United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MISS CLAIRE ANDREWS (of Counsel) Messrs Monier-Williams & Boxalls Solicitors 71 Lincoln's Inn Fields London WC2A 3JF
For the Respondents	MS S CHEETHAM (of Counsel) Messrs Oury Clark Solicitors 5 Arlington Street St James's London SW1A 1RA


 


JUDGE ALTMAN: This is an appeal from a decision of the Employment Tribunal sitting at Brighton on 9th February 1999.

1. It is the applicant/employee who appeals in relation her claim for what was essentially wrongful dismissal in that it was said that she was dismissed with inadequate notice of one month and in breach of her contract of employment. It is common ground that her contract of employment made no provision for specific notice on termination of employment and that there was implied into that contract a requirement for the employer to give reasonable notice.
2. The history which led to the termination of employment covers events in the year 1998 and some time has rightly been spent in examining the way in which the termination came about.
3. The Employment Tribunal found that the applicant was a person of considerable business experience with employers specialising in communication activities mostly related to environmental matters. In January 1998 she began an association with the respondents, who at all material times appear to have been a small company with some four or five directors, later to have a proposal of staff of some 15 or so. Having begun an association with them, by March 1998 the appellant was working in a self-employed capacity, called 'half-time' but in reality for substantial hours, and in fact receiving remuneration greater than that of the individual directors who were, as we understand it, all working directors. She in due course became a full-time employee. On 1st June 1998 she was a director with a 1/6th equity shareholding. In due course, it was necessary for the Employment Tribunal to identify those factors which informed the length of notice that was reasonable and by June 1998 there were factors of experience, level of pay and director status which were all no doubt relevant.
4. We have seen a number of documents setting out the history of this company and the minutes of the meeting of 21st May 1998 which was drafting what appears to have been a plan as to the scale and nature of the operations intended by the directors. The minutes set out the sort of scale to which I have referred, provided that decision-making should be unanimous but with no veto and therefore requiring compromise, and provided some form of acting managing director on a rotating basis, The position of the appellant was described as being that she would become equal partner and director. In essence, this company was akin in the approach of its directors to a partnership.
5. It was provided at that meeting that this draft document was being circulated and that the appellant herself would convert what had been discussed into an agreed contract for directors and staff. Indeed, at a meeting on 11th June 1998 she was given authority to draft a contract of employment for directors, to be used for others after amendment, and that is what she did. She drafted a contract of employment which figured substantially in the reasoning of the tribunal. She provided a job title of director/designer and in paragraph 15, which dealt with termination, provision was made as follows:

"If either you or the Company wish to terminate your employment, notice must be given in writing to the other party of one month."

But that was specifically provided to not apply in the case of directors. It was provided in that draft that directors were to be covered by the relevant part of what was called a "death and divorce" agreement, that is when employment comes to an end for one of those two reasons.

6. The memorandum called "death and divorce" was drafted by the appellant herself and provided at its head "Still more thoughts on death and divorce". The document set out the possible ways in which employment could come to an end and provided a table of proposed pay-outs on departure which in the case of dismissal with notice under heading "Salary/notice" provided "notice paid". So that whilst there was reference to a requirement for notice, by the end of that document all there appears to have been was a provision that it should not apply to the "terminable on one month's notice" provision, and yet no other provision was put in its place.
7. In paragraph 6 of the extended reasons the tribunal described that document as providing that:

"…the only scenario relevant to the matter in issue under the column salary/notice stated "notice paid" made no reference to a different period of notice."

If that was intended to indicate that there may be some implication that the notice was going to be same as that provided in the general draft contract, we find it difficult to accept that, bearing in mind the marginal note which expressly excluded it.

8. Unfortunately the enterprise which the appellant and the directors of the company entered into, apparently with great enthusiasm, soon foundered so far as the working relationship of the directors was concerned. There appears to have been a division into camps, the appellant and one other, Mr Kent, being in one of the two camps, the others in the remaining one. There were discussions round about 28th August 1998 in which the appellant was offered and rejected termination on two month's notice and in which she made a counter-offer which was rejected that an appropriate period would be 12 months.
9. It is suggested that there was a draft agreement for settlement prepared by the appellant but no particular notice period was written into it.
10. During the course of the discussions for termination the appellant herself seems to have developed plans to terminate the employment of other directors and on 3rd September 1998 she sent an e-mail to Mr Kent in which she says, hoping that the process which took place would happen in reverse:

"In practice, I think they [the directors] would go with back pay, one month, kit and software, possibly some furniture. My view is that they can keep their shares to retain interest in assets and goodwill, but need to go non-voting. (We of course will then depress the value of both over time)."

The prospect of acceptance of one month's notice when, to put it colloquially, "the boot might have been on the other foot", was clearly in the mind at that stage of the appellant.

