United Kingdom Employment Appeal Tribunal

BAILII case number: [1995] UKEAT 572_94_2007

Appeal No. EAT/572/94

EMPOLYMENT APPEAL TRIBUNAL

58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

At the Tribunal

On 20th July 1995

THE HONOURABLE MR JUSTICE MUMMERY (P)

MR D G DAVIES

MR J A SCOULLER

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(1) MRS R STEVENSON, (2) MRS A WHITE          APPELLANTS

A WHITE AND GOOD STUFF LTD          RESPONDENTS

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Transcript of Proceedings

JUDGMENT

Revised


 


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APPEARANCES

For the Appellants MR T R NAYLOR

Employment Rights Adviser

For the Respondents MS J TAYLOR

Company Director


 


MR JUSTICE MUMMERY (PRESIDENT): This is an appeal from the decision of the Industrial Tribunal held at Reading on 19th April 1994. In extended reasons notified to the parties on 20th May 1994, the Tribunal unanimously decided that the two applicants Mrs Stevenson and Mrs White, were fairly dismissed. Their applications for unfair dismissal against the respondents Good Stuff Limited failed.

The applicants appealed against that decision by a Notice of Appeal served on 14th June 1994.

On the hearing of the appeal Mr Naylor has represented Mrs Stevenson and Mrs White. The respondents, Good Stuff Limited, have been represented by one of the directors of the company, Ms Janice Taylor.

In order to understand the arguments about the correctness or otherwise of the Tribunal decision it is necessary to consider the events surrounding the proceedings and the findings of fact made by the Industrial Tribunal.

The proceedings were started by Mrs Stevenson and Mrs White by applications to the Industrial Tribunal in November 1993. They both claimed that they had been unfairly dismissed in the following circumstances. Mrs Stevenson, who had been employed as a part-time sales assistant on the retail side from 1983 onwards, complained that on 31st August 1993 she was told not to come to work. When she enquired of the reason, she was told that because of trading conditions she was laid off. Her contract did not include a lay off clause and it was not an established practice of the business. She concluded that she was being made redundant and dismissed without a contractual termination payment or statutory redundancy payment. A similar claim was made by Mrs White in respect of her cessation of employment as a part-time retail sales assistant.

The claims were contested by Good Stuff Limited on these grounds. There were adverse trading conditions in the summer months of 1993, which obliged the company to reduce overhead costs. That included the laying off of the applicants with the effect from 1st September 1993. The company kept in close contact with them, and were surprised to receive a letter at the beginning of October 1993 requesting redundancy. In October 1993 the company wrote to the applicants requesting that they recommence normal working on 26th October 1993. Business had picked up. The busy Christmas period was in prospect. The company had a reasonable expectation of offering a continued period of employment. The applicants rejected the offer and insisted on notice and redundancy entitlements. The offer was repeated later in October 1993 and on 19th November 1993. The company regretted having to lay off the applicants, but there was a denial of a dismissal. They were encouraged to resume work on at least three occasions.

When the matter came before the Tribunal, it was necessary for the Tribunal to ask an answer three questions. First, were the applicants dismissed? If they were not dismissed they could not have a claim for unfair dismissal. Secondly, if they were dismissed, what was the reason for the dismissal? The third question is, whether having regard to the reason for dismissal. It was a potentially fair reason there was a fair dismissal, i.e. whether it was a reasonable response of the employers to dismiss for the reason established.

The Tribunal's findings of fact and their conclusion that it was a fair dismissal may be summarised in this way. Both applicants were working as part-time sales assistants for the company. The company business was retailing high cost leather goods, costume jewellery and gift items. Both of them had worked for a substantial number of years without any complaints against them. About 18 months before they were dismissed, there was a need to cut down the hours of work. Apart from the two part-time sales assistants (the applicants) the company also employed two juniors who worked on Saturdays and a window dresser who was contracted from time to time to carry out work. There was a part-time manager, a company secretary and a director working on the premises.

