United Kingdom Employment Appeal Tribunal

BAILII case number: [1994] UKEAT 474_93_0802

Appeal No. EAT/474/93

2

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 8 February 1994

Before

THE HONOURABLE MR JUSTICE WATERHOUSE

MR A C BLYGHTON

MR J C RAMSAY

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FMC PLC          APPELLANTS

USDAW          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR VAUGHAN FULLAGER

(SOLICITOR)

42 Cricklade Street

Swindon

Wiltshire SN1 3HD

For the Respondents MR DAMIAN BROWN

(OF COUNSEL)

188 Wilmslow Road

Fallowfield

Manchester M14 6LJ


 


MR JUSTICE WATERHOUSE: This is an Appeal by employers from the decision of an Industrial Tribunal sitting at Prestatyn on 21 April 1993. By their unanimous decision, the Tribunal held that the Application by the Respondent Trade Union for a declaration and protective awards succeeded, that is, a declaration that the Respondents had contravened the provisions of Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 and protective awards to each of the employees involved. The Appellants do not dispute that part of the decision by the Tribunal that dealt with the declaration but they appeal against the assessment of the protective awards.

The background to the case can be stated very shortly. The Appellants operated a slaughter house at Caernarvon and the Respondent Trade Union was recognized by the Appellants. As a result of the implementation of certain EEC regulations for the meat trade, the Appellants were faced with a serious financial problem because, in order to meet the standards of hygiene laid down in the regulations, considerable capital investment was necessary. In consequence, a decision was made by the Appellant's Group Board that the plant at Caernarvon would have to close and that all their employees at the plant should be made redundant. The compliance date prescribed by the regulations was 31 December 1992. The effective date of closure of the plant determined by the Appellants was 6 November 1992.

The finding of the Tribunal was that the Respondent's full-time official, Mr. Snell, was presented with a fait accompli in relation to the Appellant's decision at a meeting on 23 October 1992 and that there had been breach of the requirements for consultation prescribed by the Act of 1992. The Tribunal said at paragraph of their full reasons:

"It is clear from the above, and this was admitted by Mr Monks, the respondents' Group Company Secretary, that the respondents failed to satisfy any of the requirements of Section 188 of the Act."

The Tribunal regarded the failure of the Appellants to carry out appropriate consultations as a lamentable lapse and went on to conclude that it was appropriate to make a protective award to each Union member made redundant of four weeks' pay. That was a decision made pursuant to the provisions of Sections 189 and 190 of the Act of 1992. However, the Tribunal went on to say:

"We consider it appropriate that the respondents should have credit for any payment made in lieu of notice over the statutory entitlement of each employee."

They went on to make an assessment of the award in relation to each employee on that footing. To illustrate how the calculation was made it is necessary to refer only to two of the employees. T A Lewis was aged 20 years and was entitled on the basis of his service to one week's notice. He received, in fact, an assessment of a protective award on the basis of four weeks' remuneration but as he had been paid for three weeks' over and above his entitlement to one week's notice, that period of three weeks in excess of his statutory entitlement was deducted from the four weeks that would otherwise have been paid to him and the award assessed by the Tribunal was on the footing of one week at £165. G Davis, on the other hand, was an employee aged 37 years with 18 years' service, who received as a payment in lieu of notice a sum calculated on the basis of 12 weeks' pay. His statutory entitlement was 12 weeks and, accordingly, he had not received any payment in excess of his statutory entitlement, so that he received the full protective award of four weeks, namely, £660 in his case.

In making its assessment of the award in relation to each employee, the Tribunal did not indicate the reason for giving credit to the Appellants only for such payments made in lieu of notice that were in excess of the statutory entitlement of each employee and to the extent of that excess. The Appellants therefore appeal against the amounts of the awards and the essential submission made on their behalf is that the Tribunal erred in law in failing to give full credit to the employers for the payments made in lieu of notice in assessing the net award to be made to each Trade Union member who had been made redundant.

