United Kingdom Employment Appeal Tribunal

APPEARANCES

 

For the Appellant	MR STEPHEN MILLER (Solicitor) Messrs MacRoberts Solicitors 152 Bath Street Glasgow G2 4TB
For the Respondent	MR ALASTAIR HARDMAN (of Counsel) Instructed by: Messrs Allan McDougall & Co Solicitors 3 Coates Crescent Edinburgh EH3 7AL


 


SUMMARY

The employer wrongly construed a collective agreement and so did not consult the Union as required by the terms of it in advance of dismissal of employees for redundancy. On appeal, it accepted the construction of the Employment Tribunal was correct. Although an employer can on advice misconstrue a document and yet behave reasonably under Employment Rights Act 1996 s 98(4), the management here did not rely solely on the advice as to the construction of the agreement, but had commercial reasons for not applying the plain words of the agreement.


 


HIS HONOUR JUDGE McMULLEN QC

1. This case is about the meaning and application of a redundancy agreement. We will refer to the parties as the Claimants and the Respondent. The parties were represented below legally but today Mr Stephen Miller appears for the Respondent and Mr Alistair Hardman of counsel for the Claimants.

Introduction

2. The Claimants claimed they were unfairly dismissed by the Respondent by reason of redundancy. The employers argued that they were dismissed for redundancy following a fair procedure. The claim was put before an Employment Tribunal sitting at Glasgow over 5 days, reaching a written judgment on 11 May 2007 under the chairmanship of Mr J D Young. The judgment is 44 pages. It is accepted all round that this is a comprehensive judgment dealing with all the relevant issues. The central issue was the applicability of the redundancy agreement which obtains within the Respondent's workforce. The Employment Tribunal upheld the claims and awarded to each of the Claimants the remedy of reinstatement. The Respondent appeals on one ground only, the other ground relating to Polkey v AE Dayton Services Ltd [1988] ICR 142 HL is withdrawn before us and we dismiss it today. A speedy hearing has been arranged at the EAT following directions given by Lady Smith.

The legislation

3. There is no dispute as to the relevant legislation the Employment Rights Act s.98(1) and (2) nclude redundancy as a potentially fair reason for dismissal. S.139 deals with the definition of redundancy. The Respondent discharged the onus upon it of showing the reason for dismissal. There being no issue before us, the sole issue relates to s.98(4) which deals with fairness and provides as follows:

"98 (4) [In any other case where] the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer)-

(a) depends on whether in the circumstances (including the size and administrative resources of the employer's 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 facts

4. The facts were set out by the Employment Tribunal and so far as are relevant contained the following:

"4. The respondents are port operators and carry on business at King George V Dock in Glasgow ("KGV") which handles general cargo; at Hunterston ("Hunterston Terminal") which deals in the import and export of coal; at Greenock Ocean Terminal ("Greenock Terminal") which handles cargo such as forestry products and paper, containers and is a cruise ship terminal; and at Manchester Ship Canal which port was brought into the operation by virtue of the acquisition of the respondents by the Peel Group.

5. The first claimant had continuous service with the respondents from 21 September 1988 until the termination of his employment on 3 May 2006. The second claimant had continuous service with the respondents for the period from 9 July 2001 to the date of termination of his employment, also on 3 May 2006. At termination of their employment each claimant was employed as a port operator at the respondents' Greenock Terminal. The first claimant had been based at the respondents' Greenock Terminal since 2002. Prior to that time he had been engaged at the respondents' Hunterston Terminal. The second claimant had commenced with the respondents as an agency worker at their Hunterston Terminal. Thereafter he had been employed at the respondents' Greenock Terminal; returned to Hunterston Terminal in around July 2005 before returning to work at the Greenock Terminal from around November 2005.

10. Each of the respondents' ports at Glasgow, Hunterston, Greenock and Manchester operated as stand-alone cost centres. The business projections for the Greenock Terminal at the end of 2005 were not good. The loss of the Caledonian Paper contract was significant. The number of cruise ships likely to use the Terminal in 2006 was down and, albeit the respondents had sought alternative contracts, none had appeared forthcoming.

11. Mr Hemphill as Operations Manager at the Greenock Terminal determined that it was necessary to effect savings and to reduce the head count at the Greenock Terminal. The downturn in business affected the port operators as there was going to be less work for them to do. At the same time the respondents still required a minimum number of operators to handle the remaining business in an efficient and continuous manner. Mr Hemphill had towards the end of 2005/beginning of 2006 held meetings with employees at the Greenock Terminal and had indicated that there were worrying signs as regards future business, with particular reference to the contract with Caledonian Paper, but no warning or other intimation had been given to employees about any impending or prospective loss of employment by way of redundancies. In March 2006 a chargehand retired from service and his position was advertised internally and filled by one of the existing port operators. That meant that there were 17 port operators around March 2006. Mr Hemphill determined that the appropriate number of port operators required to accommodate anticipated business needs would be 15. All recruitment was put on hold at the Greenock Terminal and art Operations Supervisor was transferred to KGV.

12. Mr Hemphill had not been engaged in a redundancy process and relied on his HR department for advice and support. Previously when another contract had been lost at the Greenock Terminal affected personnel had been redeployed to other parts of the business. On this occasion enquiry of the other Operations Managers at Hunterston and KGV had disclosed no vacancies for port operators.

