United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MRS C ANDREWS (of Counsel) Instructed by: Mr P McRoberts Messrs Monier - Williams & Boxalls Solicitors 71 Lincoln's Inn Fields London WC2A 3JF


 


JUDGE ALTMAN: This is an appeal from the Employment Tribunal sitting at Brighton on 9th February 1999. The Employment Tribunal was faced with a claim for wrongful dismissal as a breach of contract and for unlawful deduction of wages. The Employment Tribunal found proved the claim in relation to unlawful deduction from wages and there is no appeal in relation to that. The appellant appeals from the finding that there was no breach of contract relating to dismissal.

1. The first paragraph of the decision of the Employment Tribunal asserted that the claim was for insufficient notice and for there being an entitlement to reasonable notice which was in excess, in effect, of the one month's notice that was given in this case.
2. There is an area of the appellant's case which is not entirely consistent. It seems to be accepted that there was an implied term for reasonable notice. It was certainly accepted by the respondents, as the Employment Tribunal found.
3. But, it is argued on behalf of the appellant that the respondents were not entitled to dismiss unless the Board of Directors, of whom she was one, were unanimous. It is argued, therefore, that the decision of the Board to dismiss was, effectively it seems to us, beyond the powers of the Board on a majority vote.
4. The appellant began work for the respondents on 1st June 1998. Very rapidly, it appears that working relationships were found to be not good. She was a full-time Executive Director with an agreed sixth equity shareholding and remuneration. The Employment Tribunal found that the agreement provided for all significant decisions about the Company to be made unanimously. We are satisfied that there may have been a slight error because it appears that the document before the Employment Tribunal provided that all significant decisions of the Board of Directors would be unanimous and, therefore, it is not all decisions of the Board and not necessarily about the Company.
5. Following the actual commencement of employment a number of draft documents were prepared to clarify various matters. First, the appellant provided a draft contract of employment for all staff and directors. It was never adopted. It provided, so far as termination is concerned, mutual notice of one month, but suggested in a marginal note, that this would only apply to staff and that for directors it would be covered by a "death or divorce" agreement. Furthermore, the appellant drafted a memorandum in relation to that. This was done because there was some financial instability and anticipated staff reductions. All that the documentation got to, it appears, was a summary of thoughts of the appellant relating to proposed pay-outs on departure. The one relating to "divorce/dismissal" was for "notice paid" with no reference to length. If that has status as evidence, it does not have status as being a contractual document in itself. The normal inference, of course, would be that it provided for reasonable notice on dismissal for directors.
6. Negotiations took place for the termination of the appellant's employment and a number of different proposals were put forward. At one point, as referred to in paragraph 8 of the decision, the Employment Tribunal found that the appellant referred to the possible departure of directors. She said that she thought they would go "with backpay, one month, kit and software". That appears to be a package that was probably worth substantially more than one month's net pay. That proposal or idea appears to have been made on 3rd September 1998.
7. On 8th September 1998 there was a Board meeting at which a majority resolution was passed dismissing two directors, of whom the appellant was one, with one month's notice. The other director queried the amount of notice. The appellant made no mention of her objections to the period of notice but she did, we have been told, query the legality of the procedure. The Employment Tribunal has been criticised for making a finding of fact on the basis that the notice period was not queried, but it is the Employment Tribunal that is the fact-finding body and not us, and that is the sort of inference a Tribunal is entitled to draw.
8. The next matter that then arises is the nature of the claim that was before the Employment Tribunal. It fell, in the way it was argued, into two points.
9. The first, as we understand it, runs along the lines that the dismissal by a majority was a breach of the agreement which the directors themselves had entered into for decisions to be made unanimously and, therefore, they were not entitled to dismiss. The consequences of that, it is said, are that the appellant has been wrongfully dismissed and her damages are at large.
10. We have sought to find out the way in which those damages are proposed to be calculated. No inkling of them has been suggested in the Originating Application before the Employment Tribunal.
11. The argument is that they should be based upon a continuation of the contract without dismissal up to the maximum which a tribunal is entitled to award. But of course there are many other arguments for consideration. If the directors had no power to dismiss except on a unanimous vote, then the only way they could have dismissed would be by liquidation and therefore the argument must run that the appellant has lost what she would have received if the respondents had gone about what they did in a way in which they were lawfully entitled to go. We have no knowledge as to whether that would have yielded any and if so, how much, money.
12. We mention that because whilst there are some attractive legal arguments, it seems to us that, on the question of the breach of contract, they fall on a careful examination of the decision of the Employment Tribunal. In paragraph 6 of the decision of the Employment Tribunal, having set out the terms and the "death and divorce" position to which I have referred, the Tribunal made the error to which we referred about unanimous decisions. It is quite clear that a dismissal required the unanimous decision of the Board of Directors. But we have been told on behalf of the appellant that she accepted that she had been dismissed, but sought to argue that it was a wrongful dismissal.
13. We are uncertain as to whether once it was accepted that there was a dismissal that should be treated as an affirmation of what took place so as to lead to entitlement to reasonable notice, or whether it can still be argued that the dismissal was wrongful. But even if it can, we have gone on to consider what the Tribunal found.
14. The Tribunal starts off by dealing with the matter to an extent in paragraph 10. They say, that, it was submitted:

"… that under the contract of employment, the decision to dismiss required unanimity and the majority decision to dismiss her was a breach of contract in the absence of unanimity and dissolution of the venture should have followed."

In the face of that argument, of course, it becomes very difficult to argue that the measure of damage is the continuation of the appellant in employment. Furthermore, in paragraph 12 the Employment Tribunal deals with the question of reasonable notice. They point out the existence of the draft model contract of employment which provided for one month's notice for staff and a side notice providing for notice where there was, in effect, a dismissal such as occurred in this case. The Tribunal dealt with the finding that there was an implication of one month. I return to that in a few moments.

15. In paragraph 13 the Tribunal go on to deal with the question of contract. It reads as follows:

"13. The Applicant claims a breach of contract as all decisions had to be finally unanimous and there was no unanimity in the decision to dismiss her and Mr Kent. The contract does not define the nature of the decisions that required unanimous consent of its shareholders and the Tribunal cannot presume it would have been the intention of the parties to include a decision to dismiss as requiring a unanimous consent as such a term would in effect mean that an employee director had immunity from dismissal in that no director would consent to dismissal…"

Pausing there for a moment, it is pointed out that the Tribunal is not in a position to presume in any event. Having puzzled over the words of that paragraph for some time, we have come to the conclusion that the Tribunal was not meaning the word "presume" when it used it, because it makes, if we may say so when read literally, no sense of the sentence which I have just quoted. We find that the Tribunal were referring to their own powers to find matters of fact, based on the evidence, because that is the thrust of it, and instead of the word "presume" we have read into that paragraph the word "find".

16. The paragraph then goes on:

"… before being so he/she would in any event resign but the Applicant thought a "death and divorce" clearly set out the possibility of dismissal."

We have come to the conclusion that the Employment Tribunal was clearly alive to the impossibility of operating in practice a provision for unanimity in an agreement by directors in so far as it relates to the continuation of any one director. The Tribunal came to that conclusion not only by looking at it and analysing it as they did in paragraph 13, but actually looking at the evidence which shows that the directors or at least the appellant, as a director, was herself alive to the difficulty and was therefore proposing an arrangement about death and divorce which, on the face of it, was inconsistent with the provisions for unanimity, without anyone thinking that it was inconsistent at the time. Trying to impose upon the decision of the Tribunal and the facts as found by the Tribunal the sort of legal framework which seems clearly to flow from that decision, it seems to us that the Tribunal were saying, putting it in traditional legal concepts , that this agreement was not capable of practical operation and requires the implication of a term to give it business efficacy. In order to give it business efficacy the Tribunal implied the sort of term that was envisaged in the discussions that were taking place at the time, as evidence of the sort of term that would be implied in order to give that efficacy.

