United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 486_94_2001

Appeal No. EAT/486/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 20 January 1995

HIS HONOUR JUDGE D M LEVY QC

LORD GLADWIN OF CLEE CBE JP

DR D GRIEVES CBE

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SELFRIDGES LTD          APPELLANT

MR R T WAYNE & OTHERS          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellant MISS D HOLLIMAN

Employment Services Manager

Messrs Howes Percival

(Solicitors)

252 Upper Third Street

Grafton Gate East

Central Milton Keynes

MK9 1DZ

For the Respondents MR J HAND QC

Ms Kate O'Neill

Legal officer

USDAW

188 Wilmslow Road

Fallowfield

Manchester

M14 6LJ


 


JUDGE LEVY QC: Negotiations with Unions for annual wage increases for employees of Selfridges Ltd ("the Company") traditionally commence in the month of February of any year. Shortly after February 1992, negotiations started with the Company notifying the staff that it proposed to make changes in the system of payments. Christmas bonuses were to be "out", because of the stringent times in which the Company found itself but, so that the staff had something to look forward to, there would be a 3% increase on annual salaries for the ensuing year. From the time the proposal was made, the unions were up in arms; the bonus, they said, was not something which was a bonus in the sense it was a gift by the management; it was something which was a contractual entitlement of the employees. There was correspondence; there were meetings; there were discussions; there was even a thought of a strike. However, a time came when of the 1,500 or so employees from whom the bonus was being taken away, there were only 50 who had been unwilling to have their contracts varied so as to make it clear beyond peradventure that they were not entitled to a bonus. Those people were to get a 3% increase in the wages for the year 1992 and if that 3% was less than the bonus would have been, the Company would make good the difference. Some 50 workers did not accept that. They, therefore, had letters written to them which we will set out. Their letters were dated 15 September 1992:

"Notice of Termination of Current Contract

Earlier this month, Paul Lambert, Personnel Director wrote to you setting out the Company's position on the additional 3% on offer to you with effect from 1st February 1992 in consideration of the termination of the Christmas bonus. He explained that if, for whatever reason you felt unable to accept this change, then we would have to serve formal notice terminating the existing arrangements, in order to remove any doubt.

I understand that you have still not accepted the change and on this basis I am formally giving you 3 months notice, from today's date of the termination of the Christmas bonus. Your new Contract of Employment, effective from 15 December 1992 will clearly reflect this. The 3% will be paid to you in December, backdated to February 1992.

You will still have an opportunity, between now and mid December, to sign an amended Contract, as 95% of your colleagues have done and we will also continue to look sympathetically at any personal difficulties resulting from this change.

You will of course continue to be employed after December albeit on a new contract and your continuity of service will be unaffected.

If you are unsure about how this affects you, or you need further information, please do not hesitate to contact me."

Faced with those letters, a number of employees commenced proceedings in the Industrial Tribunal. There is a sample originating application of a Mr R T Wayne at page 89 of our bundle. It was received in the Industrial Tribunal on 9 March 1993. He said that he was constructively unfairly dismissed and he puts at paragraph 10:

"The Christmas bonus was part of my annual remuneration as agreed by the Union and the company. The company decided unilaterally to discontinue it from 1992 without my agreement. I was pressurised to sign the new contract which I refused to do. In the name of Justice I appeal against the companies [sic] decision."

The company put in an immediate IT3 shortly after 9 March 1993 but, by a letter dated 4 March 1994 to the Industrial Tribunal, it clarified its position on the 50 recalcitrant employees. That letter reads as follows:

"We should be grateful if you would treat the enclosed as an amendment to IT3.

The Tribunal will remember that our clients, Selfridges Ltd, [we should add that this letter was written by a firm of solicitors then representing Selfridges] submitted IT3 in outline pending clarification of the issues. We would confirm that the grounds on which the Respondent intends to rely are as follows:-

The Applicants were dismissed for some other substantial reason.

Because of poor trading conditions, it became apparent to the Respondent that savings had to be made. Consideration was therefore given to withdrawing the Christmas Bonus. In any event, the Respondent had taken a strategic decision to link remuneration to performance wherever possible, and the payment of a standard Christmas Bonus irrespective of merit no longer complied with the requirements of the business.

Consultation over the issue took place with the Trade Union and with individuals over many months. Ultimately, those suffering a particular hardship were invited to discuss their positions individually. Only when the procedure was exhausted were Contracts of Employment formally terminated by giving the appropriate notice. All employees were re-employed on new contracts on exactly the same terms and conditions as before, with continuity of employment, save that the Christmas Bonus was omitted.

All staff were paid a salary increase of 3% (or more if appropriate) to cover any loss initially suffered as a result of the forfeiture of the Christmas Bonus.

The Respondent had always taken the view that the Bonus was in any event discretionary but in an attempt to clarify any doubt and to give employees maximum notice, the contracts were formally terminated. It is believed that the termination of contracts was fair in all the circumstances."