The relevant provisions relating to an employee's entitlement under a protective award are contained in Section 190 of the Act of 1992 and the material provision relating to credit to be given to an employee in respect of payments made to an employee are set out in subsection (3) of that section. Before reciting the provision it is necessary to say that in the instant case the period of the protective award began on 7 November 1992, that is, the date when the plant ceased operation and the period of four weeks assessed as the appropriate period of the award is not in dispute on the hearing of the appeal. It is accepted that the assessment of four weeks was within the discretion of the Tribunal, having regard to the provisions of Section 189(4) and was an appropriate exercise of that discretion. Subsection (3) of Section 190 reads:

"Any payment made to an employee by an employer in respect of a period falling with a protected period -

(a) under the employee's contract of employment, or

(b) by way of damages for breach of that contract,

shall go towards discharging the employer's liability to pay remuneration under the protective award in respect of that first mentioned period."

There is an additional provision in the subsection for the converse situation but that is not material for the purposes of this Appeal.

The submission, therefore, on behalf of the Appellants is that the statutory words are clear. In the instant case the employees had received redundancy payments and payments in lieu of notice. The payments in lieu of notice were payments by way of damages for breach of their contracts of employment and the amounts of the payments in lieu of notice should, therefore, have been credited fully to the employers in calculating the amount of the protective award to be paid to them in respect of the period of four weeks from 6 November 1992.

In the absence of any cited authority by the Tribunal for its exception in relation to the period of the statutory entitlement, it would appear that the Appellant's arguments have considerable force. The matter is, however, not without authority to reinforce the Appellant's submission. In the first place, the status of payments in lieu of notice was considered recently by the House of Lords in Delaney v Staples [1992] 1AER 944. The leading opinion was delivered by Lord Browne-Wilkinson with whom all the other members of the appellate committee agreed. It is unnecessary to refer to the facts of the case, except to say that a woman employee who had worked as a recruitment consultant was dismissed summarily after seven months' employment when she was handed a cheque as payment in lieu of notice. In the course of his opinion Lord Browne-Wilkinson gave detailed consideration to the meaning of payment in lieu of notice, pointing out that it is not a term of art. At page 947 of the report he categorized the various ways in which a payment in lieu of notice might be interpreted in terms of its legal status, without attempting to give an exhaustive list, and he instanced at page 947H the situation with which this Appeal Tribunal is concerned. He said:

"(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment."

Lord Browne-Wilkinson went on to approve the analysis made by Lord Donaldson, Master of the Rolls, in Gothard v Mirror Group Newspapers Ltd [1988] ICR 729, specifically at page 733. And then Lord Browne-Wilkinson continued at page 948C of the Delaney case:

"In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category."

In other words, the learned Lord agreed that the proper view was that such a payment was usually designed by the employer to extinguish any claim for damages for breach of contract, that is, wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.

Thus, on the basis of that decision, it would seem clear that the payments made in the present case in lieu of notice were payments by way of damages for breach of the employees' contracts of employment. The matter does not rest there, however, because the interpretation of what is now Section 190(3) of the Act of 1992 was considered by this Appeal Tribunal in -Vosper Thorneycroft (UK) Ltd v TGWU and GMBATU [1988] ICR 270. The relevant provisions were then contained in Section 102(3) of the Employment Protection (Consolidation) Act 1978. In that case, the employers had paid the dismissed employees 13 weeks basic pay, partly wages in lieu of notice and partly an ex gratia payment. The Industrial Tribunal upheld the Union's application for protective awards and held that, having regard to the wording of Section 102(3), the payments were by way of damages for breach of contract and should be calculated on the basis of net earnings so that the employers were entitled to deduct from the protective awards the equivalent of the net amount of the payments made to the employees on their dismissal.

On the employers' appeal on the grounds that the gross payments ought to have been deducted, the decision of this Appeal Tribunal was that the true purpose of the statutory provision was to constitute a set off in respect of payments actually paid by an employers rather than in respect of payments a court might award in damages for breach of contract and that, accordingly, the employers were entitled to deduct from the protective awards the gross amount paid to the employees at the time of the dismissal. In the course of the Judgment of the Appeal Tribunal delivered by Mr Justice Wood, he set out the material words at page 277G in this way:

"We agree that the issue of construction is whether the phrase [in Section 102(3)] 'by way of damages for breach of contract' is to be construed narrowly as did the Tribunal with the consequential necessity of a detailed calculation in accordance with common law principles, or to be construed liberally and in a broad sense. We respectfully disagree with the approach of the Tribunal and construe the phrase in its wider sense for a number of reasons. First, because to do so gives strength to the phrase with which the section starts, namely, 'Any payment made to an employee by an employer'. Secondly, because the common law principles cannot be fully applied as the issue of mitigation is not applicable. Thirdly, because it is a far simpler approach and fourthly, because it enables like to be settled against like - gross amounts on each side of the equation - and thus to support the overall intended policy of the this part of the statutory code, namely compensation. This construction would also seem to fit in with the converse provisions at the end of the subsection, and has the advantage of simplicity."

