United Kingdom Employment Appeal Tribunal

APPEARANCES

 

 

For the Appellants	Mr M Anderson, Solicitor Of- The Commercial Law Practice Commercial House 2 Rubislaw Terrace ABERDEEN AB15 2ZT
For the Respondent	Written Representations

SUMMARY
UNFAIR DISMISSAL

ET found dismissal unfair on procedural grounds yet failed to assess Polkey %. Remit this point only to ET.

Decision on liability and contribution (75%) not disturbed.


 


HIS HONOUR JUDGE McMULLEN QC:

1. This case is about a decision, said to be perverse, that a dismissal was procedurally unfair when an employee, as it is said, stole from her employer. It also concerns the assessment of the percentage chance of survival under the principle in Polkey v A E Dayton Services Ltd [1988] ICR 142 and the percentage reduction in compensation for contributory conduct. The judgment represented the views of all three members, who pre-read the relevant papers, together with a written skeleton argument presented by Ms MacKinnon, indicating she would not be present today. We will refer to the parties as Applicant and Respondent.

Introduction

2. It is an appeal by the Respondent in those proceedings against a decision of an Employment Tribunal sitting at Aberdeen, Chairman, Miss F C C Carmichael, registered with extended reasons on 6 January 2004. The Applicant was represented there by a solicitor, the Respondent by Mr Anderson, solicitor. The Applicant claimed unfair dismissal. The Respondent admitted dismissal but contended it was fair on the grounds of gross misconduct. The essential issue as defined by the Employment Tribunal was as follows:-

"ISSUES FOR THE TRIBUNAL

The first issue for the tribunal was to decide what the reason for the applicant's dismissal was and whether it was an admissible reason under section 98(2) of the Employment Rights Act 1996 ("the Act") or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held. If it was found to be for either of these reasons, then the second issue for the tribunal was to decide whether the respondents had satisfied the test contained in section 98(4), namely whether the dismissal was fair or unfair (having regard to the reason shown by the employer) which -

(a) shall depend on whether in the circumstances (including the size and administrative resources of the employers' undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee; and

(b) shall be determined in accordance with equity and the substantial merits of the case."

The Decision

3. The Employment Tribunal decided that the Respondent unfairly dismissed the Applicant, but, applying the principle of contributory fault, embodied in section 123 of the Employment Rights Act 1996, reduced the compensation by 75% to a figure of £3881.63. The Respondent appeals against all aspects of that decision. Directions sending the appeal to a full hearing were given in Chambers by The Honourable Lord Johnston.

The Legislation

4. The rôle and provisions of section 98 are correctly cited by the Employment Tribunal in the passage above. To this can be added the section relating to compensation and contribution:-

"123 Compensatory award

(1) Subject to the provisions of this section and sections 124[, 126, 127 and 127A(1), (3) and (4)], the amount of the compensatory award shall he such amount as the tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal in so far as that loss is attributable to action taken by the employer.

(6) Where the tribunal finds that the dismissal was to any extent caused or contributed to by any action of the complainant, it shall reduce the amount of the compensatory award by such proportion as it considers just and equitable having regard to that finding."

The Tribunal in addition directed itself by reference to the relevant authorities of British Home Stores v Burchell [1978] IRLR 379 and Iceland Frozen Foods v Jones [1982] IRLR 439 which are cited in the extended reasons.

The Facts

5. The Employment Tribunal found the facts to be as follows:-

"i Facts material to the Tribunal's decision

The respondents' business is the recruitment of off- and onshore temporary and contract workers. The company employs 7 permanent staff.

The applicant commenced her employment on 1 February 1988 as a part-time employee, to assist the accounts supervisor, Doreen Jack. Thereafter her hours increased to full time and when Mrs Jack left in 1998, the applicant took over her position as accounts supervisor. She worked in the cash room with Linda Scott, the accounts assistant, and provided the company's accountants with the pay details for the permanent staff, to enable the wages to be paid each month. These included payments of overseas commission which was posted in a commission book kept specially to record such commission payments.

