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Cite as: [1994] UKEAT 741_92_1507

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BAILII case number: [1994] UKEAT 741_92_1507

Appeal No. EAT/741/92

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 15 July 1994

Before

THE HONOURABLE MR JUSTICE MUMMERY (P)

MISS J W COLLERSON

MRS P TURNER

PAULS AGRICULTURE LTD APPELLANTS

MR A BUTLER RESPONDENT

Transcript of Proceedings

JUDGMENT

Revised

APPEARANCES

For the Appellants MR A POPPLEWELL

(OF COUNSEL)

Messrs Birkett Westhopr & Long

20-32 Museum Street

Ipswich

IP1 1HZ

For the Respondent MR J BOWERS

(OF COUNSEL)

Beckett Grange Wintringham

17 Oxford Street

Market Rasen

Lincs LN8 3AH

MR JUSTICE MUMMERY: (PRESIDENT) This is an appeal against a decision of the Industrial Tribunal held at Leicester on the 7 August 1992. For full reasons notified to the parties on the 4 September 1992 the Tribunal unanimously decided that the Applicant, Mr Butler, was unfairly dismissed by his former employer, Pauls Agriculture Ltd.

The employer was dissatisfied with the decision and appealed by Notice of Appeal dated the 12 October 1992. In order to understand the points made in legal argument on the appeal it is necessary to look at the background to the dispute which resulted in these proceedings and at the course of the proceedings.

Mr Butler was employed by the company as a Sales Manager. The business of the company was the production of compound animal feedings stuffs. Before the dispute began Mr Butler occupied the position of a Sales Manager in the North East Region. His area was described as "East". Above him was a Regional Sales Manager and above him, in turn, a Regional Director for the North East Region.

It was the reorganisation of the structure of the North East Region which generated the dispute and led to these proceedings. Under the proposed reorganisation structure Mr Butler would occupy a different position with different duties. Mr Butler's employment had started in June 1985. It came to an end on the 27 January 1992. He was dismissed with three months notice.

The dismissal led to the proceedings for unfair dismissal commenced by the Originating Application presented on the 1 April 1992. In the details of his complaint he explained that, on about the 24 October 1991, when he was away from work sick, he was visited by a director of the company, Mr Gaffney. He informed him that, following changes in the structure of the company his job as a sales manager no longer existed. He was told that he was to become Regional Poultry Business Manager, but otherwise there would be no change in the terms and conditions of his employment.

He complained that, contrary to normal and acceptable business practice, there was no consultation whatever with him prior to that announcement. He complained that, contrary to the assertion that the terms and conditions of his employment would remain the same, there would in fact be changes, for example, in relation to the payment of commission.

The Originating Application goes on to explain the details of what he said happened between the call by Mr Gaffney and the receipt by him of notification that he would be dismissed if he did not accept the package offered. He did not accept the offer. His view of the situation was that he had raised questions which the company had failed to answer properly. They were threatening him with dismissal because he did not accept their offer.

He specifically set out the respects in which he contended that the job offered to him involved a loss of status. As a sales manager he operated across a range of products, whereas the new job would relate solely to poultry. Previously he had managed a team of seven. The new job would reduce that team to two. He also lost the Poultry Livestock Plan Administrator position to the Pig Livestock Department.

He gave other details which he said supported the claim of loss of status. He summarised his complaint by saying that he was unable to accept the position offered because of the lack of consultation prior to the restructuring, because of the company's attitude to him had become such that he had lost confidence in the company; that the job offered was of much inferior quality to his position as sales manager and there was the clear loss of status that was unacceptable.

The company contested the claim. According to the Notice of Appearance dated the 22 April 1992 the company's case was that the reason for dismissal was that Mr Butler had refused to accept an appointment following a management reorganisation. That was "some other substantial reason" which justified his dismissal within the meaning of Section 57(1)(b) of the Employment Protection (Consolidation) Act 1978.

The company attached to the Notice of Appearance charts which illustrated the difference in the company organisation before and after the critical date of the 24 October 1991. They submitted a lengthy explanation of the reorganisation of the management of the company which had been announced on the 24 October. They responded to the details of Mr Butler's complaint and submitted in conclusion that the changes in his appointment and terms and conditions did not result in a diminution of his position, status or remuneration in the company. The changes were necessitated by a company wide reorganisation and were reasonably applied with his interests being taken into consideration.

We have mentioned the statement of the opposed positions to make clear what was the contest before the Industrial Tribunal. It is important to bear this in mind because of the criticisms made by the company about the way in which the Tribunal approached the resolution of the dispute.

