United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MS STARK (Advocate) Instructed by: EEF Legal Services Broadway House Totill Street London Central SW1H 9NQ
For the Respondent	MR M LYNCH (Solicitor) Instructed by: Mackinlay & Suttie 48 Cross Arthurlie Street Barrhead G78 1QU














 


SUMMARY

Unfair dismissal on account of selection for redundancy without application of any criteria. Tribunal refused to deduct the extent to which the claimant's redundancy payment exceeded the basic award that would have been payable had the claimant not been made redundant. On appeal, Employment Appeal Tribunal held that Tribunal had erred. It had no choice; it had to make the deduction: s.123(7) of the Employment Rights Act 1996.

THE HONOURABLE LADY SMITH

1. This is an appeal at the instance of employers who were respondents before the Employment Tribunal sitting at Glasgow, Chairman M V Craig, against their judgment which was registered on 11 February 2007. There was also a cross appeal at the instance of the claimant but that was withdrawn in the course of the hearing before us.
2. We will refer to the parties as Claimant and Respondents.
3. We note that the parties were both represented by solicitors before the Tribunal. Before us the Respondents were represented by Ms Stark, advocate, and the Claimant by Mr Lynch, solicitor.

Background

4. The Claimant was dismissed by reason of redundancy on 31 July 2006. He had been employed as a Senior Team Leader on the night shift at the Respondents' premises in Hillingdon, involved in the production of electronic servers. His employment with the Respondents had begun in 1998. The Respondents decided, however, to transfer their manufacturing operation to a site at Brno in the Czech Republic and a number of employees, including the Claimant, were made redundant.
5. The Tribunal held that the Claimant was unfairly dismissed in respect that the Respondents had selected him 'at random' without having agreed or applied any redundancy selection criteria at all. That was in circumstances where they retained two employees for a period who had not been in their employment as long as the Claimant and whose jobs were directly comparable to his.
6. The Tribunal awarded the Claimant £17,187 as compensation for unfair dismissal. They rejected a submission that that sum should be reduced so as to allow for the extent to which the payments made to the Claimant in his redundancy package exceeded what would have been the basic award to which he was not entitled in this case. At paragraph 88 ,they said:

"88. We do not share that view however, simply on the grounds that the enhanced payments to which the claimant became entitled were payments which were conditional upon an employee remaining during the period of the respondent company's notice. Clearly the claimant did that and in that respect having regard to the justice and equity required by Section 123 of the Employment Rights Act 1996, we are not inclined to make any reduction on that account in the award of compensation which we make."

7. The statutory dismissal procedures provided for by s29 and Schedule 2 to the Employment Act 2002 were not followed. What the Respondents did do was they engaged in collective consultation. This was a case in which Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 applied. Consultation began on 25 January 2006. It had been preceded by the Respondents sending an HR1 form to the Department of Trade and Industry declaring that the first of the redundancies would be on 1 July 2006 and the last ones would be on 1 July 2007. Meetings took place generally every two weeks and a redundancy package was agreed. That consultation did not, however, produce agreement on any selection criteria.
8. When he was made redundant, the Claimant received a redundancy payment of £4,099.98, an enhancement thereof of £2,733.32, and an ex gratia payment of £1,608.33 in respect of being made redundant. When that 'package' was offered, it was made clear that payment of it was conditional on the relevant employees, including the Claimant, staying on during the notice period provided for.

Relevant Law

9. The appeal requires the following statutory provisions to be considered and they were referred to in the course of the hearing today:

s122(4)(b) Employment Rights Act 1996

"122 Basic award: reductions

(4) The amount of the basic award shall be reduced or further reduced by the amount of –

(a) any redundancy payment awarded by the tribunal under Part XI in respect of the same dismissal, or

(b) any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy (whether in pursuance of Part XI or otherwise)."

s123(1) Employment Rights Act 1996

"123 Compensatory award

(1) Subject to the provisions of this section and sections 124[, 124A and 126], the amount of the compensatory award shall be 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."

s123(7) Employment Rights Act 1996

"(7) If the amount of any payment made by the employer to the employee on the ground that the dismissal was by reason of redundancy (whether in pursuance of Part XI or otherwise) exceeds the amount of the basic award which would be payable but for section 122(4), that excess goes to reduce the amount of the compensatory award."

10. In this case, parties were agreed that the basic award that would have been payable had the Claimant not been made redundant and received a redundancy payment, would have been £2,465.