The Appeal Tribunal was not, of course, on that occasion invited to consider any question of exemption from the credit to be given to the employer in respect of the period of statutory entitlement.

In response to these arguments on behalf of the Appellants, Mr Brown on behalf of the Respondent Trade Union, has submitted, first of all, on the narrow question of construction of the Act of 1992, that the proper view of the payments made in this case by the employers is that they were not payments by way of damages for breach of contract. He suggests that they are more properly regarded as simply ex gratia payments and he suggests that that is a proper view because the provision was that the payments should be a minimum of four weeks in lieu of notice. Thus, in the case of Mr Lewis to whom reference has been made earlier, he would have been entitled to a maximum of one week's payment in lieu of notice. Any payment in excess of that ought properly to be regarded as an ex gratia payment rather than payment in respect of damages for breach of contract.

The difficulty that faces this part of Mr Brown's argument is that the Tribunal below made an express finding that the payments made by the employers were payments in lieu of notice. They had always been stated to be such and the description was repeated in two sub-paragraphs of paragraph 2 of the reasons and again in paragraph 4 of the reasons. There is no material before this Appeal Tribunal on which it would be possible to make a finding that the payments were other than payments in lieu of notice and, having regard to the compelling analysis made by Lord Browne-Wilkinson in the Delaney case, we have no hesitation in accepting that the true view of the payments made here by the employers was that they were payments made by way of damages for breach of contract in relation to each of the employees. There is no doubt, also, that they were payments made in respect of the period falling within the protected period, which is a further precondition of the Appellants' right to have them taken into account.

Mr Brown's argument does not end there, however, because he submits that, having regard to the European Commission Directive dealing with the question of consultation in relation to redundancy, the Industrial Tribunal should have construed the provisions of Section 190(3) in such a way as to exclude from any deduction to be made the period of the statutory entitlement as the Tribunal, in fact, did. In other words, Mr Brown's submission is that, although the Tribunal did not cite any authority for what they did, they were giving appropriate effect to the requirements of the relevant European Commission Directive.

Mr Brown has been in some difficulty in arguing the Respondents' case because there is no cross appeal against the findings of the Tribunal. In presenting the argument, however, he has suggested alternatively, and indeed more forcefully than his first argument based on the European Commission Directive, that the provisions of Section 190(3) conflict with the clear objects of the relevant directive to such an extent that they should not be implemented by the English Courts. It is suggested that the provision for giving credit in respect of payments by way of damages for breach of contract so weakens the general provisions for a protective award as to undermine the essential sanction designed to secure compliance with the European legislation. It thus conflicts with the objectives of the EC Directives and should not be recognized as part of the law of this country.

We have considered with great care the interesting argument that has been addressed to us in support of these submissions but we have reached the conclusion that Mr Brown's basic premise is misconceived. The whole of his argument in the end rests upon the proposition that the existence of a set-off provision in Section 190 of the Act of 1992, as interpreted by the Appellants, has the effect of defeating the purpose of the relevant European Directive. If that argument could be sustained, then we accept that it would be the duty of the English Courts to disregard Section 190(3), but we are wholly satisfied that the submission is ill-founded and that there is nothing in the provisions of that sub-section that can properly be regarded as defeating the purpose of the Directive when the sub-section is considered in the full context of the other provisions governing a protective award.

Without disrepect to Mr Brown, we do not propose in the circumstances, to give an elaborate analysis of the argument that he has presented to us but it is right that we should sketch in as briefly as is convenient the main thrust of what has been put to us.