The decision of the Tribunal begins by setting out the undisputed facts relating to the period of Mr Butler's employment and to the way in which the company, through Mr Gaffney, informed Mr Butler of the proposals for structural reorganisation within the company. The Tribunal found that Mr Butler was in effect being given substantially changed terms of employment without any earlier discussion or consultation with regard to the proposed changes. The Tribunal found as a fact that Mr Gaffney had taken Mr Butler completely by surprise when he visited him in October with the news of reorganisation.

The Tribunal set out their findings of fact about what emerged in the subsequent discussions between Mr Gaffney and Mr Butler. The Tribunal found that in those discussions Mr Butler formulated his reasons for dissatisfaction with the new terms. There was no doubt that there was substantial change in the terms of employment and in the position from Sales Manager to Regional Poultry Sales Manager.

There was, the Tribunal thought, a substantial loss of status. Although the basic salary remained the same, nothing was said in the initial offer about compensating Mr Butler for the bonus to which he was entitled in his previous position. Although the company were prepared to give him certain assurances about this, the Tribunal found that nothing definite was arranged that would bind either the company or Mr Butler.

The Tribunal concluded this part of the case by noting what Mr Gaffney had said in his evidence. We have the Chairman's notes of that evidence. That was his answer in cross-examination that Mr Butler's job was redundant.

The Tribunal dealt with the circumstances of dismissal. The company wrote to Mr Butler saying he must, within a specified time, notify his acceptance of the new terms. After taking advice Mr Butler confirmed that he was not prepared to accept the position offered. On the 24 January his employment was terminated; he was given three months notice.

We come to a critical part of the decision of the Tribunal. We should read paragraph 5 in its entirety since it was mainly on that paragraph that legal argument centred. The Tribunal said:

"On these facts, the clear finding of the Tribunal was that the dismissal was unfair. In effect, the company was unilaterally changing the terms of employment of the applicant and the applicant was being dismissed because he was not prepared to accept those changed terms of employment. The respondents had in common law, broken the employees terms of employment. Under the employment legislation, dismissal in these circumstances was not an acceptable reason within the specific terms of Section 57 of the Employment Protection (Consolidation) Act 1978, nor within the spirit of the legislation. This was an unfair dismissal."

It would appear that in that paragraph the Tribunal were addressing Section 57(1) of the 1978 Act. That provides:

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

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

(b)that it was a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which that employee held."

It is common ground that there was no reliance on any reason falling within sub-Section (2.) This was of case of "some other substantial reason" within Section 57(1)(b) or no reason at all.

In paragraph 6 the Tribunal went on, in a rather unexpected fashion, to debate redundancy. The Tribunal said:

"In circumstances such as these, where the applicant's position was made redundant, a proper course for an employer to have adopted would have been to have dismissed the employee for redundancy within the meaning of Section 82 of the Employment Protection (Consolidation) Act 1978 and for the employer to have notified the employee of an offer of alternative employment within that Section. It would then have been a matter for the Tribunal to decide whether the offer of alternative employment was suitable within the meaning of that Section. However, that situation did not apply in these circumstances and the departure from common law by way of statue in Section 82 did not apply. In general terms, the above statement provides the reason why the Tribunal considered that this dismissal was unfair. If the Tribunal had to elaborate beyond these basic principles it could have added that the employer had acted unreasonably by failing to consult with the employees before entering upon what was virtually a redundancy exercise in view of the new reorganisation. However, quite apart from these general considerations of reasonableness within Section 57(3), this was an unfair dismissal in any event."

A section of the argument on each side was devoted to attempting to grapple with that paragraph. We find it unsatisfactory since it is not clear, to what issue the Tribunal were addressing their remarks. No question of dismissal for redundancy arose in the Originating Application or in the Notice of Appearance. It was not an issue between the parties. The point seems to have cropped up during the course of the evidence as a result of Mr Gaffney commenting in a passage of the notes already mentioned that he agreed that Mr Butler's job was redundant.

The dispute between the parties on this appeal is whether the Tribunal were in that paragraph dealing with the provisions of Section 57(3) of the 1978 Act on the issue of whether the employer has acted reasonably or unreasonably in treating the reason shown by the employer as a sufficient reason for dismissing the employee.

Section 57(3) provides:

"Where the employer has fulfilled the requirements of subsection (1), ... the determination of the question whether the dismissal was fair or unfair, having regard to the reason shown by the employer, shall depend 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 that question shall be determined in accordance with equity and the substantial merits of the case.]"