The recruiters/consultants earned as commission 10% of the recruitment fee the respondents charged to clients. In 1996, Jacquie Philip, one of the recruiters, agreed to a share of the overseas commission she earned being divided up among the administrative staff, who were not in a position to earn any. Mr Abercrombie, the director then in charge, instructed that with effect from 1 January 1997, the 3% of Mrs Philip's commission which she gave away should be divided up equally among all the permanent staff, of whom there were 6 at that time.

In 2000, the respondents had a poor financial year, so at the end of that year, MrAbercrombie had a meeting with the applicant and Mrs Scott at which he informed them that they would receive no further wage increase or profit sharing and that payment of the overseas commission would cease at the end of December 2000. He also considered inequitable the prevailing arrangement of commission being shared among only 3 employees, 3 of the original 6 having by then left the company. In his view the commission should either have continued to be paid equally to the successors of those who had left, or their share should have been returned to the company.

In October 2002, there was a management buy out of the business by three of the employees, who thereafter became directors in the company. The buy-out process involved accountants, Skene & Co, carrying out a due diligence exercise on behalf of the buy out team. The accountants informed the new directors, who included Mr Alistair Reid, of discrepancies they had uncovered in relation to the commission-sharing arrangement within the company. He asked them to put the matter in writing, which by letter of 8 November 2002, they did (J5/1). In their letter they stated:

"…Our investigation was limited to the accounting periods ended 30 June 2000 and 30 June 2001. …..It would seem by the financial year ended 30 June 2000, that 3 of the 6 employees entitled to a share of the 3% commissions had since left LQRMS, and we would expect to have seen their share being shared equally between the 3 remaining employees, namely, Mhairi Preston, Linda MacKinnon and Linda Scott.

We were disturbed to find that this was not the case, and that on certain occasions, Mhairi Preston did not get any commission and Linda MacKinnon and Linda Scott shared it equally between themselves. On other occasions, Mhairi Preston did receive a portion of the commission, but not what she was entitled to, and usually less than half of what Linda Mackinnon and Linda Scott received.

Our conclusion was that the person responsible for processing the payroll must be to blame for these circumstances occurring. …This leads us to believe that Linda Mackinnon knowingly distributed the commissions in such a way that both she and Linda Scott took the majority of the commission, leaving Mhairi Preston with little, or sometimes nothing by way of commission …"

The allegation of wrongdoing described above was put to the Applicant. The Tribunal concluded as follows:-

"In a case such as this one in which the employee admits wrongdoing, the requirement of satisfying the tripartite test in British Home Stores v Burchell [1978] IRLR 379 is minimised. However, the respondents still required to satisfy the tribunal that they applied a fair procedure. Certainly, the investigation suggested by Skene & Co, was not as thorough as it might have been."

6. The Employment Tribunal recorded the Applicant's defence as follows:-

"She confirmed she was unable to understand the figures the respondents relied on. Her defence to the accusation was that Mr Abercrombie dealt with the accusation at the meeting in December 2000, that Mrs Preston knew what was going on and she expected Mrs Preston to approach her and to "create situation" (J11/3). She admitted she knew the commission she was allocating to Mrs Preston was less than her share, but she regarded her action as an act of defiance, and no theft was intended."

7. Mr Reid concluded that the Applicant should be summarily dismissed as she had admitted the conduct and gave no justification. Her appeal was rejected. The Tribunal made trenchant criticisms of the appeal process based upon what it had heard and its experience of such procedures. It decided that the reason for dismissal was misappropriation of commission, belonging to others, for over a year. During the course of the Tribunal's reasoning it made "Observations on the Evidence" and relevant to its consideration was obviously the following:-

"About the meeting in December 2000, we preferred Mr Abercrombie's testimony that it was not a disciplinary meeting, its purpose was never to reprimand the applicant and Mrs Scott for misappropriating Mrs Preston's commission, and that he did not reprimand them. If the exchanges at the meeting were heated it was because at stake was the removal of part of their remuneration. For them to assume they were being punished by the withdrawal of benefits for conduct which had never been raised or discussed at the meeting, with no mention of the company's disciplinary procedure, seemed to us highly improbable."

