English and Welsh Courts - Miscellaneous

National Industrial Relations Court

		05 July 1974

1. The Hon. Sir John Donaldson gave the following judgment of the court:
2. This is an appeal against the unanimous decision of the industrial tribunal sitting in London which dismissed seven applications for redundancy payments.
3. Mr. Sanders and the other six appellants were employed by Ernest A. Neale Ltd. ("the company"). The business of the company was that of bookbinders. The work force consisted of the seven appellants and 30 other male production workers, 35 female production workers and two maintenance engineers. All the production staff were members of the Society of Graphical and Allied Trades ("SOGAT"). For some reason which has not been revealed and which, although intriguing, is probably immaterial, the male members of SOGAT belonged to one chapel and the female members to another. The two chapels were independent of one another and, in the events which occurred, pursued different policies. The men were hawks. The women were doves. The men took industrial action, but the women did not. The company abandoned its business and the women received redundancy payments, but the men did not. Hence the applications to the industrial tribunal and this appeal.
4. The history begins in early 1972 when the company decided to close down the case-binding department. The department had lost money during the previous two years and the demand for hard-backed books was declining generally. If the company was to remain in that particular market, heavy capital expenditure would be necessary and the conclusion reached was that such expenditure could not be justified.
5. It was clear to all concerned that this decision would lead to some redundancy. The managing director took the view that four or five workers must be declared redundant. The board of the company decided that two should be. On 10th March, 1972, the company informed the chapel officers and the London central branch of SOGAT of its decision. The officers of the male chapel took the view that there was no need for more than one man to be treated as redundant at that stage. If, thereafter, the company could satisfy that chapel of the need for further reduction in the staff, this could be achieved by natural wastage.
6. The board of the company adhered to its view and dismissed two men on grounds of redundancy. No complaint is or was made as to the selection of the men concerned. However, the male chapel decided to reinforce its disagreement with the board by taking industrial action. This took the form of a refusal to undertake overtime or to do any part of the work formerly done by the two men who had been declared redundant. It also involved refusing to undergo training, to provide reliefs for those working on machines or to allow the assistant works manager to do any portering. Mr. Irvine, who appeared for the appellants, described this as "a classic withdrawal of goodwill' and "a work to rule". Whether or not this is a fair description, the industrial "inaction" very seriously affected the productivity of the company.
7. On 8th May, 1972, the company wrote to each of the men saying, in effect, that if by 11th May they had not expressly undertaken to resume normal working, they would be regarded as being in breach of their contracts of employment which would then be terminated. The men expressed the view that they were working normally and accordingly they refused to give any undertaking to the company. When they presented themselves for work on 12th May they found that they were refused admission to the factory.
8. On 17th May, the company sent each man his cards but in a covering letter offered to consider re-engagement if they would undertake to work normally. None was prepared to give this undertaking.
9. On 1st June, the female staff and the two maintenance engineers were given notice of dismissal with effect from 12th June, but again the company said that if the dispute were resolved it would be pleased to consider re-engagement. All received redundancy payments.
10. On 19th June, there was a final and abortive meeting between the company and the male chapel and in October the factory closed and the business was wound up.
11. That these events have an important message is clear, but the court is concerned only with whether the tribunal erred as to a matter of law.
12. The tribunal concluded that the appellants were all dismissed on 11th May. It further held that the presumption contained in section 9(2) of the Redundancy Payments Act, 1965, had been rebutted and that none of the dismissals was attributable either wholly or mainly to redundancy. The dismissals took place because the appellants refused to give an undertaking to work normally. All the members of the male chapel refused similarly and the dismissals resulted in the cessation of the business. This cessation created a redundancy situation, but it was the dismissals which gave rise to the redundancy and not vice versa.
13. Mr. Irvine has concentrated his assault upon the tribunal's decision on one point only. In so doing we have no doubt that he acted in the best interests of his clients. It is a matter of some intrinsic interest and Mr. Irvine made it attractive as well. Mr. Turriff, who appeared for the company, reasonably commented that he had been taken by surprise and that it was not included in the notice of appeal which had been settled by someone other than Mr Irvine. We therefore allowed Mr. Turriff to reserve his arguments but in the event it has not been necessary to ask him to deploy them.
14. Mr. Irvine's point is that the tribunal erred in law in holding that the appellants were dismissed on 11th May. In his submission the conduct of the company on that day in demanding an undertaking that the men would work normally was a repudiation of the contracts of employment, but it did not terminate those contracts until accepted by the appellants. That acceptance took place much later, possibly when they obtained other employment. The tribunal should have ascertained the date or dates of termination and should have considered whether that termination was wholly or mainly attributable to redundancy. In essence Mr. Irvine's argument is that the repudiation of a contract of employment has precisely the same legal effects as the repudiation of any other kind of contract. The only difference is a practical one in that the employee's remedies are restricted and his economic interest in keeping the contract alive is adversely affected by his obligation to mitigate his damage.
15. The tribunal had rejected this argument in reliance upon the speech of Viscount Kilmuir in Vine vs. National Dock Labour Board^[1] and upon the decision of this court in G.K.N. (Cwmbran) Ltd. vs. Lloyd^[2].
16. The tribunal seems to have assumed in favour of the appellants that their dismissal without notice on 11th May was a breach by the company of their contracts of employment. Industrial action which is unjustifiable in either timing or extent can certainly entitle the employer to dismiss those concerned without notice and the tribunal's assumption may have been incorrect. However, we will consider these appeals on the same basis.
17. Clearly such a breach of contract by the company is of a kind which could discharge the employee from any further obligation to perform his part of the contract of employment. It could operate to terminate the contract. But if this were not a contract of employment, the innocent party woud have the right to elect either to treat the contract as discharged by the breach or to treat it as continuing subject to his right to sue for damages. Bearing in mind that the appellants presented themselves for work on 12th May, it is arguable that they sought to treat the contract as continuing. The question is whether, these being contracts of employment, this conduct could have the effect of maintaining the contracts in force.
18. Jenkins L.J. in Vine vs. National Dock Labour Board^[3] said that:

"in the ordinary case of master and servant, the repudiation or the wrongful dismissal puts an end to the contract, and the contract having been wrongfully put an end to a claim for damages arises. It is necessarily a claim for damages and nothing more. The nature of the bargain is such that it can be nothing more."

19. It is important to notice that the court was concerned with Mr. Vine's rights under a statutory scheme. It seems to us that the use of the word "ordinary" in the passage which we have quoted is intended to point the difference between employment in which the rights and obligations of the parties are imposed by statute and that in which they are assumed consensually by contract.
20. This view is confirmed by the speech of Viscount Kilmuir, L.C., in the House of Lords^[4] where he said :

"I should, on this point, be content to leave the matter as stated by Jenkins L.J., with whose judgment I am in entire agreement, but as I am differing from the majority of the Court of Appeal, I think it right to summarise my reasons. First, it follows from the fact that the plaintiff's dismissal was invalid that his name was never validly removed from the register and he continued in the employ of the National Board. This is an entirely different situation from the ordinary master and servant case; there, if the master wrongfully dismisses the servant, either summarily or by insufficient notice, the employment is effectively terminated, albeit in breach of contract."

The emphasis is ours.

21. Mr. Irvine submits that both the judgment of Jenkins LJ. and the speech of Viscount Kilmuir are obiter dicta and were given in the absence of reasoned argument. Even if this is correct - and we are not sure that it is - these expressions of opinion are of considerable persuasive authority.
22. We would add, parenthetically, that Francis vs. Kuala Lumpur Councillors^[5] which is sometimes cited for the proposition that there are exceptions to the rule which applies in "the ordinary case of master and servant," is another example of a case in which employment was under a statutory scheme and the notice of dismissal was not merely wrongful: it was given by the wrong person and was a complete nullity.
23. We were next referred to Denmark Productions Ltd. vs. Boscobel^[6] and Decro-Wall International S.A. vs. Practitioners in Marketing Ltd^[7] Neither was directly concerned with a master and servant situation and views expressed were at least as much obiter dicta as those in Vine's case. In the Denmark case Salmon L.J. said^[8]:

"It has long been well settled that, if a man employed under a contract of personal service is wrongfully dismissed, he has no claim for remuneration due under the contract after the repudiation. His only money claim is for damages for having been prevented from earning his remuneration."