We shall consider in a moment the rival arguments about the Tribunal's reasoning in paragraphs 5 & 6 of the decision.

The case on the appeal has been extremely well argued on both sides. We are grateful to Counsel for their assistance in what is not an easy case. Fortunately, as in most well argued cases, there was a large degree of agreement about the relevant legal principles. It was agreed that in a case such as this the Tribunal should follow a three stage approach.

Mr Popplewell referred to a statement in the case of Priddle v Dibble [1978] ICR 149, 152C - 153D in which Mr Justice Bristow explained that the pattern of the earlier legislation, repeated in Section 57, was that the employer must first show what was the reason for dismissal. Secondly, he must show that the reason for dismissal fell within the reasons set out in Section 57(2) or was some other substantial reason of the kind such as to justify dismissal of an employee holding the position which the employee held. Thirdly, then, and not until then, the Tribunal should consider whether the dismissal was fair or unfair having regard to the relevant provisions of Section 57(3).

It is important to note that there was no disagreement between Mr Popplewell, who represented the company, and Mr Bowers, who represented Mr Butler, that this is the correct approach. That does not mean that a Tribunal acts in error of law by failing to spell out in their decision precisely what they are doing stage by stage. Another area of agreement is on the function of this Tribunal on an appeal.

Mr Bowers, helpful as always, reminded this Tribunal of matters that would be dangerous to overlook in the function of an Appeal Tribunal. First, this Tribunal must always be wary of points of fact being adorned as points of law in order to give the Tribunal a jurisdiction it would not otherwise have. The jurisdiction of this Tribunal is limited to dealing with points of law. Secondly, he gave us a salutary warning, that it is not our job to go through Tribunal decisions with a fine toothcomb, nit picking points of detail. We should look at the decision broadly to see whether or not there has been an error of law in the approach to the case and in the application of the law to it.

Thirdly, points may have been taken into account by the Tribunal, even though they have not expressly mentioned them in the decision. That is a recognition of the fact that life is too short to expect Tribunals to dot every i and cross every t in explaining their decisions. They have many cases to hear. As long as they give a sufficiently accurate statement of the facts and of the law that is good enough.

Mr Bowers reminded us the questions of the reason for dismissal and of the reasonableness of a dismissal are essentially questions of fact. It is not for us to disagree with the Tribunal on questions of fact. He reminded us that it is dangerous for this Tribunal to overturn decisions of Industrial Tribunals on basis of legal arguments which have not been addressed to the Tribunal.

He reminded us finally that, even if it were possible in this case to find some misdirection by the Tribunal, if we were satisfied overall that the decision was unarguably right, then we should not allow the appeal and remit it to the Industrial Tribunal with all the further delays and expense that that would involve. If, when properly understood, this decision was unquestionably right, we should overlook detailed points which did not affect the overall outcome.

Those are all important factors to bear in mind when we deal with the details of the submissions. Although the submissions have been made very carefully over the course of the day and we have looked and examined each of them, the case really is capable of being decided on a short point.

Mr Popplewell's main argument was that the Tribunal had erred in law in the way in which they dealt with the first and second stage of the three stage process. He submitted that the critical error of law in the Tribunal's decision is contained in paragraph 5, in which it would appear the Tribunal were dealing with the reason for the dismissal, after setting out the background facts.

Mr Popplewell's submission was that the Tribunal had not asked themselves the proper question. The proper question was whether Mr Butler's refusal to accept the proposed changes to his position in consequence of the reorganisation was a reason which justified his dismissal within Section 57(1)(b). The Tribunal did not ask this question. They did not answer it. If they had answered it, the answer would have been `yes'. The consequence of the answer being `yes' would be that the employers succeeded in the first two stages of the process.

He submitted that the failure of an employee to accept new terms on the reorganisation of a business could and would normally fall into the category of a substantial reason of a kind which would justify dismissal. More specifically, he argued, the fact that there might be a common law breach of contract by the company in their attempts, unilaterally, to change the terms of employment was irrelevant to this question. The essential error of law made by the Tribunal was in not only regarding it as relevant, but in also regarding it as determinative of the question against the company.

In any case, on the facts of this case, there was no breach of the contract of employment. We will deal with the argument on the basis of an assumed breach. The relevant authorities bear out the soundness of Mr Popplewell's submission. First, the decision of the Court of Appeal in Gilham v Kent County Council (No.2) [1985] ICR 233. We see from of the judgment of Lord Justice Griffiths that the Tribunal should keep quite distinct the stages of Section 57(1)(b) and the test in Section 57(3). As Lord Justice Griffiths said at page 239F:

"In order to decide if the reason was a substantial one, they asked themselves if the employers were, in the circumstances of this case, reasonable in regarding it as a sufficient justification for the dismissal. This is a test that has to be applied when considering section 57(3), and not section 57(1)."

