United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MRS J WARD (Wife)
For the Respondents	MR T LINDEN (of Counsel) Addleshaw Booth & Co Solicitors P.O. Box 8 South Parade Leeds LS1 1HQ


 


MR JUSTICE MORISON (PRESIDENT): This is an appeal against two Decisions of an Industrial Tribunal held at Southampton. By their first, the Industrial Tribunal concluded that Mr Ward, the appellant, had been unfairly dismissed by his former employers, the Midland Bank, and that "had there been proper consultation" there was a 40% chance that Mr Ward would not have been dismissed. By their second Decision, which was on the question of remedy, the Tribunal held that neither reinstatement nor re-engagement was practicable; and in relation to a compensatory award they concluded that his total gross loss attributable to the dismissal was just over £41,000; that he had received £29,227.51 from the Bank on dismissal; that if the sum he received was set off against 40% of his gross loss he was entitled to no compensation [£41,000 x 40% - £29,27.51 = £0].

The relevant background facts may be shortly stated. Mr Ward started with the Bank in 1968. He was appointed a manager in 1990 and was manager of the Sherborne Branch at the date of his dismissal. In the mid nineteen nineties, the Bank carried out a major re-organisation. Effectively, the Bank wished to give more authority to their Managers and require them to refer matters to a Regional level less often. For the customer, this meant that he could expect the Manager, whom he knew, to take lending decisions without having always to refer the matter upwards to an anonymous senior manager. Not all their existing Branch Managers possessed, in the Bank's view, the skills necessary to carry out this more responsible role. But Managers such as Mr Ward had the benefit of a contractual redundancy scheme which gave them greater security of tenure than was compatible with the Bank's overall objectives in executing the reorganisation. This scheme is not drafted in the language of a charter party but its import seems to us to be reasonably clear. When carrying out a redundancy exercise, Mr Ward was entitled to the benefit of selection criteria which included length of service and age. It was the Bank's desire to pick the best managers to retain in the new organisation and to abandon these two criteria. As the industrial Tribunal put it:

"Although the Security of Employment Agreement set out certain criteria which would normally be adhered to in a redundancy exercise, the Bank felt that length of service was not relevant in view of the fact that they were looking for judgmental lending experience in their managers. Also they felt that age was not relevant, although this is one of the criteria which are mentioned in the SEA."

In March 1995, the local area manager explained the nature of the re-organisation to his managers, including Mr Ward, but he was not to know what impact this would have on his own position. The first he knew about his own position was when he was given , on 16 May 1995, notice of potential redundancy. He was handed a letter to that effect, which was dated some 5 days earlier. He lodged an appeal against the decision but did not pursue it.

The Tribunal concluded, on balance, that the reason for Mr Ward's dismissal was redundancy. They commented that the absence of individual consultation was very surprising in an undertaking of the size of the Bank. They thought that what was lacking was:

"Consultation with the individual managers, to explain how they could discuss and challenge the effect of those [selection] criteria on their own situation."

They observed that the Bank accepted that the letter which was given to Mr Ward on 16 May amounted to a notice of dismissal.

"There was never any opportunity for discussion of or challenge to the criteria, or their application, or indeed whether those criteria were in accordance with the security of employment agreement.

Ms Cummings [The Bank's Human Resources Manager] in her evidence gave some indication of how the Bank viewed consultation. She says that it would have added some time to the process, but that it would not have made any difference to the ultimate decision. Clearly she was not open to considering the effects consultation might have on the process."

The Tribunal continued:

"We find without any difficulty at all that this complete lack of individual consultation renders the dismissal unfair. The real difficulty which we found in our decision was what difference such individual consultation might have made and therefore what percentage chance the applicant had of retaining his job had there been such consultation with him."

The Tribunal's reasoning on this issue is set out at paragraphs 39 to 45 of their Decision.

They noted first, that the appellant's main contention at the time was that he was not redundant at all and that the "concerns which have been aired before us .... were not raised by the applicant at this initial stage." Second, they accepted the evidence of the area manager that the appellant "did not have the judgmental lending experience, even though he had some training in lending" and that he had had a performance rating which showed a need for some improvement. Finally they referred to the private rating which had been made of him by the Bank which the Tribunal describe as a "relatively poor assessment" although it indicated that he should be "motivated and developed and retained."