24. This might be thought to be consistent only with the view that a contract of employment is an exception to the general rule that a contract cannot be unilaterally terminated by one party contrary to the wishes of the other. However, in the Decro-Wall^[9] case Salmon L.J. said :

"I doubt whether a wrongful dismissal brings a contract of service to an end in law, although no doubt in practice is does. Under such a contract a servant has a right to remuneration ... in return for services. If the master, in breach of contract, refuses to employ the servant, it is trite law that the contract will not be specifically enforced. As I hope I made plain in the Denmark Productions case, the only result is that the servant, albeit he has been prevented from rendering services by the master's breach, cannot recover remuneration under the contract because he has not earned it. He has not rendered the services for which the remuneration is payable. His only money claim is for damages for being wrongfully prevented from earning his remuneration. And like anyone else claiming damages for breach of contract, he is under a duty to take reasonable steps to minimise the loss he has suffered through the breach. ... I doubt whether in law a contract of service can be unilaterally determined by the master's breach. Perhaps a servant could sit still whilst the contract ran its course with the knowledge that the contract was, in law, still alive. But, in practice, this knowledge could be of little real comfort to him because he would be failing to take reasonable steps to minimise his loss - and since a claim for damages is his only money remedy, he would be prejudicing that claim by doing nothing. Accordingly he would, as a rule, be far better off to treat his contract as it were at an end, and this is usually what happens."

25. In the Decro-Wall case, Sachs LJ. said^[10] that he inclined to the view that in strict law a servant could refuse to accept the repudiation but that contracts of employment were a prime example of cases in which in practice the innocent party had to accept the repudiation because he could not sue for services he does not render or seek any other remedy except damages. Buckley L.J. however said that :^[11]

"It may be that contracts of service between master and servant should be regarded as an exception to this general rule [that an unaccepted repudiation does not discharge a contract]. Where a master wrongfully refuses to employ a servant contrary to such a contract, the servant's remedy lies in damages for wrongful dismissal and the cause of action arises immediately on the breach."

26. The reasoning of Salmon and Sachs LJJ. deserves critical, if respectful, examination. In essence it proceeds by the following stages; (i) A servant cannot sue for wages if he has not rendered services, and the wrongful dismissal prevents him rendering services, (ii) This leaves him with a claim for damages as his only remedy, (iii) Any claim for damages is subject to a duty to mitigate the loss and the only way to perform this duty is to accept repudiation as terminating the contract of employment and seek other employment.
27. If there is any fault in this line of reasoning, it lies in the point (i). Why should not the servant sue for wages if it is the act of the employer which has prevented his performing the condition precedent of rendering services? And if he can sue in debt for his wages, no duty to mitigate would arise and there would be no practical necessity to accept a wrongful dismissal as terminating the contract of employment, provided that the employer is solvent and the servant is sure that the dismissal was wrongful.
28. In Mackay vs. Dick & Another^[12] the seller of a digging machine agreed that he would demonstrate that it could achieve a specified standard of performance and that this demonstration should be a condition precedent to his right to be paid the price. The buyer prevented the demonstration taking place and the House of Lords held that in such circumstances he was entitled to be paid the price - not just damages. As Lord Watson put it :^[13]

"[The sellers] have been thwarted in the attempt to fulfil that condition by the neglect of refusal of the [buyer] to furnish the means of applying the stipulated test; and their failure being due to [the buyer's] fault, I am of opinion that, as in a question with him, [the sellers] must be taken to have fulfilled the condition."

