicated, on at least three occasions before it was indicated to the employers that they may be paying too much. Mr Fellows says it had become a binding practice.
9. In that context it is important to bear in mind that what the employers were doing at the Stephenson plant was to give effect to the policy that had already been adopted at the Wednesbury plant. There was evidence that at the Wednesbury plant the policy had been implemented on the assumption that it required three and not four elements in the makeup of the pay. But Mrs Ridley, as McKenzie friend, says that if one looks at the practice at the Stephenson plant it was four elements; this had become an established practice and was legally binding on the employers thereafter. She reinforced this by relying upon certain open letters sent to the staff by senior management of the company. I will cite one of these letters, sent on 31 October 2008, where Mr Allen, the chief executive at the plant, indicated that there was a guarantee that the redundancy policy would remain in its entirety until the end of the next pay deal in December 2010. He also indicated that that guarantee was one that had been approved by very senior management in the company. So the argument is that there is an undertaking in unambiguous terms in 2008 that the redundancy policy would be applied. It had by that stage been applied so as to give effect to the four elements rather than three; therefore that was a promise which management must have been intending to make.
10. We reject those submissions. First, in my view just focusing on the language itself it is clear that that policy envisages three rather than four elements and, as I have said, that is not in dispute. Second, looking at the matter purely in terms of practice, the fact that this policy was applied on three occasions by awarding four elements in the calculation of the enhanced payment is not in my view sufficient to establish a legally binding practice so that one can infer that there has crystallised a legal obligation to make that payment. Those payments were entirely consistent with the company mistakenly assuming that this was what the policy required. More to the point, the Employment Tribunal considered this, and they concluded there was no such practice, and it seems to me that this was a sustainable decision on the evidence. This is particularly so given that on one occasion there was a totally different policy applied in any event and that after the employers had been alerted to the way the policy had been applied at Wednesbury, they reverted to three elements in the pay rather than four. It cannot be said in my judgment that the only legitimate conclusion open to an Employment Tribunal was to find that there had become a crystallized practice of paying the four elements rather than three. They made no error of law on this point, as the EAT also found. The letter to which we have referred – and it is supported by other letters at the same time too – takes matters no further, because all that the employers were doing there was giving a guarantee that the policy, properly construed, would remain in effect until the end of December 2010. There was no undertaking that the policy, as it had been applied on two occasions by that date, would be given effect, simply that the policy, properly construed, would be. Since, as I have indicated, the proper construction of the policy was that it required the three and not the four elements of payment, the letters did not bind the employers to pay more than that. It follows that, although we allow Mr Fellows to cross-appeal the point, we dismiss the cross appeal on the merits.
11. Given the fact that the parties have now agreed terms to resolve this dispute entirely, we do not need to explore the question raised by the appeal, namely whether there is any obligation on the employers to make advanced payments at all.

Disposal.

12. In accordance with the agreement reached between the parties, each side bears its own costs for this appeal. We find against the employee in his cross-appeal and we do not need to resolve the appeal.

Lord Justice Kitchin:

13. I agree.

Lord Justice McCombe:

14. I also agree.

Order: Appeal dismissed