It seems to us that the appeal raises two separate issues. The first relates to the way the Industrial Tribunal arrived at their conclusion that Mr Ward should only receive 40% of any award of compensation [the 'Polkey reduction' point] and second, whether the way the Tribunal calculated the compensation was correct in law.

On the latter point, the Bank conceded that, in accordance with a recent decision of this Court in Digital Equipment Company Ltd v Clements (No 2) [1997] 140, we would be bound to conclude that the Industrial Tribunal had erred in law and that Mr Ward was entitled to 40% of the difference between the loss following his dismissal and what he received on the termination of his employment. In other words, Mr Ward was entitled to (£41,083.35 - £29,27.51) x 40% - = £4,742.34. However, the question whether Digital was correctly decided is to be considered by the Court of Appeal in the autumn, and the Bank would wish its position to be preserved were the Court of Appeal to overrule the EAT's judgment in Digital.

On the first question, Mrs Ward, on behalf of her husband stressed, repeatedly, that the Industrial Tribunal failed properly to take into account the fact that her husband, the applicant/appellant was entitled to the benefit of a security agreement which was accepted by the Bank as being contractually binding. She submitted that in breach of the contract, the Bank had failed to apply the agreed selection criteria; had not operated a proper pool; not applied their criteria consistently across the board and had not sought to avoid redundancies by calling for volunteers. She said that the Bank unfairly took into account his attendance record, in the sense that they appeared to have held against him authorised sick leave absences. She said this was a pre-conceived dismissal, with no proper attempts to re-deploy her husband. She said that the dismissal and the way the Bank conducted itself had had a "devastating" effect on their lives. They had children at private school; the future looked quite bleak but her husband had been able in due course to find alternative employment, albeit not as a Bank Manager, which was a job for which he was well suited and enjoyed.

For the Bank, it was submitted that the question of percentage reduction was one which was eminently a judgment to be made by the Industrial Jury. The Tribunal were aware that the redundancy procedure was contractually agreed and even if they did not expressly refer to that fact when arriving at their 'Polkey reduction' they must have had it well in mind. Counsel submitted that having regard to the wording of the contractual provisions, there was no contractual right for an employee to have age and length of service taken into account. Although the Tribunal were critical of the Bank's attitude to consultation, when considering a Polkey reduction the Tribunal were asking themselves a hypothetical question, namely what would had happened had the employer done those things it had failed to do which had rendered the dismissal unfair. The assumption to be made by the Tribunal at this stage is that the employer would have done those things even if the Tribunal were of the view that the employer had, in practice, set its face against doing them. He pointed out that it was often the case that an employer would tell a Tribunal that consultation would have made no difference to the outcome in order to induce the Tribunal to make a significant Polkey reduction.

As a preliminary observation, it seems to us appropriate to record the experience of all the members of this Tribunal that a failure by employers to consult properly about an impending redundancy situation may often cause the affected employees shock, distress, anger and resentment, the symptoms of which persist for a long time. Almost every week, distressed former employees appear here still unable to come to terms with what has happened to them. We hope that this case will have brought home to the Bank's personnel officers the overriding need to treat their staff with the care and humanity that they would expect for themselves were their roles reversed. If Mr Ward had been treated as he should have been, much of the pain caused to him and his family would have been avoided. The Bank had the resources to effect this re-organisation in a correct and fair manner. Whilst the termination package might be described as generous, it is not a sufficient substitute for dealing with staff in a decent way.

We start by considering the proper interpretation of the Security of Employment Agreement. Appendix III to the Agreement is headed "Selection for Redundancy". After a preliminary paragraph which does not apply in this case, the Appendix continues:

"Selection of Employees for Redundancy shall be made on the basis of the following order with due regard to the category, grade and location of Employees concerned:

(i) Re-employed and re-engaged pensioners.

(ii) Full-time and key time staff with the maximum (or more) years' reckonable service for pension purposes.

(iii) Remaining full-time and key time staff on the following basis:

1. Length of service on the basis of continuous service not cumulative.

2. Age

3. Capability and Performance

4. Qualifications and experience

5. Conduct

6. Attendance Record

7. Time-keeping

(Note: The above list is not exhaustive and other factors may be appropriate dependent on the circumstances. The above factors are not in any particular order of priority. When applications have previously been invited under Clauses 20 and 24 and individuals have not been selected they shall again be considered under the arrangements set out in this Appendix).

(iv) The above order may be varied in the light of the particular circumstances and is subject to the right of the Bank to retain staff on grounds of individual ability or specialist knowledge..."

