United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR M MULHOLLAND (of Counsel) Instructed by: Messrs Linder Myers Solicitors Phoenix House 45 Cross Street Manchester M2 4JF
For the Respondent	Mr R J Cleeve Employment Consultant Professional Personnel Consultants Ltd Saffron House 8 Buccleuch Close Clitheroe Lancashire BB7 2EF

SUMMARY Contract of Employment Unfair dismissal

The ET correctly found that a conversation between the Applicant and his manager at the office Christmas dance did not amount to an enforceable promise to increase pay, but were words

of comfort.


 


HIS HONOUR JUDGE McMULLEN QC

1. Stanley Holloway began his monologue. Albert and the Lion, by reminding us

There's a famous seaside place called Blackpool,
That's noted for fresh air and fun.

The question for us is whether from an evening of fun, enforceable obligations arose. We are dealing with breach of a contract said to have been made before Christmas 2001 towards the end of the convivial annual dinner dance held by this amusement company at the Savoy Hotel, scene of many political and union agreements, bracingly located on the Front at Blackpool, and breached more prosaically on 13 June 2003 at a cafe on the M6 motorway.

2. This case is about constructive unfair dismissal. The judgment represents the views of all three members, who pre-read the relevant papers, and additional papers submitted during the course of the hearing. We will refer to the parties as Applicant and Respondent.

Introduction

3. It is an appeal by the Applicant in those proceedings against the Decision of an Employment Tribunal sitting at Manchester over two days, registered with Extended Reasons on 6 March 2004, Chairman Mr E Coles. The Applicant was represented there, as here, by Mr Michael Mulholland, of Counsel, and the Respondent by Mr R J Cleeve, Consultant. The Applicant claimed he was constructively unfairly dismissed; the Respondent denied the dismissal.

The issues

4. The essential issue before the Employment Tribunal was to determine whether or not there had been a dismissal for the purposes of section 95(1)(c) of the Employment Rights Act which provides as follows:

"An employee is dismissed by his employer if -

the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct."

5. The Tribunal considered section 95(1)(c) and the basic components in the test of constructive unfair dismissal set out in Western Excavating (ECC) Ltd -v- Sharp [1978] ICR 221 CA. It rejected the complaints of unfair dismissal and breach of contract. The Applicant appealed; directions sending this to a full hearing were given in Chambers by His Honour Judge Birtles.

The facts

6. The Tribunal found as follows:

"4 The respondent is a company engaged in the management of gaming and amusement with prize machines at amusement arcades and caravan sites located in the North West of England and North Wales. The applicant was originally employed by the respondent in March 1980 as a Cash Collector but in May 1998 he was promoted to the position of Special Projects Operations Manager which position he held until he terminated his employment with notice, the effective date of termination being 27^th June 2003"

The Applicant's complaint was about the Respondent's refusal to pay appropriate salary increases, when it had legally contracted so to do, and that such were breaches of contract, fundamental to it, so as to destroy the necessary relationship between the parties.

7. The chronology of can aptly start in December 2000 when the Applicant was being paid a salary of £17,000 without a bonus. By the spring of 2001, the Respondent, as Mr Cleeve put it, had "foisted on it" an employee, Mr Mills, who was paid very substantially above the rate being paid to the Applicant and his then peers. He had come from a sister company and was assured that he would suffer no reduction and was, as the Tribunal found, set on by the Respondent, at a salary of £35,000. The Tribunal then went on to say this:

"8 ….. At around that time, as the Tribunal finds, Mr Fannon told the other three Operations Manager, including the applicant that it was his intention that, in due course, all Operations Managers' remuneration should be brought roughly in line with each other, even though their responsibilities and geographical working areas differed."

It is important to note that there is no challenge to that finding, and indeed it is an assertion by Mr Cleeve that it did represent the Respondent's intention to bring the Applicant broadly into line with Mr Mills.