The reasonableness of the employers' conduct does not come in to the question of whether or not a substantial reason has been made out. There are similar passages in the judgment of Lord Justice Dillon where he criticised the Tribunal in that case. As he said at page 244E:

"They failed to consider whether the reason was such as was capable of justifying the dismissal; instead they erroneously concluded that, because the reason failed, in their view, to satisfy the test of reasonableness under subsection (3), it did not justify the dismissal and so was not "of a kind such as to justify the dismissal" under subsection (1)."

Mr Popplewell referred to the case of Hollister v National Farmers Union [1979] ICR 542 which supports his proposition in relation to reorganisation of a company's or firm's business in the context of a dismissal for a substantial reason falling within Section 57(1)(b). In the judgment of Lord Denning M.R. it is stated at page 550F:

"The question which is being discussed in this case is whether the reorganisation of the business which the National Farmers' Union felt they had to undertake in 1976, coupled with Mr Hollister's refusal to accept the new agreement, was a substantial reason of such a kind as to justify the dismissal of the employee."

Lord Denning said that it had been recognised by the Court in an earlier case that reorganisation of a business may on occasion be a sufficient reason justifying the dismissal of an employee. He said at page 551A:

"But in the present case Mr Justice Arnold expanded it" ... but to where there was some sound, good business reason for the reorganisation. I must say that I see no reason to differ from Mr Justice Arnold's view on that. It must depend on all the circumstances whether the reorganisation was such that the only sensible thing to do was to terminate the employee's contract unless he would agree to a new arrangement. It seems to me that paragraph may well be satisfied, and indeed was satisfied in this case, having regard to the commercial necessity of rearrangements being made and the termination of ..." [and then he deals with certain legal relationships which are mentioned].

He concluded that it seemed to him that there was a substantial reason of a kind sufficient to justify this kind of dismissal. Lord Justice Eveleigh and Sir Stanley Rees agreed with that proposition.

There is a passage to a similar effect in Bowater Containers v McCormack [1980] IRLR 50, in paragraph 15 on page 53. After citing the passage referred to in Lord Denning's judgment, the Employment Appeal Tribunal said that, on the clear authority of that decision, there was a good substantial reason. In that case the reason was the refusal by the employee to undertake his part in the new reorganisation which was beneficial to the efficient running of the company.

Finally, on the authorities, we were referred to two cases in support of the proposition that an employer may establish a substantial reason of a kind to justify dismissal, even in cases where his action may involve a breach of the contract of employment. The first case is Genower v Ealing, Hammersmith and Hounslow Area Heath Authority [1980] IRLR 297. In paragraphs 17 and 18 it is made clear in the decision of the Tribunal given by Mr Justice Slynn that, if a good, sound business reason is shown, that may constitute a substantial reason within the meaning of the section; even if the alternative to taking the course they propose is not that the business would come to a standstill but is merely that there would be some serious effect upon the business.

Reading that in the context of the earlier paragraph, (paragraph 17), Mr Justice Slynn observed that the matter was not concluded by a decision that there had been a fundamental breach of contract on the part of the employer. In the second case of Savoia v Chiltern Herb Farms Ltd [1981] IRLR 65 at paragraph 11. Mr Justice Slynn stated that an employer might, even though in fundamental breach of contract, rely on Section 57(1) or (2) or Section 57(3) in justifying his conduct.

On the basis of those authorities Mr Popplewell submitted that it was an error of law on the part of the Tribunal to regard what they thought was a common law breach of contract as a circumstance which prevented the business reorganisation of the company from being a substantial reason within Section 57(1) of the 1978 Act. There could be a substantial reason, even though there was a breach of contract. What the Tribunal should have done was to find that there was a reason made out within Section 57(1)(b) and then proceed to deal with Section 57(3).

Mr Popplewell's final submission was that, properly analysed, the Tribunal had never addressed itself to Section 57(3). The only reference to that Section is at the end of the paragraph 6, in what is almost a throw away line, where they say:

"... quite apart from these general considerations of reasonableness within Section 57(3), this was an unfair dismissal in any event."