29. Applying the Mackay vs. Dick principle to a contract of employment, it seems to us that the fact that the servant has not rendered the service would be no obstacle to suing for wages if it was the employer's act which produced this state of affairs. It being admitted that a wrongful dismissal does prevent a servant from so suing, there must be some other explanation. The obvious, and indeed the only, explanation is that the repudiation of a contract of employment is an exception to the general rule. It terminates the contract without the necessity for acceptance by the injured party.
30. This brings us to Hill vs. C. A. Parsons & Co. Ltd^[14]. As this is a decision of the Court of Appeal, we are bound to hold that exceptional cases can arise in which a wrongful dismissal can leave the contract of employment in existence. But, as we said in G.K.N. (Cwmbran) Ltd. vs. Lloyd^[15] such cases must be rare indeed since they can only arise if the dismissal takes place in circumstances which leave intact the relationship of mutual confidence between employer and employee. The Hill vs. C. A. Parsons & Co. Ltd. exception undoubtedly creates difficulties for tribunals which do not appreciate its unusual, if not unique, character. Furthermore these difficulties can arise in the context of a breach of contract by the employee as well as by the employer (see Hare vs. Murphy Bros. Ltd.^[16]). The existence and extent of the Hill vs. C. A. Parsons & Co. Ltd. exception is of great general importance and it would be helpful if more light could be thrown on it by the Court of Appeal or the House of Lords. But that must probably await some other case.
31. It is sufficient for present purposes to say that the dismissal of the appellants arose in circumstances far different from those which attended the purported termination of Mr. Hill's contract. In the case of Mr. Hill mutual confidence no doubt continued to exist. The sole dispute was whether Mr. Hill should be obliged to join a trade union and the employers only involved themselves because of pressure exerted by the trade union. In the present case, by contrast, all mutual confidence had been destroyed by the continuance of the industrial action and the refusal to give the undertaking to work normally despite the warning given on 8th May. The contracts were therefore terminated when the time limit for giving the undertaking expired on 11th May. True it is that the employers would have accepted an undertaking and re-engaged the appellants at a later date - see for example their letter of 17th May - but this would have been re-engagement and would not have affected the termination on 11th May. The appellants' case does not come within any exception to the general rule relating to contracts of employment, namely that they are terrnin. ated by notice whether or not that notice is given in breach of contract and whether or not the employee accepts the notice as having that effect.
32. Before leaving these appeals we should like to mention one further matter which has not been the subject of argument. The tribunal in the present cases considered the possibility that a claim to a redundancy payment, which would otherwise have succeeded, could fail upon the ground that the redundancy was "self-induced". Its conclusion is set out in the following passage from the reasons :

"27. In an early tribunal decision, Marsland vs. Francis Dunn Ltd ((1967) 2 I.T.R. 353), the tribunal said : -

'Can an employee, who by his own act, creates a condition of forced redundancy on his employers be given a redundancy payment in respect of such a redundancy?'

'The tribunal found this a very difficult question to answer as there is no guidance in the Act as to causative conditions, for circumstances of redundancy e.g. whether voluntary or involuntary or whether induced by the act or omission of an employee. The tribunal felt, but did not decide, that it would be contrary to the spirit and intention of the Act to give a redundancy payment in cricumstances of a self-induced redundancy.'