There was a hearing before the Industrial Tribunal at London (North) on 9 March 1994. The decision of the Tribunal was communicated to the parties on 12 April 1994. The unanimous decision of the Tribunal was that:

"1. Leave was granted to amend the Notice of Appearance to include grounds on which the Respondent intends to rely ie that the Applicants were dismissed for some other substantial reason.

2. The Applicants were unfairly dismissed; the Respondent has not shown a reason for the dismissal.

3. The issue as to compensation and reinstatement and the claim under the Wages Act 1986 is adjourned until 2 August 1994 unless the parties agree these matters prior to that date."

The hearing before the Tribunal was rather shorter than that which has occurred in this Court, partly because we have had full legal argument here, which it may be that the Tribunal below did not have, but partly because the Tribunal, of its own volition, took a course which was somewhat unusual. Having heard the evidence of the Company, the Tribunal invited submissions from those representing the two parties as to whether the Company had discharged the onus of proof on it to show that the reason for the dismissal was for "some other substantial reason" in that it was the Company's case that there was an economic necessity for the Company to have acted in the manner in which it had.

We pause to mention that we bear in mind that what the Tribunal had to consider was the position of the company at the time of the dismissal, i.e., September 1992, when most of the staff had, if we may use the phrase, caved in to the request of the company to have their contracts varied. We turn to look at the words of s.57, which is what the Tribunal had to have in mind when they approached determining the matters in issue:

"(1) 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 ... for the dismissal, and

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

If the company got over that hurdle, then it had to overcome the hurdle of s.57(3) as to the reason for the decision.

We have paused to set out the terms of s.57(1)(a) and (b) because it is clear to us that that is what the Tribunal had in mind when it invited submissions at the stage it did.

We set out the Extended Reasons in full from paragraph 4, observing that there is some ground in Miss Holliman's complaint that they could have been fuller, but concluding that, in the circumstances they were full enough:

"4. Evidence on behalf of the Respondent was heard from Mr M Pain, Personnel Manager, and from Miss J O'Leary, Personnel officer. After hearing their evidence the Tribunal invited submissions. Miss O'Neil submitted that the Respondent had failed to discharge the burden of proof that the reason for the dismissal was for some other substantial reason in that there was an economic necessity for the Respondent to do what they did. Miss O'Neil also maintained that the Respondent acted unfairly in terminating the contracts of employment for the reasons as alleged.

5. The Tribunal did not consider it necessary, after hearing Miss O'Neil's and Mr Thompson's submissions, to hear the evidence of the Applicant's witnesses.

6. The Tribunal considered the oral and documentary evidence carefully."

We pause there to interpolate that the Tribunal had the opportunity of seeing and hearing from Mr Pain and Miss O'Leary, which we have not had.

"The Tribunal considered the evidence of Mr Pain that he accepted that the Christmas bonus was part of the Applicants' contracts of employment. Mr Pain's evidence was that the Applicants were dismissed because they refused to accept a variation in the terms of their contracts of employment ie the loss of the Christmas bonus. Mr Pain's evidence was that it was a management board decision that the Applicants should lose their Christmas bonuses. This was based on the fact that the Board wished, in future, that pay should be more performance related. The profits of the Respondent were diminishing owing to the recession and it was an economic necessity for the Respondent to make cuts in the pay of the staff or at least not to increase the pay of the staff."

Mr Hand has taken us through the notes of the evidence given to the Industrial Tribunal. We are satisfied that all those findings about Mr Pain's evidence are within the bounds of the evidence given to the Industrial Tribunal.

"7. It was accepted that an increase of 3% in the wages co-related to the Christmas bonus. It was accepted that for the year 1992 there would, in fact, be no net gain to the Respondent. In fact there could be a loss due to the greater administration in administering the pay increase. It was maintained that the bonuses for the future would mean that the Respondent's outgoings would be less."

Then there is a passage which has given cause for some concern here. I will read it for what it is worth:

"The Tribunal could not understand this line of reasoning since, if there was to be a percentage increase in the future, that percentage would be on top of the 3% wage rise given for 1992 and it could well be that the Respondent could in the long run be worse off by removing the Christmas bonus and giving a 3% pay increase. The Respondent could have maintained the Christmas bonus and not given a pay increase for that year. The same result would have been achieved but the Respondent might, in the event, have been financially better off."

Paragraph 8 - and this is the crucial paragraph reads:

"8. The Tribunal, having considered the evidence, does not find, as a fact, that there was an economic reason necessitating the loss of the Christmas bonus and necessitating the change in the Applicants' [emphasis added by us] contracts of employment. The Tribunal does not find, as a fact on the evidence, that there was some other substantial reason such that the Respondent had to break the Applicants [our emphasis again] contracts of employment and substitute them with new ones."