8. Later, however, a new situation arose and it is necessary to record the Tribunal's finding about this.

"9. The applicant's primary contention however, is that Mr Fannon on behalf of the respondent made a contractual legally binding agreement to ensure that he, the applicant, would be placed on the same salary as Mr Mills …. The applicant relies, in this connection, on a discussion he maintains he had with Mr Fallon in December 2001 at the Savoy Hotel in Blackpool. This was the occasion of the respondent's annual dinner dance at which not only employees but also spouses or partners attended and was intended to be, and indeed as the Tribunal found it was, a sociable and convivial event. Nevertheless, the applicant maintains that during a conversation between him and Mr Fannon towards the end of the evening, Mr Fannon promised that within two years he would put the applicant ."on to the same scale" as Mr Mills. Mr Fannon s evidence to the Tribunal was that no such conversation took place at all However, on the balance of probabilities, the Tribunal found that there may well have been some casual conversation in which Mr Fannon, in the convivial spirit of the evening, gave the applicant words of comfort and assurance that he would eventually fulfil his commitment to have all Operations Managers, including the applicant, on roughly. the same level of remuneration. The Tribunal was not, however, satisfied that Mr Fannon, particularly in an-environment such as that described above, either would have or indeed did enter into any legally binding contractual commitment to the applicant whatsoever."

Thereafter, further questions came up about the Applicant's salary, and in April 2002, following an increase in his basic salary of 1.5%, the Applicant complained to Mr Fannon that he had broken his promises. He resigned on 30 May 2002, but was persuaded to return by Mr Fannon.

9. Two letters, which have been introduced without objection and were before the Employment Tribunal, are relevant to this period of time. On 31 May 2002 a letter was sent in very sympathetic terms by Mr Fannon, to the Applicant which contained the following:

"As regards the verbal promises, you are right they are as meaningful as written ones. They certainly are to me and I feel deeply embarrassed that I cannot keep them as promptly as I would like.

You are not the only one who is temporarily suffering from the situation. Andy and Noel are in a similar situation, in that they have had the same promises for the same reasons.

You have only spoken to me once about this matter, which was on my mobile on the Sunday after I wrote to you. I believe that I told you then that I acknowledged my promise to you and that I would get it sorted with Paul as soon as I could.

….

Admittedly this is not a good system in that you do not get a rise as quickly as you deserve it and that I find humiliating that I cannot keep my promises, and have to grovel to get what should happen to happen."

There can be no doubt about the use of the language in that letter, for it is replete with references to promises, and Mr Fannon's sorrow that the promises had not been carried out quickly.

10. The second is a letter of 11 June 2002. This followed a meeting the day before, between the Applicant and Mr Fannon, where it is noted that the dispute would be resolved by an increase in the Applicant's bonus from £5000 to £10,000. The upshot was that the Applicant withdrew his resignation and the increase in bonus was presented, it is said in the letter, in order to reflect the increase of responsibilities the Applicant was then undertaking. On that basis, the combination of the Applicant's basic salary and bonus was almost £35,000 a year. This is to be compared with that of Mr Mills, who was on £35,000 basic, plus a small percentage increase, plus bonus, giving him (although not precisely admitted) roughly £43,000 in total remuneration.
11. The pay round came back in June 2003 and the Applicant was informed he would be given an increase of 2.5%. He resigned forthwith, indicated that he had not been given an appropriate pay rise. A further meeting took place, when it was indicated to the Applicant by Mr Fannon that there would not necessarily be any increase over and above that which had already been indicated, and at least for the immediate future, the Applicant would have to trust Mr Fannon. On 27 June 2003 the Applicant ceased to be employed.
12. The Tribunal, having made the finding which we have cited above, about the Blackpool discussion, made the following finding in relation to a separate but related issue, which is not now pursued on appeal, and is as follows:

"18 Over the two years prior to the applicant's dismissal, his overall remuneration had increased by 68% to £34,360. When looking at the question of whether the applicant's alternative submission that the respondent was in breach of its duty of trust and confidence, the Tribunal was satisfied that, in general terms, Mr Fannon and the respondent were making serious and significant increases in the applicant's remuneration thereby making real inroads into the pay differential between him and Mr Mills. The Tribunal is therefore not satisfied that the conduct of Mr Fannon or the respondent amounted to a breach of the implied duty of trust and confidence in the way in which they handled the applicant's pay grievances and their desire to move the Operations Manager towards ultimate general parity."