"That case was considered by the National Industrial Relations Court in E. & J. Davis Transport Ltd. vs. Chattaway ((1972) 7 I.T.R. 361). The court appeared to accept the general proposition that there could be a situation in which an applicant was not entitled to a redundancy payment on the grounds that there had been a 'self-induced redundancy', although it did not find that, in that case, there was a 'self-induced redundancy' since the situation which gave rise to the dismissal of the applicants was caused exclusively by the company in refusing their services on the terms of a contract which continued in existence throughout the period of a lockout which preceded their dismissal. We would respectfully say that the decision in E. & J. Davis Transport Ltd. vs. Chattaway may no longer be correct in view of the recent decisions in the Court of Appeal in Johnson & Another vs. Nottinghamshire Combined Police Authority (1974 9 I.T.R. 164 and Chapman vs. Goonvean & Rostowrack China Clay Co. Ltd. (1973) ICR 310 in which it has been held that a dismissal because the employer is unwilling to continue to employ the employees on the existing terms amounts to a dismissal but is not a dismissal by reasons of redundancy. In our view, it is incorrect, and should not be necessary, to consider whether an _t employee is morally entitled to a redundancy payment. The essential question is, what was the reason for the dismissal? It seems to us that instead of approaching the matter by saying that the dismissal was due to redundancy but then going on to say that the applicant is not entitled because he himself has brought about that redundancy situation, it is more correct to say that the dismissal was not due to redundancy at all because, applying the test in section 1(2) of the Act, the redundancy was not wholly or mainly due to any of the reasons set out in that section. As we have indicated, we take the view in the present cases that the cessation of business and of the requirement of the respondents for employees was the consequence, and not as a result, of the dismissals. However, if and so far as the proposition of 'self-induced redundancy' is correct, we consider that it would be applicable in the present case."

33. In substance we agree with the tribunal but would like to explain our approach to the problem in our own words.
34. In E. & J. Davis Transport Ltd. vs, Chattaway & Others^[17] two separate arguments were addressed to the court. The first was based on Button vs. C. H. Bailey Ltd.^[18] but it proved unnecesary to consider the correctness of that decision. This necessity arose in the subsequent case of Chapman & Others vs. Gonvean & Rostowrack China Clay Co. Ltd^[19] when this court refused to follow Dutton's case. On appeal^[20] Button's case was over-ruled by the Court of Appeal. The second argument was that no redundancy payment was due if the redundancy giving rise to the dismissal was induced by the employee, i.e. it was a case of "self-induced redundancy". Again the court did not have to consider whether this exclusion existed, because it concluded that on the facts the redundancy was not "self-induced".
35. We should like to take this opportunity of exorcising the ghost of "self-induced redundancy". It can certainly occur, but as such is has no legal significance. Interruption of service due to industrial action can cause customers to look to competitors or to turn to substitute materials or services. This can lead to a diminution in the requirements of the business for employees to carry out work of a particular kind and to workers being dismissed. But the mere fact that the employees' action created the redundancy situation does not disentitle them to a redundancy payment The entitlement depends upon the words of the statute and there is no room for any general consideration or whether it is equitable that the employee should receive a payment.
36. The first issue in a redundancy claim is whether the applicant was dismissed by the employer. What constitutes such a dismissal is set out in section 3 of the Act and it is for the employee to prove the dismissal if it is not admitted.
37. The second issue is whether the employee has been dismissed by reason of redundancy. Here it is for the employer to prove either that there was no redundancy situation or that the dismissal was neither wholly nor mainly attributable to that situation (see the presumption set out in section 9(2) of the Act). He may, of course, prove both.
38. What is a redundancy situation is defined by section 1(2) of the Act, but it should be remembered that the mere fact that the employer proposes a change in the terms and conditions of employment and is unable to carry on his business on the existing terms does not of itself prove that a redundancy situation exists (see Chapman vs. Goonvean (supra) and Johnson vs. Notts Police^[21].
39. If the employer fails or does not attempt to prove the absence of a redundancy situation, he can still try to show that the dismissal was wholly or mainly attributable to some other cause.
40. In the present appeals there was indeed a redundancy situation, but the tribunal found that it in no way caused the dismissals. The converse was true. It was the dismissals which caused the redundancy. The appellants were dismissed because they persistently refused to work normally. Their claim fails not because the redundancy was self-induced, but because it did not cause their dismissal.
41. By contrast a situation can arise in which due to a recession in trade it is found that the business is much over-staffed. The employer can either continue with his existing labour force sharing out the available work and paying reduced wages or he can halve the size of the labour force by dismissals. If the employees will not agree to work-sharing and some are in consequence dismissed, the case may be said to be one of "self-induced redundancy". But this aspect is irrelevant. The question remains, "Were the applicants dismissed wholly or mainly by reason of redundancy?" The answer will depend upon an exact analysis of the facts, but if the employees could not reasonably be expected to accept the proposed reduction in wages any tribunal would be almost bound to find that the dismissals were wholly or mainly attributable to redundancy and that the dismissed employees were entitled to redundancy payments.
42. For the sake of completeness, we should add that on occasion tribunals may have to consider the effect of section 2(2) and section 10 of the Act in the context of a "self-induced redundancy" situation. These provisions apply if the employer was entitled to terminate the contract of employment without notice by reason of the employee's conduct. They are complex and have been commented on by Sir Diarmaid Conroy in Essen vs. Vanden Plas (England) 1923 Ltd.^[22] and by Professor Grunfeld in his book "The Law of Redundancy" at pp. 121-4. We agree with both that neither section has any application if the dismissal is neither wholly nor mainly attributable to redundancy. Section 2(2) is an exclusion provision and section 10 modifies that exclusion, but provides no positive right to a redundancy payment. It follows that a prima facie entitlement must first be established under section 1(1).
43. Professor Grunfeld seems to take the view that the sections only apply if there are concurrent causes for the dismissal, redundancy being the main cause. We are inclined to doubt whether this is correct for section 2(2) does not appear to have any causal element. It seems therefore that, subject to section 10, a man who is dismissed solely on account of redundancy may lose his right to a redundancy payment if, by reason of the employee's conduct, his employer was actually entitled to dismiss him without notice.
44. Sir Diarmaid Conroy says he finds it difficult to understand why section 2(2)(c) provides for a special notice to be given to the employee if he is allowed to work out his notice and what sanction there is for not giving the notice. We suggest that the answer to the first question is that Parliament thought that an employer should not be allowed to resist a claim for redundancy payment upon the ground that the employee could have been dismissed without notice, unless the employee was warned of the facts upon which this defence is based at the time of the dismissal. Dismissal without notice or on inadequate notice impliedly alleges an entitlement to dismiss summarily. Dismissal on full notice does not. Hence the need for special notice in that case. The answer to the second question is that if the employee is dismissed wholly or mainly on account of redundancy and receives full notice of dismissal, the employer cannot rely upon section 2 unless he has given a notice complying with section 2(2)(c). This is not insignificant sanction.
45. Many other points can arise under these sections, but we hope that we may be acquitted of any lack of enthusiasm for the subject matter if we refrain from expressing even tentative views until they arise for decision.
46. For the reasons which we have given, the appeals fail and will be dismissed.