We bear in mind that what the Tribunal was focusing on, as it was entitled and indeed obliged to do, was the position of the Applicants at the time the notice terminating their employment or constructively dismissing them, was given. By that time, the financial difficulties which might have occurred if the majority of the workforce had not accepted the variation which the company wanted no longer existed. We think that the Tribunal was entitled not to find as a fact, having considered the evidence, that there was an economic reason necessitating the loss of the Christmas bonus. We have had a lot of submissions as to the law which we should consider in the context of s.57(1). Miss Holliman, who has appeared on behalf of the company today, has referred us to the case of Gilham and Others v Kent County Council [1985] ICR 233 and to the paragraph in the decision of Griffiths LJ in the Court of Appeal at page 239 where, having set out the provisions of s.57(1)(b) and the substantial reasons put forward by the employers, said:

"It is quite impossible to argue that such a reason could not be a substantial reason for dismissing an employee. The hurdle over which the employer has to jump at this stage of an inquiry into an unfair dismissal complaint is designed to deter employers from dismissing employees for some trivial or unworthy reason. If he does so, the dismissal is deemed unfair without the need to look further into its merits. But if on the face of it the reason could justify the dismissal, then it passes as a substantial reason, and the inquiry moves on to section 57(3), and the question of reasonableness."

Based on that paragraph, Miss Holliman has submitted that all the Industrial Tribunal has to do is look at the reasons put forward by the company and if that is something which a reasonable company could put forward, s.57(1)(b) is satisfied.

Mr Hand has referred us to the long-established and well-known case of Hollister v National Farmers' Union [1979] ICR 542 and the well-known passages in the judgment of Lord Denning, Master of the Rolls, at page 551. Having referred to a decision of Arnold J in Ellis v Brighton Co-operative Society Ltd [1976] IRLR 419, of some other substantial reason, Lord Denning said this:

"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 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 the relationship with the Cornish Mutual, and the setting up of a new relationship via the National Farmers' Union Mutual Insurance Society Ltd. On that rearrangement being made, it was absolutely essential for new contracts to be made with the existing group secretaries: and the only way to deal with it was to terminate the agreements and offer them reasonable new ones. It seems to me that that would be, and was, a substantial reason of a kind sufficient to justify this kind of dismissal. I stress the word `kind'."

Mr Hand has submitted to us that this shows that what you have to look at is the whole nature of the circumstances of the case and that it is what the Industrial Tribunal did there. We accept Mr Hand's submissions and we accept that there were reasons for justifying the Tribunal coming to the decision it did, so far as s.57(1) is concerned.

Miss Holliman submitted that the whole of the decision is found in paragraph 8 of the Tribunal's reasons. We do not find it was. We accept Mr Hand's submission that in paragraph 8 the Tribunal made findings of facts on the evidence bearing firmly in mind the test which the section of the Act envisages in s.57(1), as explained by Lord Denning.

The Tribunal in paragraph 9 went on to consider whether the Respondent acted reasonably in dismissing the recalcitrant employees and for the reasons which the Tribunal gave and were entitled to give, they refused to find as a fact that in dismissing these Applicants the Respondents behaved reasonably in pursuant to s.57(3) of the Act.

In paragraph 11 of the decision, the Tribunal went on to cite a number of authorities, including Hollister, and Banerjee v City & East London Area Health Authority [1979] IRLR 147, both which were cited to us. There is a passage in Banerjee which we think helped the Tribunal to the decision which it reached in paragraph 8 and that is the passage at paragraph 19, which reads as follows:

"If an employer comes along and says `We have evolved such-and-such a policy' and either `we regard it as a matter of importance' or `the advantages which are to be discerned from this policy are so-and-so', subject to there being any effective cross-examination, it seems to us that it must inevitably follow that that evaluation by the employer of the policy as a matter of importance, a matter in which the substantial advantage is discerned, if it is properly the subject matter of another reason, can be seen to be the subject of a substantial other reason."

It seems to us that it, as we have done, looked at the evidence of Mr Pain, that the Tribunal was entitled to look at that evidence in the light of the test in Banerjee and find, looking at the facts as a whole, that the "substantial other reasons" which the company sought to put forward did not really exist. There was no economic loss necessitating the loss of the Christmas bonus and the change in the contracts of employment to the 50 employees at the time of dismissal. That said, it is sufficient to dismiss this appeal, though we would add that if, as Miss Holliman has submitted to us, there was any support that the decision of the Tribunal was perverse, we have been reminded of the judgment in Campion v Hamworthy Engineering Ltd [1987] ICR 972 where Mustill LJ said:

"So also here - keeping in mind that when considering whether the decision of the industrial tribunal was `right', this must be understood as meaning `not so demonstrably wrong as to be beyond reason."

We are certainly satisfied that the Industrial Tribunal's decision was not so demonstrably wrong to be beyond reason, though some of us do have some difficulties in accepting the logic found at the end of paragraph 7 of the Tribunal's findings.

We would thank Miss Holland and Mr Hand for the considerable help which they have given us in the course of making their somewhat elongated submissions over the course of the two days which the hearing of this appeal has taken.