United Kingdom Employment Appeal Tribunal

APPEARANCES

 

 

For the Appellant	Mr McManus Solicitor Messrs Harper Macleod Solicitors The Ca'd'oro 45 Gordon Street Glasgow G1 3PE
For the Respondent	Mr Hardman Advocate Messrs Levy & McRae Solicitors 266 St Vincent Street Glasgow G2 5RL

SUMMARY

The claimant alleged unfair dismissal. He had been employed as the respondents Head of Property Services and was dismissed on grounds of misconduct. The tribunal found the dismissal to be unfair as they were not satisfied that the claimant had been guilty of misconduct and considered that the respondents had failed to carry out an adequate and fair investigation. On appeal, the Employment Appeal Tribunal held that the tribunal had erred in law. They had failed to identify the cause of the dismissal. It was not for them to determine whether or not the claimant was guilty of misconduct of to put themselves in the position of the employer in determining whether or not he ought to have been dismissed. Whilst they had understandable sympathy for the claimant in respect of the fact that his line manager had escaped disciplinary proceedings, that and their failure to identify the cause of the dismissal had led them into error. Their approach to the issue of whether there should be any reduction of compensation was also flawed since it proceeded on the basis of a matter which had not been the subject of a finding in fact.

Topic Code 11C and 11H


 


THE HONOURABLE LADY SMITH

PRELIMINARIES

1. This case concerns a claim brought before the Employment Tribunal in respect of a case in which the claimant alleged that he had been unfairly dismissed.
2. This judgment represents the views of all three members.
3. We will refer to the parties as claimant and respondents.

Introduction

4. This is an appeal by the respondents in those proceedings against a Decision of an Employment Tribunal, sitting at Dumfries, Chairman Mr A W Muir, registered with Extended Reasons on 24 May 2005. The claimant was represented there and before us by Mr Hardman, advocate and the respondents were represented there and before us by Ms McManus, solicitor.
5. The decision of the Employment Tribunal was that the claimant had been unfairly dismissed.

The issue

6. The issue for the tribunal was whether the dismissal of the claimant that had been admittedly effected by the respondents was unfair.

The Judgment

7. The tribunal held that the dismissal was unfair but left the matter of compensation for later determination in respect that it had not been possible, by the time of the hearing, to agree a figure for pension loss.
8. In short, the reason given by the tribunal for their finding that the dismissal was unfair was that the respondents had failed to satisfy them that the claimant had been guilty of any form of misconduct; they had failed to carry out an adequate and fair investigation. Further, they held that the decision to dismiss did not pass 'the test of reasonableness in terms of Section 98(4) by reason of the fact that it fell 'well outwith the band of reasonable responses open to the respondents.' (see: Extended Reasons at p.16)

The appeal

9. The respondents have appealed against that decision, specifying in their notice of appeal, that the tribunal misdirected themselves in various respects which they categorise as the wrong legal test having been applied to the facts, the facts having been misapplied and the decision reached being one which no reasonable tribunal could, in the circumstances, have reached.

The legislation

10. The relevant statutory provisions are contained in the Employment Rights Act


 


11. s.98(1) and (2):

"98 General

(1) In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show –

(a) the reason (or, if more than one, the principal reason) for the dismissal, and

(b) that it is either a reason falling within subsection (20 or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.

(2) A reason falls within this subsection if it –

…

(b) relates to the conduct of the employee,"

