United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR C HENSON (Representative) Professional Personnel Consultants Limited Enterprise House Great North Road Little Paxton Cambridgeshire PE19 4BQ
For the Respondent	MR N JEW (Solicitor) Howes Percival Oxford House Cliftonville Northampton NN1 5PN


 


HIS HONOUR JUDGE CLARK: The Applicant Mr Neville commenced employment with the company, RPC, as a packer on 18 March 1974. He progressed through the ranks and attained the post of Day Technician/Production Manager. He was dismissed on 29 November 1996 by reason of redundancy. He received 12 weeks pay in lieu of notice, taking him to 28 February 1997 and a statutory redundancy payment of £4,095.

On 27 February 1997, he presented an Originating Application to the Bedford Employment Tribunal. He made two separate claims. The first was for damages for breach of contract. He alleged that he was contractually entitled to an enhanced redundancy payment based on a formula of two week's gross pay for each year of continuous employment. He had completed 22 years service and his final gross weekly pay was £376.96 per week. The second claim was one of unfair dismissal.

RPC contested the claims, contending that the Applicant had no contractual right to an enhancement redundancy payment and further that his dismissal by way of redundancy was fair.

The matter came before an Employment Tribunal under the Chairmanship of Mrs C Tribe on 26 June 1997. By a decision with extended reasons promulgated on 29 July 1997, the Tribunal found:

(1) that he was contractually entitled to an enhanced redundancy payment and awarded him £16,586.24 (44 x £276.96) damages for breach of contract.

(2) that he had been unfairly dismissed, and that had a proper procedure been followed he would not have been dismissed by reason of redundancy. Accordingly no Polkey reduction was made.

(3) the statutory redundancy payment extinguished the basic award for unfair dismissal.

(4) the total loss for the purposes of assessing the compensatory award was £17,053.60 gross, made up as follows:

(i) Loss of Earnings from 28 February 1997 to 26 June 1997 i.e. 18 weeks at £286.04 net per week = £5, 148.72.

(ii) Future loss of Earnings from 26 June 1996 for a period of 34 weeks at £286.04 net per week = £9,725.36.

(iii) Loss of Pension Rights from 28 February 1997 for 52 weeks = £1,339.52.

(iv) Loss of Share Options Benefit: First Scheme = £550.00, Second Scheme = nil.

(v) Expenses in looking for work = £90.00.

(vi) Loss of Statutory Rights = £200.00

Grand Total = £17,053.60

To that figure, the statutory cap of £11,300.00 was applied and that was the compensatory award.

(5) In the result, the Applicant was entitled to a total award under both claims of £16,586.24 plus £11,300.00 = £27,886.24.

Against that decision, RPC appealed.

At a preliminary hearing before a differently constituted division of this Appeal Tribunal on 24 July 1998, we identified three issues set out in the judgment which I gave on that occasion, which were to proceed to this full appeal hearing.

Having now had the advantage of submissions on both sides, our conclusions on those issues are as follows:

First Issue

Was the Tribunal entitled to find that the Applicant was contractually entitled to an enhanced redundancy payment?

It was common ground that in the past enhanced redundancy payments were made to other employees dismissed by reason of redundancy.

The Tribunal's findings of fact, set out in paragraph 3(xiv)-(xvi) were these:

"(xiv) The unchallenged evidence before us was that in 1991, the Respondent's Managing Director Mr Marsh, when addressing the workforce which was faced with over fifty redundancies at that time, told all employees collectively during the course of several meetings that it was company policy to make redundancy payments calculated on the basis of two weeks' gross salary multiplied by the number of years worked.

(xv) In 1993, when three Managers were made redundant, this formula stated to be company policy by Mr Marsh, was applied. In February 1994, when some twelve further redundancies occurred, the Respondent automatically applied the same formula for calculating the redundancy payment without the need for any negotiation on the part of those being made redundant. A copy of the letter sent to employees at the time can be found at pages 4 and 5 A/1. In October 1994, a further Manager Mr Eric Williams was made redundant on the same term. None of this evidence was challenged and we accept it. There was only one redundancy thereafter prior to the Applicant's in November 1996 and the formula was again applied. At no time was the policy announced by Mr Marsh revoked, either verbally or in writing.

(xvi) In 1991 when the policy was announced by Mr Marsh the reason for the redundancy was that a customer representing sixty percent of turnover on the site had been lost.

In the case of the Applicant, he challenged the level of redundancy payment, limited to his statutory entitlement and received this response from Mr Sells, the General Manager, in a letter dated 7 January 1997.

".....whatever any person received in the past would have been based on the prevailing financial position of the company at that particular time. It is not possible to set a precedent, as many examples in industry can show, and we had to make a decision based on current business performance".

In Duke v Reliance Systems Limited (1982) IRLR 347, an issue arose as to whether there fell to be implied into the Applicant's contract of employment a term that it was company policy that women retired at age 60. The Employment Tribunal found such a term was to be implied. The EAT overruled that finding. In giving the judgment of the EAT Mr Justice Brown Wilkinson at paragraph 9 of the report said this:

"A policy adopted by management unilaterally cannot become a term of the employee's contracts on the grounds that it is an established custom and practice unless it is at least shown that the policy has been drawn to the attention of the employees or has been followed without exception for a substantial period."