17. We have heard argument about the extent to which a tribunal can adopt the intention of the parties when determining upon the terms of a contract between the parties, the difference between the objectively found intention and the subjectively expressed intention after the creation of the contract. But the essence of the case, it seems to us, is a practical approach by the Employment Tribunal in saying that this term cannot have operated satisfactorily in any real sense and implying a term to give it that sort of efficacy. It seems to us that that is manifestly the thrust of the extended reasons. It may not have been very happily expressed and it may be capable of having holes picked in it when applying words from the legal textbooks, but we are left with the conclusion that there can be no other proper analysis of the decision of the Employment Tribunal. We find that there is no arguable point of law on the issue as to whether the Tribunal erred in finding no breach of contract in that respect.
18. The second matter that is raised is the assessment of reasonable notice by the Employment Tribunal. Even the term which the Tribunal effectively implied, went no further than a requirement for reasonable notice. The essence and the reality of this case is that the appellant complains that in assessing reasonable notice the Employment Tribunal failed to ask itself the right question. It is said that this is because the various references to notice are confined, essentially, to what the appellant, after the contract was entered into, was offering as the sort of notice that may be agreed upon, that was of one month. The only reference to one month, however, appears to have been during the course of negotiations and included a suggestion of adding to that the value of hardware and software. Furthermore, during the course of negotiations, 12 months was being contended for and before the Employment Tribunal six months was being contended for. In the Tribunal's decision at paragraph 10 the Employment Tribunal referred to the examples given in Chitty on Contracts of the various packages that were offered, and as part of the submissions on behalf of the appellant. The Tribunal refer to the argument that the appellant had put a lot into the Company and that the Company had not acknowledged her status and that such a risk would not be taken if employment could be terminated at a "drop of a hat". Reference was made in the submissions to the proportion of skills and the status as a director and that a contract would have given, on reasonable notice, a proper level of protection.
19. At paragraph 12 the Tribunal appear to ask themselves the right question, initially, as to implying the term as to notice. The Tribunal found that one month was reasonable, but they then go on to find and draw attention to the fact that the appellant believed so as well. The Tribunal enlarges upon that in the second paragraph of paragraph 12 and they point out, again, in the third paragraph and rely upon the way in which the appellant was putting the case. The Tribunal then go on to refer to other factors. The second factor was the Company's parlous financial state and that an extended notice period costing some £18,000 would not, in their view, be reasonable. The Tribunal then go on to refer to the length of time that the appellant had been an employee before dismissal and they find that a notice period twice as long as the length of employment could not be regarded as reasonable.
20. Accordingly, it seems to us, that in analysing what is a reasonable period of notice, the Tribunal looked at the opinion of the appellant, the financial state of the Company and the length of time in which the appellant had been in employment.
21. It is argued before us that the subjective opinion of the appellant, even if properly expressed, is of marginal relevance. It would be said that she may not have done herself justice in what she thought she was reasonably entitled to. The Company's finances, it is suggested, are not relevant. We would pause there to say that there seems to us to be considerable force in that. We do not know, for in our experience of contracts where the notice period for senior employees varies with the annual profit announcement, the size and scale of the Company would have been perhaps arguably a relevant factor to which the Employment Tribunal were, to some extent, bound to be referring. It is argued that the length of employment is not relevant.
22. It seems to us that those factors in themselves, as evidence, may have relevance. However, on the face of it, it is arguable that the matters being put forward on behalf of the appellant were not considered by the Employment Tribunal when they assessed reasonableness. Those factors, as analysed in paragraph 10, seem to be first, the nature of the employment, which is the reason that the extract from Chitty was put in; secondly, the value of the employment as seen in the light of the salary that was paid; thirdly, the protection afforded by a notice period for someone who is entering into a period of employment by surrendering opportunities and making commitments which would, at that level, require substantial protection, and a need to balance the contract offered against the sacrifice made to take it on, by providing for an appropriate period of notice. Furthermore, factors referred to were the appellant's position as a director, her skills and the skills that she brought to the work. It seems to us that these were the objective factors which it is arguable the Employment Tribunal did not take into account.
23. Accordingly, we consider that there is one arguable ground of appeal which is that in assessing reasonable notice in this case, the Employment Tribunal did not take into account the objective factors which in law they should have taken into account when answering the question which they had properly asked themselves.
24. The matter will therefore go to appeal on a full hearing on that single issue. It will be listed in Category C for a period of one day. Skeleton arguments should be filed not less than 14 days before the hearing. No Notes of Evidence are required.