In July and August 1993 there was a decline in trade by as much as 50%. The applicants said that there was no indication of redundancies, though there were fewer customers. Without warning on 31st August 1993 both were summoned to the respondent's premises to a meeting. They were told that due to a lack of trade and the need to cut overheads, they should take a two month minimum lay-off period immediately.

Reference was made to what Mrs Stevenson said in cross-examination: "That they had been told that the bank had said the overdraft had to be reduced by £3,000 immediately, and they were to take immediate leave of absence for a minimum of two months." The applicants therefore stayed away from work. They took advice. At a meeting on 6th September 1993 they informed the company directors that, on advice, they had formed the view that the actions taken against them were illegal. They should either be reinstated or paid a sum in satisfaction of redundancy claims. On 3rd October 1993 the applicants wrote to the company claiming the sums of money due to them in redundancy. In subsequent correspondence the company requested them both to return to work on a number of occasions because there was an upturn in work.

Mrs Taylor, who gave evidence as the Company Secretary, said that the lay-off was intended to last a maximum of eight weeks and was necessary to ensure survival following pressure brought to bear by the bank. She gave evidence that the hours during which the shop was open remained the same and that the activities of the applicants were distributed amongst themselves and Mrs Shaw, the part-time manager.

At the time of the lay-off there was no discussion about sharing hours, or whether or not the applicants could have done the Saturday work or the window-dressing work. The Saturday juniors work was cut in half, which the girls coming in on alternate Saturdays.

The applicants said that they had no reason to suspect that their jobs would not have been open to them to return to when invited to do so. They argued that they were constructively dismissed, that the reason for dismissal was redundancy and that the dismissal was unfair because of the lack of warning, the failure to consider alternatives and the failure to consult.

The company, on the other hand, argued that there was no constructive dismissal. They disputed the redundancy as the reason for dismissal.

The Tribunal went on to deal with the first question: was there a dismissal? We can deal with that briefly, because there has been no appeal against the finding that there was a dismissal of Mrs Stevenson and Mrs White. The conclusion of the Tribunal was that there were no express terms in the contracts of employment which entitled the company to impose a period of lay-off. There was no custom or practice enabling the Tribunal to infer a term giving that right. In those circumstances the Tribunal found that the lay-off imposed was a breach of contract. It was a fundamental breach which entitled the applicants to treat themselves as constructively dismissed. That was accepted by them and notified by resignation in writing on 3rd October 1993. That was found to be the effective date of termination.

The Tribunal considered the second question; what was the reason for dismissal? They said that the reason for the circumstances which gave rise to the constructive dismissal was the company's need to cut overheads in response to the demands of the bank. They were not satisfied that there was a redundancy situation within Section 81(2)(b) of the 1978 Act. They explained the reasons why they thought that there was no redundancy situation. They said that they understood Section 81(2)(b) to cover the case where the business may be continuing but that there is a general cessation or falling off in the requirement of the business for the employees to carry out work of a particular kind. They did not think on the evidence that there was a falling off of the requirement of the business for the employees to carry out the work that they normally did carry out as sales assistants. They felt that the difficulty for the company was that the requirements of the business were not taken advantage of by the general public so as to increase trade.

The Tribunal found that the triggering factor for the lay-off and the dismissal was the bank instruction to cut overheads in order to reduce costs.

The Tribunal considered an alternative. That was that they might be wrong in finding that there was no redundancy situation. On that basis they said, they were confident that the main reason for the dismissal was the intervention of the bank, not the redundancy situation. They said:

"We find that without the bank's intervention the discussion of 31 August would not have occurred and the attempted lay-off not made."

Finally, the Tribunal considered whether or not the dismissal was fair. They took into account the factors which they are bound to take into account under Section 57(3) of the 1978 Act, and came to the conclusion that the dismissal were fair. They found that the lay-off was an attempt to save the company and an attempt to preserve the employment of the applicants and of the other employees. The offer to return to work made in October 1993 was a genuine offer. Given the pressures on the company, the action that was taken in dismissing them was within the bands of an employer's reasonable responses.