It seems to us clear that age and length of service were not factors which the Bank were contractually entitled to ignore in a redundancy situation such as occurred. At the highest for the Bank it could be said that an employee was not entitled to the application to him of only the specified criteria [ "the above list is not exhaustive and other factors may be appropriate..."]; and, second, that the factors which are not weighted might be applied to him in a different order from that set out in Appendix III [ "the above factors are not in any particular order of priority"]. The Bank's submission that age and length of service could be deleted from the list because the listed factors were not exhaustive would, if correct, emasculate the obvious intention of the parties which was to specify certain factors of which account would always be taken, whilst preserving the employers' right to weigh them and to add others if needs be. The Bank insisted before us that they regarded this agreement as contractual, on the one hand; yet they appear to us to be seeking to deny it any effect, on the other. Although the Bank had had certain discussions with the recognised Union before the redundancy exercise, it is not suggested that the Union had agreed to any alteration to the agreement or to the addition of other factors or to a re-ordering of the ones listed.

It seems to us, therefore, that the real question on the appeal is whether the Industrial Tribunal, when answering the hypothetical Polkey question, have properly taken account of Mr Ward's contractual entitlement to have his age and length of service considered, when he was being selected for redundancy. And underlying this question, is the underlying principle that in every case where compensation is being awarded, the Industrial Tribunal must award what is just and equitable in all the circumstances. The Polkey reduction exercise is part of the process designed to produce fairness, and not the opposite. There may be cases where the conduct of a particular employer is so grossly unfair that it would be neither sensible nor fair to ask what would have happened had they acted fairly. The facts might suggest that the employers were organisationally incapable of acting fairly; or had so organised their procedures that no employee would ever be treated with the fairness and respect that was deserved. In this case, the Bank had determined that it would not consult because consultation was, as we understand it, regarded as an impediment to the achievement of the re-organisation. This was, as the Tribunal imply, a bad and obvious case of unfairness. We would not, however, have allowed the appeal on this ground alone.

In our judgment there is considerable force in the submissions made by Mrs Ward about the Bank's failure to honour the contractual procedure and the Tribunal's failure to take that into account when assessing the Polkey reduction question. It seems to us that the Industrial Tribunal have failed to carry out a proper analysis of the Security of Employment Agreement. With great respect to them, it is not sufficient to refer to the criteria, and comment that the specified criteria are those "which would normally [our emphasis] be adhered to in a redundancy exercise". Had the Bank been willing to consult, Mr Ward would have been able to argue that they were departing from agreed criteria, that if the agreed criteria were applied he would not be selected for redundancy; that if the Bank were seeking to depart from the agreement they would have to give appropriate notice of termination to bring it to an end. It seems to us clear that if the Tribunal had properly focused on the contractual effect of the Security Agreement, which was admitted, the position of Mr Ward was substantially more secure than the percentage chances they arrived at implied. We recognise that Industrial Tribunals are the industrial jury. But it seems to us, on analysis, that had the Bank consulted and honoured the Security of Employment Agreement Mr Ward might well not have been dismissed at all; at the least, he would have been employed during the period whilst the Bank sought to terminate that Agreement.

Further, we did not find the reasoning of the Tribunal on the Polkey point entirely convincing. It seems to us that their first reason, namely that Mr Ward was asserting that he was not redundant, was irrelevant to the question at issue. Further, Mr Ward's EDF rating suggested that the Bank thought he should be retained rather than dismissed. Again, although the Tribunal note that the performance criterion was not applied consistently across the board, they failed to have regard to the fact that other managers who were kept on had less good scores than Mr Ward. Finally, whilst the Tribunal note that the Bank did not adhere to the pool of Managers, (Mr Ward was replaced by a person from a lower grade), in assessing his chances of being kept on they have focused their attention only on the failure to consult. In short, therefore, it is our view that the Industrial Tribunal erred in law in failing to consider the terms of the Agreement; and to resolve the issue between the parties as to its proper interpretation. In our judgment the dismissal was unfair for a number of reasons of which the failure to consult was just one.

It seem to us that there is no point in sending the matter back to the original Tribunal for further consideration. On the facts of this case, it seems to us that the only just award of compensation for the wrong done to Mr Ward would be the payment to him of the full amount of his loss, which would then be subject to the statutory cap. We therefore substitute an award of £11,300 for the nil award made by the Industrial Tribunal.