The facts

12. The respondents are a company limited by guarantee to which the entire housing stock of Dumfries & Galloway Council was transferred on 10^th April 2003 under the provisions of the Housing (Scotland) Act 2001. They are managed by directors who are also members of a Board of management. All decisions are taken by that Board, other than simple routine matters. Several committees report to the Board including the Operations Committee and there is an Executive. There is a senior management team ('SMT'). Standing Orders govern the way in which the respondents operate. Their activities are regulated by Community Scotland. As at the time of the relevant events, the respondents were not a charity.
13. The claimant is a chartered quantity surveyor and he entered the employment of the respondents in August 2003, when he was appointed Head of Property Services given his expertise in the technical side of construction and procurement. This was a new post created to supervise the completion of the respondents' investment programme so as to enable the respondents to meet promises that they had made to tenants regarding properties let. His line manager was Mr Richard Cave, Director of Operations, who did not share the same expertise but relied on the claimant to provide it.
14. Towards the end of 2003, it became apparent that the respondents were liable to be facing a corporation tax charge at the end of their first financial year due to the fact that rental income was due to exceed expenditure achieved. The SMT met on 29^th January 2004 to discuss this matter. The claimant was not a member of the SMT but was invited to attend part of that meeting. The SMT made it clear that they were aware of an urgent need to accelerate expenditure within the then current financial year. The claimant thought, when he left the meeting, that it was agreed that the pace of expenditure on the respondents' investment programme required to be quickened not only for that year but for subsequent years and that their Procurement Policy would require to be varied so as to achieve that objective. On 4^th February 2004, the Board considered a report from the Operations Committee, to which the claimant had contributed, which identified the time consuming nature of the procurement strategy as being responsible for required building work being delayed, listed a number of contracts to which the report related and sought Board approval of variation of the then current strategy so as:

"To advance the investment programme spend;

To achieve spend within the short time remaining in the current financial year;

To achieve better value for money in some of the component costs e.g. doors supplied and fitted at costs

close to the business plan assumption; and

To mitigate the unexpected tax liability."

The Board gave approval. In particular, they varied the procurement policy but only to the extent that competitive tendering was not required in relation to identified projects.

15. The claimant thought that the Board approval related not only to the then current financial year but also to future years. He was wrong about that. Months later, on 23^rd June 2004, it became evident that the claimant had exceeded his authority in respect of a substantial number of door contracts.
16. The head of the respondents' Executive, Mrs Forster was concerned and made enquiries about the matter. She then instructed internal auditors to report. They identified that the Director of Operations, Mr Cave, had not recognised what the claimant was doing as regards exceeding authority levels on account of the lack of regular meetings between him and the claimant and the claimant's failure to provide him with certain documentation, all as is set out in more detail in the tribunal's reasons. Those auditors recommended that the respondents should consider instituting disciplinary proceedings against the claimant and that Mr Cave be required to explain why the issues identified by them had not been identified within the department. Mrs Forster was not satisfied that the internal auditors' report covered all relevant issues and asked for a second report. That report was carried out and it also recommended that disciplinary proceedings be instituted against the claimant. She then decided to instruct an external report and did so. Mr Roderick McKenzie, solicitor, Glasgow, was instructed. His instructions, which are detailed by the tribunal, were to examine the issues arising from the internal auditors' reports including an instruction to look at the claimant's involvement. He was not asked to look into Mr Cave's involvement. Mr McKenzie reported back that the claimant's actings were sufficiently serious to merit proceeding with disciplinary action against him.
17. Mr McKenzie identified, in addition to the matter originally identified as requiring enquiry, a number of facts regarding the way in which the claimant had approached matters since February 2004 which caused Mrs Forster serious concern. These were as follows. Contracts in excess of the authority given by the Board at the 4^th February 2004 meeting had been let. The claimant had represented that certain of those contracts had been negotiated when they had not. The claimant had permitted the respondents to become legally committed to contracts without prior approval having been given. This was in circumstances in which, wherever the lines of authority lay, there was never any suggestion that the claimant had infact been given power to conclude contracts on his own initiative. The claimant had misled the Operations Committee to the effect that they were being asked to approve contracts not yet concluded when, through his actions, contracts had already been concluded. He had facilitated the approval of door contracts in a manner contrary to the respondents' procurement policy. The claimant had misled the Operations Committee regarding prices. He had not had the appropriate financial checks of contractors carried out prior to the conclusion of contracts with them. He had allowed the respondents to become committed to contracts without the appropriate contractual documentation being in place.
18. Disciplinary proceedings were commenced by Mrs Forster writing to the claimant, setting out twelve matters, including the seven matters to which we have referred above, which were to be considered at a disciplinary hearing. The claimant wrote back indicating that he had acted in good faith and thought that he had the blessing of the Executive. The hearing took place on 14^th September 2004 and Mrs Forster decided to dismiss the claimant. From the foot of p.11 – p.12 of their reasons, the tribunal set out their findings regarding Mrs Forster's view of matters in that respect. They record as a finding in fact that her approach was that each of the seven matters that we have summarised in paragraph 13 above were of such severity that, of themselves, they would each have led her to dismiss the claimant. She was also satisfied that each of the twelve matters detailed in her letter were established as failures on the part of the claimant, as a matter of fact and that, in the light of all twelve failings, the decision to dismiss was justified. We stress, however, that it is plain from the tribunal's findings that they were satisfied that, as a matter of fact, Mrs Forster would have dismissed the claimant in respect of any of the seven matters to which we have referred, alone, even in the absence of the other six and, in particular, in the absence of the remainder of the full list of twelve.
19. An appeal hearing took place on 5^th October at which the claimant, the tribunal states: '..did not challenge the reasons for his dismissal to any great extent' and the appeal was refused.
20. No disciplinary proceedings were instituted against Mr Cave, Mrs Forster having taken the view that he could not have been expected to have day to day knowledge of what the claimant was doing.