Appeals dismissed

Note 1   (1957) A.C. 488 at 500.    [Back]

Note 2   (1972) 7 I.T.R. at 165-166.    [Back]

Note 3   (1956) 1 Q.B. 658 at 674.    [Back]

Note 4   (1957) A.C. at 500.    [Back]

Note 5   (1962) 1 W.L.R. 1411    [Back]

Note 6   (1969) 1 Q.B. 699.    [Back]

Note 7   (1971) 2 All E.R. 216.    [Back]

Note 8   (1969) 1 Q.B. at 726.    [Back]

Note 9   (1971) 2 All E.R. at 223.    [Back]

Note 10   (1971) 2 All E.R. at 229.    [Back]

Note 11   ibid at 233.    [Back]

Note 12   (1881) 6 A.C. 251.    [Back]

Note 13   (1881) 6 A.C. at 270.    [Back]

Note 14   (1972) Ch. 305.    [Back]

Note 15   (1972) 7 I.T.R. at 166.    [Back]

Note 16   (1973) 8 I.T.R. 458.    [Back]

Note 17   (1972) 7 I.T.R. 361.    [Back]

Note 18   (1968) 3 I.T.R. 355.    [Back]

Note 19   (1973) 8 ITR 77.    [Back]

Note 20   supra, page 379.    [Back]

Note 21   (1974) 9 I.T.R. 164.    [Back]

Note 22   (1966) 1 I.T.R. 186.    [Back]