8. There was a background of uncertainty about the treatment of the payment of commission and knowledge on behalf of the Respondent, through Mr Abercrombie, of what was going on. The meeting when the matter first came to light certainly could not be described, as the Tribunal has accepted, as of a disciplinary nature.
9. The Tribunal decided that the Applicant was guilty of dishonesty; that she was in a position of some responsibility and trust; and that dishonesty in the form of theft was characterised as gross misconduct within the Respondent's disciplinary procedure for which the penalty was dismissal. However, the Tribunal said this:-

"With no written rules, the respondents made it easier for her to interpret and administer the scheme to suit her own interests. In our opinion a reasonable employer would have provided formal written instructions for the operation of such a scheme and carried out some basic monitoring. It was due to the absence of any written rules that the company's auditors were unable to pick up that there was a fraud being perpetrated on members of staff, who included not just Mrs Preston, but also Mr Reid, as Jim Laird's successor and other permanent staff joining between 1999 and December 2000."

10. In those circumstances the Tribunal correctly acknowledged that the employer should carry out a fair procedure. The Tribunal said this:-

"However, the respondents still required to satisfy the tribunal that they applied a fair procedure."

11. We asked Mr Anderson whether he made any submissions about that particular passage and he said "No". It does appear to us that there may be a suggestion of a misdirection on the burden of proof in that passage but since Mr Anderson did not urge any submissions to that effect upon us, and since the Applicant is not here, we will say no more about it. In practical terms it may well be that an employer is required under Burchell at least to indicate certain procedures but we say no more about that issue having heard no argument upon it. The Tribunal decided that the Applicant was 75% to blame for her dismissal and reduced both her compensatory and her basic award (a slightly different test) accordingly.

The Respondent's Case

12. The Respondent submitted in arguments addressed orally and in writing by Mr Anderson that the Employment Tribunal had erred in law in three respects. First, the decision was perverse, for the procedure which was adopted by the Respondent was good in that it, in substance, it allowed the Applicant to know the case against her, to have a hearing to put her case, and she had admitted doing what was put against her thus attenuating the requirement (that is how it was put) for there to be further investigation. It is submitted that it is difficult to understand what more thorough investigation would have been reasonable. Criticism of the involvement of Mr Reid in the passage we have cited relating to the appeal, is misplaced and unfair. In particular the intervention of another person who was, in general terms, the victim of the wrongdoing, would be inappropriate. It was an unfair criticism to say that Miss Preston should have investigated unless the criticisms by the Tribunal of the procedure were misplaced. It is also contended that criticisms of the appeal process by Mr Reid were wrong and we were invited to consider the transcript of the appeal procedure, upon which, as we have indicated, the Tribunal was greatly dissatisfied.
13. The second substantial criticism on behalf of the Respondent is that the Tribunal failed to apply the Polkey formula correctly. Let it be said at once that Mr Anderson accepts that this decision was an unfair dismissal on procedural grounds that the Respondent failed to carry out a proper and fair procedure.
14. It follows therefore, that the Tribunal was required, when it came to compensation, to assess a percentage chance of the Applicant surviving at work had the employer got the procedure right. We were careful to examine how this submission might have arisen and we are satisfied from Mr Anderson telling us, by reference to his notes, that he made specific submissions relating to Polkey and reduction of compensation should the Tribunal be against him on liability. He tells us also that the solicitor representing the Applicant also addressed Polkey.
15. The third submission relates to the Tribunal's allocation of the figure of 75% to contributory fault, where, it is contended, that the figure should in the circumstances have been 100%. At our request Mr Anderson has created figures which would show the various levels of payment had a Polkey formula been applied, and, then in sequence, had the percentage reduction been applied thereto.

The Applicant's Case

16. In her written submissions, the Applicant contends that the decision made by the Tribunal should be upheld. We hope that we can be forgiven when we indicate, that, essentially, the issues advanced are a rehearsal of the factual position put by her to the Employment Tribunal. We have also considered her Respondent's Answer which expressly says that the Applicant does not cross-appeal against the deduction.