Respondents' case

21. On behalf of the Respondents it was contended that the tribunal had erred in three respects. They had failed properly to identify the reason for the claimant's dismissal. They had failed to apply the test set out in British Home Stores Ltd v Burchell 1978 IRLR 379. They had failed properly to consider the issue of compensation.
22. As regards the first part of her argument, Ms McManus drew our attention to a matter which we have already noted in our summary of the facts in this case; although twelve separate matters were considered and found to have occurred, at the disciplinary hearing, the tribunal had accepted Mrs Forster's evidence that she regarded the seven specified matters as being such that she would have dismissed the claimant in respect of each and every one of them. That being so, it was of no relevance to look, as the tribunal had done, at issues arising from the other reasons such as those which were directly related to the claimant's misunderstanding of the position regarding the variation of the respondents' procurement policy. It was evident from the tribunal's reference to 'offences with which he was charged' at p.15 of their reasons, that their approach had been to look at all twelve matters. Their criticisms regarding the failures to investigate Mr Cave's involvement any further could not relate to the 'core' seven matters which Mrs Forster had regarded as so serious. It amounted to them having compared the failure to investigate Mr Cave with investigations of the claimant for a matter which was not one of the seven core reasons for his dismissal.
23. Regarding the Burchell test, Ms McManus submitted, under reference to the tribunal's reasoning, that it was plain that they had not followed the requisite stages in their considerations. In particular, they had erred in stating that it was for the respondents to satisfy them that the claimant was guilty of misconduct.
24. As regards contribution, Ms McManus drew our attention to that part of the tribunal's reasons where, at p.16, they set out their reasons for rejecting the submission that there should be reduction in any compensation payable to allow for contribution by the claimant. In respect that they appeared to have taken into account that notwithstanding the claimant's failings, 'best value was achieved' their reasoning was fatally flawed there having been no finding in fact made to the effect that that was the case.

The Claimant's Case

25. For the claimant, Mr Hardman submitted that the there were two ways of analysing the facts in this case and that the appeal only attacked one of them. The first was, he said, to approach matters from the point of view of looking at why the claimant was dismissed which resulted in the tribunal finding that the dismissal was unfair because there had been insufficient investigation. The second was to ask whether dismissal was a reasonable response in the circumstances. The tribunal had answered that question in the negative and were, it was submitted, entitled to do so in the circumstances.
26. Further, it was submitted that the tribunal had, in effect, found that the reason why Mrs Forster had dismissed the claimant was that she had concluded that the claimant had intentionally misled the Operations Committee. The tribunal, however, had found that such mens rea did not exist thus, so the argument seemed to go, undermining Mrs Forster's conclusions as to the claimant's conduct.
27. Separately, it was submitted that the tribunal were entitled to find as they did when approaching matters from the standpoint of considering whether or not dismissal was a reasonable response. If the claimant was, as he had asserted and as was accepted by the tribunal, acting in good faith that was something which ought to have been taken into account by Mrs Forster at the time of dismissal and indicated that dismissal was not within the range of reasonable responses open to an employer. In short, the question which the tribunal had, it was said, addressed was that of whether it was reasonable to dismiss without considering whether or not any misrepresentations by the claimant had amounted to intentional deception or not. The respondents had done so and that was not, it was said, within the relevant range.
28. Regarding the matter of contribution, Mr Hardman accepted that the tribunal had made no finding of fact that best value had been achieved. He sought to address this matter by submitting that the tribunal's primary reason for rejecting the submission that the claimant had contributed to his own dismissal was that he had acted on the basis of a genuine belief as to the extent of his mandate.