The Appeal

11. The appeal related to the question of whether there should have been certain deductions from the compensation that was awarded to the Claimant. The point taken was, essentially, a short one. S123(7) required a tribunal to reduce any compensatory award according to the amount by which any payment made by the employer to the employee on the ground that the dismissal was "by reason of redundancy" exceeded the basic award to which he would have been entitled had the dismissal not been a redundancy dismissal.
12. The payment made by the Respondents to the Claimant when he was dismissed exceeded the basic award that he would have received had his dismissal not been by reason of redundancy
13. In support of the Respondents' case, Ms Stark submitted that the Tribunal had fallen into error. They had no choice but to deduct the excess, under s123(7). The fact that the payments were conditional upon employees, such as the Claimant, staying on during their notice period was irrelevant; the Claimant had been obliged to work his contractual notice period in any event. There was no room for the exercise of a just and equitable jurisdiction under s123(7). Reference was made in support of her submissions to three authorities.
14. First, the case of Rushton v Harcros Timber & Building Supplies Ltd [1993] IRLR 254. In particular at paragraph 17, where the Employment Tribunal presided over by his HHJ Haig QC said that they consider that the meaning and intent of the relevant sub-section in the prior legislation was "reasonably plain", and he continued:

"i.e. that in the calculation of a compensatory award an employer should receive credit for any redundancy payment he makes. The manifest purpose of the subsection was to encourage employers who find it necessary to dismiss for redundancy to be generous in making ex gratia payments. It would be unfortunate if an employer, in deciding whether to make an ex gratia payment, and if so deciding the amount, has to take into account the possibility of an Industrial Tribunal award over and above the ex gratia payment, however generous that may have been. That would have the overall effect of reducing both the frequency and levels of ex gratia payments and would be detrimental to the interests of employees generally. It is much better that the financial arrangements arising from dismissal for redundancy should be made without the parties having to look over their shoulders at a possible Tribunal hearing."

15. Secondly, the case of Cox v London Borough of Camden [1996] IRLR 389 was referred to, in particular paragraph 28. And thirdly, the case of Digital Equipment Co Ltd v Clements (No. 2) [1998] IRLR 134, a decision of the Court of Appeal, was referred to, in particular at paragraphs 25 and 32. We note that at paragraph 32 the Court of Appeal said this:

"Thus in my view the section provides that the excess of the redundancy payment over the basic award is not to be taken into account in ascertaining the loss but is to go to 'reduce the amount of the compensatory award'."

16. As against that, Mr Lynch submitted that the Tribunal were aware of s123(7) despite the fact that they had not referred to it. Their decision fell to be read as a determination that the payments relied on by the Claimant had not been made 'by reason of redundancy'. That was because the payments were (1) because of redundancy, and (2) because the Claimant had been required to stay in post. Section123(1) gave the Tribunal a discretion. s123(7) did not include the word 'must' or 'shall': therefore, the overriding discretion in s.123(1) applied.

Decision

17. We are readily persuaded that this appeal should be upheld.
18. Firstly, we agree that the terms of s123(7) are such as to instruct the Tribunal where there is an excess payment of the sort there described, to deduct it from whatever they have decided is just and equitable compensation in the case. If that is not done, then, as was discussed in the case of Rushton, there will be a risk of employers not getting full credit for payments made by reason of redundancy which go beyond the statutory minimum. In that event there would be an unfortunate disincentive to be generous when making such payments. So, if a payment can be characterised as having been made by reason of redundancy and it exceeds what would have been the basic award, the excess requires to be deducted. The Tribunal does not have a choice.
19. Secondly, we are satisfied that this Tribunal fell into error. The discussion at paragraph 88 is not a decision that the payment in question was not made by reason of redundancy. If that had been their view, they could have been expected to refer to s123(7), to its wording, and to have explained how, in their view, the payment did not fall within the terms of the subsection. It rather seemed, despite Mr Lynch's initial submission, that he accepted that, given that his characterisation of the payment involved recognizing that it was at least partly by reason of redundancy. The subsection does not, of course, provide that the payment need only be by reason of redundancy.
20. In any event, we do not see that the attaching of the condition in question in this case had the potential or the effect of preventing the payment being characterised as a payment by reason of redundancy. Certainly it is a payment that would not have been made apparently, had the Claimant not worked through the Respondents' notice period. But that is beside the point. Had it been a matter of the Tribunal having to exercise a discretion whether to deduct it or not, it may well have been open to them to decide not to deduct in the light of such a condition. But the problem was they did not have a discretion in the matter and the condition attached to the payment did not have the effect of causing the payment to be regarded other than as falling within the s123(7) description. We can only conclude that the Tribunal overlooked the terms of s.123(7). That is unfortunate but it is an oversight which, it plainly being an error of law, we can correct.

Disposal

21. We will, accordingly, pronounce an order upholding the appeal and substituting for the sum of £17,187 awarded by the Tribunal in its judgment, the sum of £11,212.37, that being the result of deducting the extent to which the sum paid by reason of redundancy exceeds what would have been the basic award of £2,465 namely, the sum of £5,974.63.