That approach was followed by the EAT in Quinn v Calder (1996) IRLR 126, a case to which this Employment Tribunal referred at paragraph 7 of their reasons. There, the issue was whether the employees were contractually entitled to enhanced redundancy payments. The EAT upheld the Employment Tribunal finding that, although expecting to receive enhanced payments, they were not contractually entitled to them. The rationale was that, on the facts, management had unilaterally drawn up a policy of making enhanced payments; they had been invariably paid on earlier occasions. The EAT concluded that in that case it could not be inferred that the employers intended to become contractually bound by the policy. The terms of the policy had not been incorporated into any agreement or communicated to the employees by management. payment had not been automatic in the past, but a fresh decision was required each time. There was no evidence that any employee entered into employment on the faith of an expectation that those terms would be applied.

In submissions, both Mr Henson and Mr Jew rely on those authorities in support of their respective causes. Mr Henson submits that on the facts here the employer operated a unilateral policy of redundancy enhancement payments; a separate decision was made on each occasion, the Applicant had an expectation but not a contractual right to the enhanced payment. Mr Jew points to the Tribunal's actual findings of fact, brought together in paragraph 7 of their reasons; the policy was communicated to the whole workforce (including the Applicant) by the Managing Director in 1991; payments were made automatically thereafter until the Applicant's dismissal. It was open to the Tribunal to infer in these circumstances that the employer intended to be contractually bound.

On this issue we prefer the submissions of Mr Jew. It seems to us on a careful reading of the Tribunal's findings of fact, which Mr Henson, we think, is impermissibly seeking to go behind, the Tribunal reached a conclusion in accordance with the approach in the earlier cases we have mentioned. Accordingly we dismiss this ground of appeal.

Second Issue

In assessing damages flowing from that breach of contract, should a deduction have been made for the statutory redundancy payment made, thus reducing the award under this head from £16,586.24 to £12,491.24?

Mr Jew accepts that ordinarily credit ought to be given for the statutory redundancy made (£4,095) against the total enhanced payment based on 2 weeks gross pay per year's service.

However he submits that since under section 122(4) of the Employment Rights Act 1996 (the "Act"), the amount of the basic award recoverable for unfair dismissal is extinguished by the redundancy payment, the Applicant is being required to give credit twice for the same payment, once in the award of damages for breach of contract and again in the basic award element of the compensation for unfair dismissal.

That submission appears to have found favour with the Employment Tribunal. It does not with us.

The object of an award of damages is to put the Applicant in the position he would have been in had the contractual obligation on the part of the employer been fulfilled.

Thus, had the enhanced payment been made on termination of employment he would have left with the sum of £16,586.24 (including the statutory redundancy payment). He would then have pursued his unfair dismissal claim. Having succeeded in that, his basic award would have been extinguished. The effect of the Tribunals award of damages in this case is to give him an additional sum equal to the statutory redundancy payment. That cannot be right.

Accordingly we uphold RPC's appeal on this second issue.

Third Issue

In calculating the compensatory award for unfair dismissal, ought credit to be given against the loss calculated by the Employment Tribunal at £17,053.60, the enhanced redundancy payment of £12,491.24, thus reducing the net compensatory award from the maximum of £11,300 to £4,562.63?

Mr Henson relies first on Rushton v Harcros Timber (1993) IRLR 254, for the proposition that an ex gratia payment made by the employer on dismissal, over and above pay in lieu of notice and a statutory redundancy payment, should be set against the loss calculated under the compensatory award head following a finding of unfair dismissal.

Further, he relies on the approach of the Court of Appeal in Digital Equipment Company Limited v Clements (No.2)( 1998) IRLR 134, for the broad proposition that any redundancy payment made by the employer over and above the statutory entitlement falls to be deducted from the assessment of loss under the compensatory award head.

Both those cases focus on what is now section 123(7) of the Act which provides:

"(7) If the amount of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy (whether in pursuance of Part XI or otherwise) exceeds the amount of the basic award which would be payable but for section 122(4), that excess goes to reduce the amount of the compensatory award."

We can well see that where an amount is paid by the employer on termination over and above the statutory redundancy entitlement, it must be taken into account in reducing the overall loss. However, that is not this case.

We have focused on section 123(3), which provides:

"(3) The loss referred to in subsection (1) (that is such loss as is attributable to action taken by the employer) shall be taken to include in respect of any loss of:

(a) any entitlement or potential entitlement to payment on account of dismissal by reason of redundancy (whether in pursuance of Part XI or otherwise), or

(b) any expectation of such a payment,

only the loss referable to the amount (if any) by which the amount of that payment would have exceeded the amount of a basic award (apart from any reduction under section 122) in respect of the same dismissal."

It follows that, but for the damages award, the Applicant would have been entitled to include in his schedule of losses under section 123, the loss of entitlement to the contractual enhanced redundancy payment. It does not appear in the Employment Tribunal's schedule of loss, which we have set out above. The reason for that is that it is cancelled out by the Tribunal's award of damages in the breach of contract claim. In these circumstances it does not fall to be deducted again against the remaining items totalling £17,053.60. In short, the argument advanced by Mr Jew under the second issue which failed, succeeds under the third issue.

It follows that this appeal succeeds only to the extent that the Tribunal's damages award for breach of contract is reduced to £12,491.24. The unfair dismissal compensatory award of £11,300 stands.