The legal principles

29. The onus was on the respondents to show the reason for their dismissal of the claimant and that that reason was a reason relating to his conduct (see: Employment Rights Act 1996 s.98(1) and (2)). That being so, the first question that the tribunal required to ask themselves was: for what reason did the respondents dismiss the claimant? Then they required to ask: was that reason a reason relating to his conduct?
30. Where an employer has discharged the onus of showing that the reason for dismissal was a reason relating to conduct, a tribunal then requires to go on and consider whether or not, in treating that reason as justification for dismissal, the employer acted reasonably having regard to the whole circumstances of the case including the size and administrative resources of the employers' undertaking. The tribunal's determination also requires to be arrived at in accordance with equity and the substantial merits of the case. The foregoing is, of course, drawn from the provisions of s.98(4) of the Employment Rights Act 1996.
31. It is, accordingly, plain that a tribunal cannot get to the stage of considering the reasonableness of the decision to dismiss unless it has first identified what that reason was.
32. Regarding the determination of the question of reasonableness, the correct approach in a case where the reason for dismissal relates to conduct has been discussed at length in previous decisions. In particular, the oft quoted decision in the Burchell case is of assistance here. We make, however, no apologies for setting out what we consider to be the proper approach since, as will be evident from our decision, we are persuaded that the tribunal misapprehended the task which they required to perform and, as a result appear to have misapplied the law to the facts of the case.
33. The legal principles to be applied appear to be as follows. The tribunal require to begin by determining whether the employer who has dismissed an employee on conduct grounds entertained, at the time of dismissal, a reasonable suspicion amounting to a belief in the 'guilt' of the employee regarding the conduct in question. There are two elements to this first stage namely proof of the fact of the belief and proof of reasonable grounds for the holding of that belief, which will usually require satisfaction that as much investigation into the matter had been carried out as was reasonable in all the circumstances. The amount of investigation required to justify the belief will vary from case to case according to its particular facts and circumstances. If an employee admits the conduct alleged then it is likely that little, if any, further investigation will be required. If, however, the employer is faced with a firm denial then detailed investigation might reasonably be expected. However, when considering what, in the circumstances of a particular case amounts to a reasonable investigation, the objective standard of the reasonable employer, which will usually involve a range of possible responses, requires to be applied, not the tribunal's own view as to what was required for the investigation to be a reasonable one.
34. If a tribunal is satisfied that the employer entertained a reasonable suspicion as to 'guilt' then he, as Mr Justice Arnold said, in Burchell:

" …must not be examined further."

It is not only unnecessary that the tribunal would have shared that view in those circumstances but it must not consider the available material themselves and decide whether or not they would have concluded that the employee was 'guilty' of the conduct alleged.

35. In a case in which an employer did entertain a genuine belief in the 'guilt' of the employee, on reasonable grounds, the tribunal then requires to consider whether the decision to dismiss the employee for the conduct in question was a reasonable one or not. That involves considering the range of reasonable responses open to an employer in the circumstances of the case.