A dispute which was live at the Tribunal as to whether or not the alleged agreement related to total remuneration or basic salary, was resolved in favour of the former by the Tribunal, but it does not matter for the purposes of the appeal, since it is accepted that both the basic salary and the overall remuneration of the Applicant were below that of Mr Mills.

The Applicant's case

13. The Applicant's sole contention in the appeal now is that there was a contract, binding on the parties, formed at the Christmas party in Blackpool. The letters of 31 May 2002 and 11 June 2002 are relevant in the consideration of whether or not an agreement was reached, for the subsequent reliance by a party on the agreement is capable of being introduced in evidence - see Chitty on contracts, 26^th edition, volume 1, paragraph 2/154, where this appears:

"In the case of ordinary commercial transactions it is not normally necessary to prove that the parties to an express agreement in fact intended to create legal relations. The onus of proving that there was no such intention "is on the party who asserts that no legal effect is intended, and the onus is a heavy one." In deciding whether the onus has been discharged, the courts will be influenced by the importance of the agreement to the parties, and by the fact that one of them acted in reliance on it."

Thus the latter material is indicative of an intention to create legal relations.

14. It is also contended that the approach to this agreement is to regard it not as a social matter but as in the nature of a business transaction, for which the principles in Edwards -v- Skyways Ltd [1964] 1 AE 494 apply, particularly the judgment of Megaw J at page 498 where the following is said:

"In the present case, the subject-matter of the agreement is business relations, not social or domestic matters. There was a meeting of minds - an intention to agree. There was, admittedly, consideration for the defendant's company's promise. I accept the propositions of counsel for the plaintiff that in a case of this nature the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one."

It is contended on behalf of the Applicant that the Tribunal accepted the Applicant's case as to what the conversation consisted of, and that that was capable of being, and indeed amounted to, a contractual obligation assumed by Mr Fannon, on behalf of the Respondent, in Blackpool. Further the Tribunal did not allow the Applicant to make submissions on a key issue.

The Respondent's case

15. On behalf of the Respondent, it is contended that the Tribunal has decided what is essentially a question of fact: who said what at the Christmas party; and whether or not, in the light of the previous indications given to the Applicant, a contractual intention had been invoked. It is contended the Tribunal had evidence before it, no procedural defect occurred in the finding as to what occurred at that party, and whilst faithful to the Respondent's intention in due course to increase the remuneration of the Applicant and the others to the same level, the position was not changed by the Blackpool meeting from that which obtained earlier in the year when Mr Fannon had met each of them individually in private.