The general considerations of reasonableness that they appeared to refer to were two: first, the redundancy point, and secondly, the lack of consultation before entering what they say was virtually redundancy exercise in view of the reorganisation. As was made clear by Mr Justice Knox in St John of God (Care Services) Ltd v Brooks [1992] ICR 715 at 719 -722, the Tribunal, when dealing with Section 57(3), should avoid giving undue importance to one particular factor. The Tribunal ought to look at the whole question of the reasonableness or unreasonableness of the employer's conduct in the context of the reorganisation.

We have been impressed by these arguments. It is not necessary to go into the details of the arguments on the redundancy point. The redundancy point was never an issue between the parties. We have to say that it appears to have been addressed by the Tribunal in an unorthodox way. Although they refer to Section 82 of the Act, they do not address themselves to the specific criteria which are contained in Section 81(2) before deciding whether a person is to be taken as dismissed by reason of redundancy. We find it difficult to understand how the question of redundancy came to figure in the deliberations of the Tribunal.

Mr Bower's arguments against this have failed to persuade us that this decision can stand. Mr Bowers made some helpful points. He said that it is for the employer to prove the reason for the dismissal. If the Industrial Tribunal are not satisfied that the employer has made out a case of a substantial reason for dismissal, they are perfectly entitled as a matter of fact to find that the case had not been made out.

Mr Bowers went on to say that the evidence before the Tribunal on this question was not nearly detailed enough to convince the Tribunal. He described it as limited evidence on the reorganisation. That, he submitted, was not sufficient to satisfy the Tribunal. The Tribunal were entitled to come to the decision they did in paragraph 5. He submitted that, read in context, paragraph 5 did not contain an error of law. He placed emphasis on the fact that the opening words of the paragraph were "On these facts". A clear finding of the Tribunal was that the dismissal was unfair. These facts refer to what they have found as facts in the preceeding paragraphs.

The difficulty on this is in the way in which the Tribunal did express themselves in this paragraph. Although they opened with the general reference back to its findings of fact, the Tribunal then went on in the next sentence to say that in effect the company was unilaterally changing the terms of employment in breach of contract.

We find it difficult to read that paragraph in any other way than as stating that, in the view of the Tribunal, the employer had not made out a substantial reason because, on a proper view of the Company's conduct, it had acted in breach of contract. That is erroneous in law. We accept the submission of Mr Popplewell, that whether or not there has been breach of contract (on that we express no view), is irrelevant to the question of whether an employer has made out a substantial reason which justifies the dismissal of the employee in the context of his refusal to accept terms on a reorganisation of the employer's business.

Mr Bowers made a more effective submission in relation to the overall unreasonableness of the employer's decision. It is these submissions that have caused us to waver in the course of argument. He submitted that, if one looked at all the findings of fact and the Tribunal are the final arbiters of the facts the Tribunal were justified in coming to the decision that it was an unfair dismissal. Even if the company had succeeded at the first stage in showing they had a substantial reason for dismissal, it could not succeed at the second stage, in showing that the dismissal was, in all the circumstances, reasonable.

Mr Bowers made some forceful points on the facts. He pointed to the findings of fact about the failure to consult. He pointed to the absence of detailed evidence about the need to reorganise the structure of the company in such a way as to have the impact on Mr Butler that it did. He referred in detail to the changes in Mr Butler's conditions of service.

We have given anxious consideration to those points. But we are unable to find, at the end of the day, that Mr Bowers has satisfied us that this decision on that point is unquestionably right. In our view, the problem is that the Tribunal went wrong in law in the whole approach to the question in paragraph 5 and went in paragraph 6 into matters which we fail to see are relevant, namely the matters of redundancy. It is therefore difficult to be sure of the correctness of the final conclusion of the Tribunal which barely states that this employer had acted unreasonably in dismissing Mr Butler.

Further arguments were made on points on which we do not express a view, because it is not necessary for the purposes of disposing of this appeal. We would not in any case want to express views that might have an influence on the decision of the Industrial Tribunal to whom this matter must now be remitted.

For these reasons the appeal will be allowed. There is an error of law contained in paragraph 5 of the decision. This matter has to be remitted to an Industrial Tribunal to start afresh. It should be a different Tribunal than the one that heard this matter at Leicester on 7 August.

This is a course that we adopt without enthusiasm. It is two and a half years since Mr Butler was dismissed. It is almost two years since the Tribunal heard the case. There is bound to be a further period of delay before a new Tribunal is convened to hear the case. The whole exercise involves unfortunate additional expense. We cannot, however, see any alternative to sending the matter back. If there is an error of law which Mr Popplewell has established. It must go back to be dealt with by a Tribunal which correctly approaches the problem.

The appeal will be allowed and the matter remitted to a different Industrial Tribunal.