Conclusions

36. We are persuaded that the arguments of the respondents are well founded and that this appeal should, accordingly, be upheld.
37. The tribunal found that Mrs Forster's approach was to regard each one of the seven matters to which we have referred above as sufficient reason for dismissal. The factual position was then, according to their findings, that Mrs Forster would have dismissed the claimant if he had conducted himself in the way described in any one them. For example, if the only matter that had occurred had been that the claimant had represented to the Operations Committee that contracts for which he was responsible had been negotiated when they had not been, she would have regarded that as justification for dismissal. They found further that Mrs Forster did not regard the five other matters as being, individually, justification for dismissal. For example, her position was, according to their findings in fact, that she did not regard the claimant having caused approval of contracts to be sought from the Operations Committee in circumstances where they had no power to give such approval (which was because the approval being sought was to enable contracts to be entered into that went beyond the variation of procurement policy authorised by the Board) as being of itself sufficient to warrant dismissal.
38. There was some discussion before us as to whether or not the tribunal had found as fact that Mrs Forster had dismissed the claimant on the basis of a view that the claimant had deliberately deceived the respondents. The matter first arises at p.11 of their reasons where they quote from the letter written by the claimant in response to the allegations against him in which he states his position as being that everything he had done had been done "openly and in good faith". The tribunal, under reference to Mrs Forster's reliance on the list of seven matters in dismissing the claimant, state:

"Mrs Forster effectively rejected that submission."

but make no finding that she concluded that the claimant was guilty of deliberate deception. Certainly, she was satisfied that he had made misrepresentations to and misled the Operations Committee but that is as far as their findings go. To suggest that someone has been guilty of deception could be regarded as casting matters in a rather more serious light. We note, however, that notwithstanding the absence of any finding to that effect, the tribunal have considered whether the claimant was guilty of deception and concluded that he was not. Whilst they may well have been led into doing so by reason of the fact that the respondents' solicitor submitted to them that the claimant had been dismissed for intentional deception, it was not an approach that, in our view, they were entitled to take without having themselves found that that was the case. However, our concerns regarding the tribunal's approach in this case go further than that.

39. The tribunal were bound in this, as in every case, to begin by determining the reason for the claimant's dismissal. That required them to take into account the fact that, as we have indicated, the claimant would have been dismissed for any one of the seven factors to which we have referred and he would not have been dismissed had the only conduct in question been one of the other five matters. The tribunal failed to do so. That meant that their approach to the questions of reasonableness that they had to consider was flawed. They looked at all twelve matters together and, because of their concerns regarding the limits to the respondents' investigation of the part played by Mr Cave, concluded that the whole process of investigation into the claimant's conduct was "inadequate, impartial and fundamentally inequitable" (see: tribunal's reasons p.16). Such comments are understandable in the context of, for instance, the 'charge' that the claimant had "caused approval of contracts to be sought from the Operations Committee in circumstances where the Operations Committee had no power to give such approval" (see: tribunal's reasons p.12) given the finding that "at no time did the claimant get any guidance from Mr Cave on how he was to proceed in practical terms to achieve what he understood he was being instructed to do". Whether or not the respondents could reasonably regard the claimant as having caused approval to be sought was a question that would have arisen had that charge been the reason for his dismissal and it may well have been relevant, in that event, to ask what part had been played by Mr Cave. That was not, however, a 'charge' which Mrs Forster regarded as sufficient cause for dismissal and the comments are not understandable in the context of, for instance, the 'charge' that the claimant had misrepresented to the Operations Committee that contracts had been negotiated when they had not. We do not see how, on the tribunal's findings, any amount of investigation of Mr Cave had the potential to cause Mrs Forster to conclude other than that the claimant had, as a matter of fact, made such a misrepresentation, particularly since they found that the claimant did not challenge the reasons for his dismissal to any great extent. The same can be said in respect of each of the seven crucial matters which Mrs Forster viewed as justifying dismissal. In these circumstances, it seems to us that on the findings made, the tribunal were bound to conclude that Mrs Forster held a genuine belief on reasonable grounds that the claimant had conducted himself in the manner set out in seven crucial 'charges'. They then required to consider separately, against the background of Mrs Forster's belief, whether dismissal was within the range of reasonable responses open to the respondents in the circumstances.
40. Mr Hardman sought to persuade us that that was not so because, if the respondents had investigated the part played by Mr Cave more fully then, as the tribunal had found, it is probable that they would have concluded that the claimant's actings were "understandable as well as being unobjectionable" (see: tribunal's reasons p.16) in that Mrs Forster would not have found that the claimant had been guilty of deliberate deceit. We have already noted that the tribunal do not infact find that that was Mrs Forster's conclusion. The findings made go no further than Mrs Forster's position being that she was satisfied that the claimant had conducted himself in the manner set out in the list of 'charges' including the critical seven matters. Applying the argument to the findings that were made, we do not see that the results of any investigation of Mr Cave could have affected the conclusion that the claimant had, as a matter of fact, conducted himself in the various ways described., Such investigation could have provided greater detail as to why the claimant acted as he did but could not, it seems to us, have altered the fact that he did conduct himself in the manner alleged.
41. Separately, we have concluded that the tribunal misdirected themselves as to the applicable law in respect that, contrary to the strictures that emerge from the authorities on this subject, they substituted themselves as employer in place of the respondents. They begin their considerations, at paragraph 5 on p.14 of their reasons, by stating, wrongly, that:

"The onus is on the respondents to establish misconduct.."

They go on and, having considered the facts, find, at p. 15 that:

".,.the Tribunal, with little hesitation, concluded that the claimant did have a genuine misunderstanding of what he was instructed to do."

and add:

"As the Tribunal saw it, there was no question at all of there being any deception on the part of the claimant ….."

and concluded further:

"…..if there had been any misrepresentation on his part to the Operations Committee, then this was entirely innocent."

Then, at p. 16, they state:

" ….the respondents have failed to satisfy the Tribunal that the claimant has been guilty of any form of misconduct by reason of want of an adequate and fair investigation by Mrs Forster."

42. We consider that these statements by the tribunal are indicative of the mindset of the tribunal having been that they put themselves in the position of employer and determined what they would have concluded, rather than consider, as they were bound to do, whether a reasonable employer could have concluded that the claimant was guilty of the conduct in question. Having failed in that respect, the tribunal's subsequent conclusion that dismissal was not within the band of reasonable responses was not one which they were entitled to reach as it flowed from an erroneous approach at the outset. The question of reasonableness of dismissal as a response cannot arise until the earlier exercise has been carried out correctly.
43. The tribunal's errors appear to have flowed from a combination of their initial failure to identify what it was that the claimant was dismissed for and understandable sympathy for the position that he was in as compared to Mr Cave, who had not been rigorously investigated in circumstances in which it seemed that serious questions arose as to the nature and extent of his failings and it was surprising that he had not been called to account for them. Their sympathy for the claimant is plain and may well, it seems, have become a distraction. Unfortunately the tribunal fell into error in the respects that we have discussed.
44. Ms McManus sought to persuade us that, if we were satisfied that the tribunal had erred, we should simply reverse their decision and substitute a finding that the claimant was fairly dismissed. We do not, however, consider that it would be appropriate for us to do so. Those findings have been made in the context of an erroneous approach and with the focus on the wrong issues. We are, though, satisfied that the tribunal's errors are such that it would not be appropriate to remit the case back to them. It should be remitted, rather, to a freshly constituted one.
45. As regards the matter of contribution, since the case is to be remitted, it does not arise. However, had we required to determine the matter, we would have readily been persuaded that the tribunal's decision on the matter was flawed. In rejecting the submission that the claimant had contributed, by his conduct, to his dismissal, the tribunal stated, at p.16:

" ….there was no blameworthy conduct that could be attributed to the claimant. He had acted in accordance with what he genuinely believed his mandate was and, in doing so, he ensured that contracts were placed so that best value was achieved and with no resultant loss to the respondents."

46. The tribunal did not, however, make any finding that best value was achieved at all. That being so, they took account of an irrelevant matter and their decision on contribution could not have stood.

Disposal

47. We will, allow the appeal and remit the case in its entirety to a freshly constituted Employment Tribunal.