Conclusions

16. We accept the proposition advanced by Mr Mulholland that it is possible to look at the material emanating in 2002, when considering the evidence relating to the Blackpool meeting. We also accept that the relationship between Mr Fannon and the Applicant was in the nature of business affairs, and not a social matter. Mr Fannon was the Applicant's manager, and this was the Christmas event of the company for its staff and their partners. The essential issue for the Employment Tribunal to determine was what occurred in Blackpool. The first thing to note is that the Applicant gave evidence to the Tribunal as to express words uttered by Mr Fannon, because they appear as a direct quotation, saying that he would be on the same pay scale as Mr Mills. Secondly, it is indicated that an express time limit was given for the harmonisation of the scales of pay, two years from December 2001. (The Originating Application says two pay rises, but no issue was raised on appeal about the Tribunal's use of two years, a finding made after oral evidence.)
17. Those two express averments by the Applicant do not seem to have been accepted by the Tribunal (see the passage in paragraph 8 cited above). At the same time, Mr Fannon's evidence was that no such conversation took place at all. In our judgment, the Tribunal is not required to take an all or nothing approach, accepting entirely the case of one or the other. Having rejected Mr Fannon's contention that no conversation took place, it does not follow that the Tribunal must accept in full the account given by the other party to the conversation. Those two express statements of the Applicant's case differ from the commitment made in Spring 2001, for by December 2001 a time had been imposed, two years from Spring or December 2001 rather than in due course, and the reference was to pay scales – which we construe as basic salary rather than roughly similar remuneration. These are significant differences.
18. We reject the contention that a procedural irregularity occurred at this Employment Tribunal, by its deciding upon an issue which neither party was advancing. It will be recalled from our summary above that the central issue before the Tribunal was to determine what was said in Blackpool and what its legal impact was.
19. The Tribunal considered the oral evidence it was given, for that is all there was and it came from the Applicant; it considered the circumstances in which the conversation took place; it is not the job of the EAT to interfere with that fact-finding approach of the Employment Tribunal. Its depiction of the convivial circumstances in which the conversation took place and the gist of the words used, including the tone, are all matters for it, for which it has the unique advantage over us. The Tribunal therefore cannot be faulted in its essentially factual analysis of what was said.
20. The Tribunal obviously had in mind the subsequent material to which we have referred because it says as follows:

"14 The Tribunal does not feel that Mr Fannon should be penalised for using that terminology. Although he used the term "promises" the Tribunal does not accept that he was thereby acknowledging a legally binding contractual commitment but merely re-iterating his overall intention as described earlier."

That is not simply an exercise in construction of the two letters in 2002. The Tribunal was assessing them as a piece of evidence in the jigsaw, which it was required to complete, about what happened in Blackpool.

21. Similarly, the Tribunal was entitled to pay attention to what is accepted by the Respondent to be a commitment in contractual terms that it would in due course bring up the remuneration of the Applicant and his peers to that of Mr Mills, made in Spring 2001. Looking both backwards and forwards from the Blackpool meeting, therefore, the Tribunal was required to make a decision about the legal impact of the conversation. It did so, and we are not in a position to interfere with it.
22. We note, since it was the Applicant's case up to our hearing that there had been a breach of the duty to maintain trust and confidence, that the passage which we have cited (see paragraph 12 above) gives credit to the Respondent for the serious and significant increases in the Applicant's remuneration, which had taken it well along the road to that of Mr Mills during the course of what is effectively two years. The Tribunal made that judgment in response to submissions made to it and the evidence it heard. In broad terms, the Applicant appears to have had his pay increased over that two year period, from about £24,500 to about £35,000 and thus the Tribunal was entitled to form that judgment as a matter of fact, experienced as of course that Tribunal is, in deciding issues such as levels of remuneration and what constitute significant advances towards parity.
23. Given that that finding is not now challenged, the sole issue is whether, in June 2003, a fundamental breach of contract occurred entitling the Applicant to leave forthwith in response to it. In our judgment, the commitment of the Respondent was to move in due course towards parity and the time had not come when it could be said that there was a fundamental breach of that contractual obligation. That is buttressed by the finding to which relating to the real inroads made in the pay differential. Since the sole agreement relied upon is the Blackpool conversation, and since the Tribunal found there was no contractual intention but merely words of comfort, the ultimate finding is that there was no fundamental breach. The Applicant resigned and was not dismissed.
24. In those circumstances, the Tribunal's decision cannot be faulted. We have to say that we have considerable sympathy for the position Mr Judge was in, and his desire to see that his pay increased, but it seems to us that he may have acted too quickly in deciding when he did that he had had enough of the Respondent's failure to carry out its intentions as quickly or as fully as it did.
25. We would very much like to thank Mr Mulholland and Mr Cleeve for the careful way in which they have presented the arguments on behalf of their clients today. The appeal is dismissed.