11. However, events took place the other way around. At a meeting on 8th September 1998 the appellant and Mr Kent were both dismissed with one month's notice, page 69 of the supplemental bundle being a record of the minutes of that meeting. The Employment Tribunal drew attention to the fact that whilst Mr Kent objected to the length of notice, the appellant did not. Mr Kent prayed in aid the length of his employment with a predecessor organisation. However it is quite clear from that document that the appellant was taking exception to the whole process. She complained at the outset that in the absence of Jonathan Hirsch long-term decisions should not be taken. She complained about the proposal that Mr Day be always the director from henceforth. She asked for grounds for rulings that were made, which were, on the face of the document, effectively brushed aside with the record that her comments were noted. At the end of the minutes under "any other business" she took the position that the whole process was unlawful and constituted gross misconduct by her fellow directors and she purported to suspend them. All that was in due course resolved one way or another, but the employment effectively came to an end on 23rd September 1998.
12. Against that background the tribunal set themselves the task, having set out their findings of fact in the early part of the decision, of determining the length of notice. In paragraph 10 they set out the submission put forward on behalf of the appellant. First of all their attention was directed to some cases which were presumably referred to as comparable on their facts in Chitty on Contracts 7th Edition, Volume 2 - Footnote 29 of paragraph 110. We have looked at that and Chitty interestingly divides the cases into groups depending almost exclusively on the seniority of the employee concerned within their particular organisation. The tribunal then referred to the submission that related to the remuneration of the appellant and the risk that was run by putting a lot into the company and they referred to the submission that there was a failure to acknowledge the status of the appellant. It was submitted, and they acknowledged the submission, that nobody would take such a risk if it were thought employment could be terminated at a "drop of a hat". The submission was made that there was equality with the other directors, a high proportion of skills and that the notice by way of protection should effectively be proper in relation to that. It was suggested that the one month in the e-mail was canvassing what might be acceptable to others provided it was linked with other benefits and was not a statement as to what on its own was appropriate for the appellant. It was submitted that six months was the correct figure.
13. It is rightly drawn to our attention on behalf of the respondents that in the body of the decision at paragraph 5 there is reference to the considerable business experience of the appellant. In addition, the tribunal encapsulated it findings in paragraph 12:

"12. The tribunal must also consider whether or not one month's notice was reasonable. In the absence of an expressed term of contract, it is always an implied term that notice must be reasonable. The Tribunal having considered all the evidence, are satisfied that one month was reasonable and there is evidence that such notice was not considered unreasonable by the Applicant during the course of her short employment with the company.

The Applicant was a full-time employee of the company, was paid a substantial salary and she herself drafted a model contract of employment for employees, she herself being an employee and at clause 15 set out one month as being a proper period of notice. A side notice did refer to a "death or divorce" agreement and in the schedule divorce dismissal refers to notice paid. There is no reference to a period other than one month and it must be implied that for an employee, a period of one month was the presumed intention of the parties. At a later stage when the future of the company was being considered, the Applicant in a fax to Mr Kent, expressed a view that her co-directors might be content with one month and although the Applicant claims that this related to a severance package, nevertheless it indicates her mind focused on a one month period.

At the meeting on 8 September, the minutes indicate that whilst Mr Kent claimed he was entitled to a longer period of notice, the Applicant made no separate representations. Whilst the Applicant in evidence stated that she mentioned a notice period, she made no reference to this all important matter in her statement, nor did she refer to it in the aide memoire prepared shortly after her dismissal. There were serious personality clashes between the directors and it is clear that as a team they could no longer go on working together. The company's finances were in a parlous state and an extended notice period costing the company some £18,000.00 would not be reasonable, also taking into account that the Applicant had been an employee for a little over 3 months. A notice period being twice as long as the period of employment could not be regarded as reasonable."