The Legal Principles

17. The legal principles appear to be as follow. A decision to dismiss an employee may be unfair because an employer fails to carry out a fair procedure (see Polkey). The consequence of such a finding is that there should be a decision by the Tribunal, following submissions and evidence, on the likelihood of the Applicant losing her job had the procedure been carried out correctly. In the assessment of compensation a reduction may be made where the Applicant has contributed to the dismissal by her blameworthy conduct (see Nelson v BBC [1979] IRLR 246 CA). Decisions as to the percentage figure are generally ones of fact which ought not to be interfered with on appeal unless the Tribunal has gone wholly wrong in principle (see Hollier v Plysu [1983] IRLR 260 CA).

Conclusions

18. We reject the arguments of the Respondent in two of its three grounds but we have decided that the appeal should be allowed on one. Dealing first with the substantive head-on attack on the Tribunal's decision as being perverse, in our judgment, the Tribunal has demonstrated by the evidence which it has recited that there were legitimate criticisms of the procedure adopted by the Respondent in tackling the dishonesty of the Applicant, not least of which, is the involvement of Mr Abercrombie in 2002. The criticisms made of the Respondent's procedure also were made against the basis that this is a small business employing no more than 10 people, but, it has to be said that the standards are no different once it is recognised that there are limited resources in such an undertaking. Standards of fairness continue to apply. The Respondent was criticised upon the basis of evidence for having inadequate procedures and for operating them in a way which had adversely affected the Applicant. We see no error of law in the Tribunal's approach to the central issue and this ground of appeal is dismissed. The Tribunal's decision that this was an unfair dismissal is upheld.
19. It follows that the second submission of Mr Anderson has considerable force. Once it is accepted that this decision about unfair dismissal was what has been described conveniently a procedural defect, it behove the Employment Tribunal to deal with the submissions made to it as to what would have happened. We do not know what evidence was led before the Tribunal to indicate what would have happened had the employers conducted themselves correctly. But the Tribunal will have a note of that and ought to have made a decision reducing, if appropriate, the compensatory award (but not the basic award) by such figure as reflects the chance of her being dismissed anyway.
20. The Tribunal's reasons are silent on this. Having discussed disposal of the appeal in tentative terms with Mr Anderson we will allow this ground of appeal.
21. In our judgment, it will not be necessary for evidence or submissions to be made to it since we accept from Mr Anderson that the submissions were made and an opportunity was given for evidence. However, the Tribunal itself may make a decision from that.
22. Turning then to the third ground. Mr Anderson very fairly accepted that decisions about the degree of contribution are difficult to interfere with where, as here, the dispute is as to how much more responsible the Applicant was for the dismissal. It will be extremely unusual for there to be interference on appeal.
23. It may be possible where the gap between what is sought and what is awarded is large enough to justify a finding that there was an error in principle. Here the gap is 25%. It would be most unusual to interfere with such a finding.
24. It would also be most unusual to interfere with a finding to push the figure from 75 to 100%, for the Respondent has achieved its submission that the Applicant, if not wholly to blame, was very substantially to blame. And where the adjustment which is sought to be made is of the character which we described, we would feel very reticent about interfering with the assessment of the Tribunal upon such a matter.
25. It is difficult to see how it could articulate its reasoning in more depth. It is true the Tribunal makes a very short decision about the contribution and it is true that it accepts largely the Respondent's case as the Applicant's solicitor was arguing for a zero contribution.
26. In our judgment the Tribunal has reflected what it sought to be the justice of the position that the Applicant had been found to be dishonest and had been dismissed for that reason. Yet the Respondent should not be required to make payment to her in full. The approach to the Tribunal to reduce both the basic award which was £5,200 and the compensatory award which was £10,326.53, by 75% is correct. For here, as opposed to under Polkey, the deduction applies to both compensatory and basic awards. This ground of appeal therefore is dismissed.
27. The Appeal is allowed in part. Ground 2 will be remitted to the same Employment Tribunal for it to decide the percentage chance, if any, of the Applicant being dismissed had the Respondent carried out a fair procedure and it will first reduce the compensatory award and then reduce it by 75%. The basic award it unaffected.