The relevant Directive is that designated EC Directive 75/129, which is to be found in Butterworths Employment Law Handbook at page 1118. The object of that Directive was stated in the following terms in the preamble:

"Whereas it is important that greater protection should be afforded to workers in the event of collective redundancies while taking into account the need for balanced economic and social development within the Community;

Whereas, despite increasing convergence, differences still remain between the provisions in force in the Member States of the Community concerning the practical arrangements and procedures for such redundancies and the measures designed to alleviate the consequences of redundancy for workers;

Whereas the Council resolution of January 21, 1974 concerning a social action programme makes provision for a Directive on the approximation of Member States' legislation on collective redundancies;

Whereas this approximation must therefore be promoted while the improvement is being maintained within the meaning of Article 117 of the Treaty."

There follows a series of articles in the Directive dealing with the problems that arise in collective redundancies and making specific provision in article 2 for consultation with workers' representatives to make and consider constructive proposals. The consultations are to cover, at least, ways and means of avoiding collective redundancies or reducing the number of workers affected and mitigating the consequences.

Without referring unnecessarily to other provisions contained within the Directive, the passages cited so far indicate the general purpose of the Directive as a whole. It is submitted, therefore, that the duty of the United Kingdom Courts is to construe the relevant statutory provisions dealing with consultation in the event of redundancy and the penalties for breaches of procedure purposively. In aid of this submission reference is made to the decision of the European Court in Sabine von Colson and Elisabeth Kamann v Land Nordrhein-Westfalen [1984] ECR 1891 and, in particular, to paragraphs 26 and 28 of that Judgment at page 1909. It is also submitted that the decision in Lister and others v Forth Dry Dock & Engineering Co Ltd [1989] ICR 341 is another illustration of that principle. It is recognized that national legislation should not be distorted in applying those principles but it is said here that the effect of directives and, in particular, of Directive 75/129 is to render inapplicable any conflicting national provision. In support of that particular submission reliance is placed upon Amministrazione della Finanze dello Strato v Simmenthal S.p.A. [1978] ECR 629 and it said that the purposive interpretation should be applied in appropriate circumstances whether or not the national law came into effect before or after a Directive and as between private individuals (see Marleasing SA v La Commercial Internacional de Alimentacion SA [1992] 1 CMLR 305.

Whilst the general analysis of principle by Mr Brown in relation to the effect of European legislation has been persuasive, the argument as a whole founders in the instant case, as we have already indicated, because we do not consider that the provisions of Section 190(3) of the Act 1992 are such as to conflict with or defeat the purpose of the EC Directive 75/129. The reality is that, by the general provisions of the Act, the UK Government did make provision for mandatory consultations in the event of redundancy and for a protective award to employees as a sanction in the event of a breach of the requirements. It cannot be said that the mere provision, in relation to the calculation of a protective award, of a requirement that credit should be given in certain circumstances to an employer to avoid double payment is such as to conflict with the general purpose of the directive or to render ineffective the general sanction provided by the English legislation. No doubt there is scope for a difference of opinions about the appropriateness of including a provision for set-off in Section 190 and it is apparent that the Government has now changed its mind in the sense that the provision in Section 190(3) has been deleted with effect from the 30 August 1993, by virtue of the provisions of the Trade Union Reform and Employment Rights Act 1993. The fact that there may be differences of opinion of the kind indicated is no justification, however, for a finding by this Tribunal that the provisions of Section 190(3) conflicted with the EC Directive or were such as to defeat its purpose.

In reaching our conclusion, we have had finally in mind the decision of the European Court in the case of Marshall v Southampton and South-West Hampshire Area Health Authority [1993] IRLR 448. Our attention has been drawn in particular to paragraph 26, of the report but, in our judgment, the reasoning that led the European Court to conclude that the limit on compensation prescribed by the relevant Act, that is, the Sex Discrimination Act 1975, was in conflict with the EEC's Equal Treatment Directive 76/207 cannot properly be prayed in aid of the Respondent's argument in the instant case.

In short, our conclusion is that there is no conflict between the provisions that we have been asked to consider and it would be inappropriate, therefore, for us either to disregard or to attempt to re-write Section 190(3). Our duty is to give it effect and for that reason the Appeal must succeed.

It is unncessary, in the circumstances, for a rehearing to take place. The Appeal will be allowed and appropriate awards will be substituted on the basis of a calculation giving full effect to Section 190(3) in respect of the payments in lieu of notice made by the Respondents.