14. We have endeavoured to identify from that paragraph the way in which the tribunal found as a mixed question, as it seems to us, of fact and law, what was a reasonable period of notice in this particular case. It is well established that all cases depend on their particular facts in this area, as in so many others, and that there are no general rules applicable in this case and the decision that we are embarked upon cannot be seen to provide any general propositions either.
15. Having asserted that one month was reasonable, the tribunal then appear to have added that the appellant herself, on their finding, did not consider that period unreasonable during the short course of her employment. They then refer to evidence, which has been before us upon which they base that conclusion. First of all they refer to the fact that the draft, that the appellant herself created, provided for one month being a proper period of notice. They then go on to refer to the side-notice but draw the conclusion, from the fact that the subsequent "death or divorce" agreement did not specify a notice period, that, in their words "it must be implied" that one month was the presumed intention of the parties. We find it difficult to understand how that necessary implication was found by the Employment Tribunal when the marginal note was designed specifically to exclude directors from the very provision which created a notice period of one month. If it be the case that the Employment Tribunal relied upon that as one of the material facts in identifying a period of reasonable notice, we find that it is an error and it is not a relevant fact because it does not appear to be sustainable in the way found by the tribunal on the face of the document to which we were referred.
16. The Employment Tribunal then go on to consider the views of the appellant as seen in the e-mail, to which I have referred, in providing for her co-directors, and they came to a conclusion that there was a focus on a one month period. This seems to us to be a factor that they were fairly entitled to take into account; although other interpretations of the same evidence were available to them, it was one which they were entitled to take.
17. The tribunal then continue considering the position of the appellant and her views by pointing out her failure to make representations when this was told to her. They make a finding that there was no reference to it, and of course that is a finding which is binding upon us in spite of the evidence which the appellant herself apparently gave orally to the Employment Tribunal.
18. We note that in stating that fact the general context of that meeting was not referred to, nor was the appellant's general opposition to it. Whilst it may on a balancing exercise be right for an Employment Tribunal to come to the judgment that there was an inference to be drawn from the failure to make separate representations, it is not apparent, on the face of the decision at least, that the Employment Tribunal carried out that balancing exercise with the other circumstances set out in the minutes of that meeting, to which I have already referred.
19. The tribunal then refer to personality clashes which in this context is clearly "simply by the bye".
20. But the tribunal finish their judgment on this aspect of the matter by referring to two features. Firstly the parlous financial state of the company informed their decision that a notice period of six months would not be reasonable because of its cost, and secondly, they find that a notice period that would be twice as long as the length of the employment of the appellant, would again not be regarded as reasonable. It seems to us that there are a number of features of that finding as follows. First of all the Employment Tribunal appear to have considered only the competing periods of one and six months employment and, as it were, fortify their finding of one month by giving reasons as to why six months is too long rather than the process of simply assessing a period. They appear nonetheless to be stating that they are assessing a one month period.
21. Contrary to the submissions of Miss Andrews, we can see no reason why a reasonable period of notice should not in certain cases depend upon length of service. It may be that before employment protection legislation, as Lord Denning MR in the case of Smith v Brindle [1972] 1WLR 1653, observed, the protection by notice of length of employment was not provided for. Times have moved on and the fact that statute recognises length of service as an important feature seems to us to give rise an environment in industry and employment where it cannot be said as a matter of law that length of service is irrelevant.
22. On behalf of the respondents it is urged upon us that the outset of that paragraph shows that the tribunal "have considered all the evidence" and that statement, it is suggested, is sufficient to bring in all the features of the case which are required to be weighed when assessing what is reasonable notice.
23. However, it does seem to us that the Employment Tribunal do purport to go into some detail in setting out within paragraph 12 their assessment of what was reasonable. Looking at the decision overall, it does seem to us that they fortified their judgment by their approach to the belief of the appellant. The belief of a party to a contract is generally very good evidence, amongst other things, of what is the presumed intention of the parties at the time the contract is made. However it seems to us that first, the tribunal erred in its approach to the features of the appellant's expressed intention in the way I have set out and secondly, in spite of the general reference to the evidence, we have come to the conclusion that the Employment Tribunal did not take into account, in the balancing act which is an inevitable part of this process of fixing what is reasonable notice, the features of status and seniority within this organisation, which they had referred to earlier in their decision. Finally, it does seem to us that it must be an error to regard a company's financial situation at a particular moment in time as being an indicator of what is reasonable notice. It is never a contractual provision of this kind in our experience and knowledge that a company can shift its obligations to its employees in terms of notice in accordance with the annual profitability of the company. It seems to us that the Employment Tribunal erred in taking that fact into account as one of the ingredients.
24. We have therefore come to the conclusion that in failing to take account of the seniority and status of the appellant and taking account of the financial circumstances of the company, the Employment Tribunal erred in their construction, as a matter of mixed law and fact, of the term of the contract as to what was reasonable notice.
25. We do not consider that in failing to take into account the risk and sacrifice of the appellant that they erred at all. This was a risk which was taken not on the understanding of a few extra weeks of notice but in the hope of substantial rewards if the business flourished. The greater the risk, the greater the potential for rewards and vice versa, and we cannot believe that notice is a relevant aspect of that.
26. It falls to us therefore, with the consent of the parties, to look at the evidence and construe the contract of employment as it relates to the period of reasonable notice. We consider that there has been perhaps a slight overstatement of the seniority of the appellant in this particular organisation, bearing in mind its size and scale. This was not a major business, it was a modest one akin to a partnership. In those circumstances, we cannot accept that six months is the appropriate period. We bear in mind the fact of the position that was occupied by the appellant, her seniority and her salary, and we weigh against that the fact that this was a new venture and therefore that her employment was recent and there was uncertainty as to where it would go. We have come to the view that the correct period of notice is one of three months and we therefore allow the appeal and find that the appellant is entitled to such sum of money as will make up the difference between what she has so far been awarded by way of compensation for pay in lieu of notice and what should be awarded for the period of three months.