We ask ourselves what is wrong with that decision? There is nothing wrong with the answer to first question that there was a dismissal. Is there anything wrong with what the Tribunal said about the reason for dismissal? Mr Naylor, for the two applicants, said that there was an error of law in the decision. It is a short and simple argument, that the applicants' case was that they were dismissed on grounds of redundancy and therefore entitled to a redundancy payment. He accepted that the company faced market pressures, that the bank had intervened with a demand that the overdraft be reduced by £3,000. He said that it was a classic redundancy situation. The company chose the longer serving employees and kept the shorter serving younger weekend staff. The findings of fact of the Tribunal did amount to a redundancy situation. The error of law on the Tribunal's decision was in finding that there was no redundancy situation.

In order to see whether that is a sound argument, it is necessary to look at the Section on redundancy. We first look at Section 57(2)(c) which provides that a potentially fair reason for dismissal is whether an employee was redundant. Rights to redundancy payments are dealt with in Part VI of the Act. Section 81(2)(b) provides:

"(2) For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to-

(b) the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish."

The Tribunal referred to that provision when they were dealing in paragraph 14 with the question whether there was a redundancy situation. The Tribunal did not refer to (and we understand from Mr Naylor that they were not referred by him to) the provisions of Section 81(3) which are important for the purposes of this case. Sub-section (3) provides:

"(3) In subsection (2), "cease" means cease either permanently or temporarily and from whatsoever cause, and "diminish" has a corresponding meaning."

In our judgment, the findings of fact made by the Tribunal about the circumstances in which Mrs Stevenson and Mrs White were dismissed lead to the conclusion that there was a redundancy situation. The Tribunal should have come to that conclusion on a proper interpretation and application of Section 81(2)(b) and (3). The findings of fact in the Tribunal were in paragraph 5:

"In July and August 1993 it appears that there was a decline in trade, by as much as 50%, ...

On 31st August both of them were summoned without warning and told "that due to a lack of trade and the need to cut overheads" they would have to be laid-off for two months with immediate effect.

In our view, that is a redundancy situation. The fact that the bank had intervened in the situation by requiring an immediate reduction of £3,000 in the overdraft does not make it any the less a redundancy situation. The Tribunal committed an error in thinking that if the reason for dismissal was not redundancy but the intervention of the bank, that would be a potentially fair reason. But it is difficult to discern from the findings of fact or their reasoning how they could come to that conclusion in paragraph 16.

We have reached the conclusion that, on the second question, the Tribunal have committed an error of law in finding on that facts that there was no redundancy situation. A correct interpretation and application of Section 81 in all its provisions could lead only to the conclusion that there was a redundancy situation. That error alone would normally be a ground not only for allowing the appeal, but for remitting the case to the Industrial Tribunal for re-hearing in order to determine whether, having regard to that reason, the dismissal was fair or unfair. Fortunately for both sides, it is not necessary for us to take the course of remitting the matter to the Industrial Tribunal. The reason is that Mr Naylor, on behalf of the applicants, agreedthat if we allowed the appeal, he would be willing to accept on behalf of his clients, the sum of £2,103.75 in total in respect of the redundancy payment, and would not wish to pursue the claim for unfair dismissal in the Industrial Tribunal if payment in that sum were made within a short time.

We have discussed the matter with Mrs Taylor on behalf of Good Stuff. She obviously hoped that we would dismiss the appeal. But for reasons given we have allowed the appeal. She said that there would be difficulties in raising this money on behalf of the company within a short period such as suggested by Mr Naylor. He suggested the end of July. She said that the end of August would be easier for them.

Mr Naylor expressed some concern that, because there were difficulties about securing notice payments from the company, similar difficulties might be incurred about securing payment of the redundancy payments. We appreciate that there may be an area of concern here. We propose to take an unusual course and make the following order.

We allow the appeal, because there was an error of law in the decision. We postpone the decision whether or not to remit the case until after the end of August 1995. If, by the end of August, the redundancy payment has been made in full, there is to be no remission. The appeal will simply be allowed. The claim for redundancy payments will be ordered. If, by the end of August, that payment has not been made, then the matter is to be restored to us, for further consideration which will include, as a possibility, remitting the case to the Industrial Tribunal for a re-hearing.