13. The respondents required to retain a balanced workforce of port operators at the Greenock Terminal."

5. The Tribunal then set out the arrangements which were made by the Respondent for considering these matters and said this:

"14. These were the principal drivers so far as Mr Hemphill was concerned. He met with Lucy McNulty at the beginning of March 2006 to discuss how best to proceed with the redundancy process. They discussed what criteria might be best used for selection and apart from length of service and crane driving skills also considered disciplinary record, absence record, training skills and whether or not an individual was a "first aider" would be appropriate criteria.

15. It was agreed at that discussion that Lucy McNulty would complete a matrix and weight the various factors. She would then return to Mr Hemphill with the completed document. Lucy McNulty also made enquiry with the Operation Managers for Hunterston Terminal and KGV but they confirmed that they had no vacancies for port operators. Lucy McNulty set about completing a selection matrix for the 17 port operators at Greenock Terminal with scores."

It is not necessary to repeat the scores which were irrelevant.

6. The agreement which regulated the relationship between the partners is a document headed HR Policy and Procedures. It is dated June 2006, although it is common ground that the text of that later document is precisely the same as was in play at the relevant time. It is also common ground that this is a collective agreement. The relevant provisions are as follow:

"1.0 It is the aim of the organisation at all times to maintain full employment for all employees and to assess labour requirements continually. Unfortunately, it may at some point in time be necessary to reduce the workforce.

2.0 Where the possibility of a reduction in the size of the workforce arises, management will enter into consultation with the appropriate recognised trade union or employee representative with a view to establishing whether the proposed job losses can be achieved by means other than compulsory redundancies, ie inviting applications for consideration for early retirement and/or voluntary redundancies.

2.1 The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995, which came into force on 26th October 1995, extended the consultation provisions for redundancies.

Consultation must begin:

• At least 90 days before the first dismissal takes effect, where it is proposed to dismiss over 100 or more employees within a period of 90 days or less.

• At least 30 days before the first dismissal takes effect, where it is proposed to dismiss 20-99 employees within a period of 90 days or less.

3.0 Where, after due consideration, management considers that the need for redundancies still remains, management will give to employee representatives written details of their proposals, which will include:

• The rationale behind the proposed redundancies.

• The total number and types of jobs affected.

• The total number of employees of any such description employed at the establishment in question.

• The selection methods which will be used.

• Method of effecting (eg voluntary, compulsory), including the period over which the dismissals are to take effect.

• The proposed way of calculating non-statutory redundancy pay.

5.0 As far in advance of the proposed termination date, as possible, management will notify all employees that compulsory redundancies are proposed and that provisional selection has been made. It should be stressed that the selection is provisional only and may be subject to change. Management will then enter into immediate consultation on an individual basis with those employees provisionally selected for redundancy. In the course of consultation, employees will be informed of the basis of their (provisional) selection and invited to make representations on their proposed dismissals.

8.0 Management will make every effort to seek alternative employment within the Company, and where this exists, to consider redundant employees for suitable vacancies."

7. The circumstances in which there has been consideration of redundancies were set out by the Employment Tribunal in relation to what might be described as custom and practice. No argument was addressed today in relation to the occasions set out by the Tribunal in paragraph 21. It is therefore not relevant to consider the circumstances at other sites of the Respondent for the purposes of disposing of this appeal. The Tribunal considered what Mr Hemphill and Ms McNulty did next, and said this:

"20. Both Mr Hemphill and Lucy McNulty had regard to this document when considering the redundancy process. It was explained by Lucy McNulty that the respondents considered Clause 2.0 where it referred to "consultation with the appropriate recognised Trade Union" and "inviting applications for consideration for early retirement and/or voluntary redundancy" as only applicable to a "collective redundancy situation", namely those redundancies affected by The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1995. The respondents therefore did not consider that they required to seek volunteers for early retirement or voluntary redundancy. Mr Hemphill in any event considered that to invite applications for early retirement or voluntary redundancy would likely have brought forward those with longer service, and in particular more than 10 years service, which would have caused the respondents greater cost. He also wished to retain a balanced workforce and he could not have controlled that situation had volunteers been invited."

8. Its conclusions were these:

"111. A central issue in this case was the application of the respondents' policy on redundancy produced at R11. There was no dispute that this "HR Policy and Procedures" in relation to redundancy was current and applicable to the respondents in dealing with the redundancy situation that faced them at Greenock. The dispute was over the interpretation of the policy with particular reference to Clause 2.0, the first paragraph of which stated:-

"Where the possibility of a reduction in the size of the workforce arises, management will enter into consultation with the appropriate recognised Trade Union or employee representative with a view to establishing whether the proposed job losses can be achieved by means other than compulsory redundancies, ie. inviting applications for consideration for early retirement and/or voluntary redundancies.

112. The respondents' view was that this policy only applied in a collective redundancy situation, namely where twenty or more employees were being dismissed within a period of ninety days or less. It is of course true that the second part of the Clause refers to the collective redundancy procedure but the Tribunal could not agree with the respondents that this clause on a plain reading would only apply to a collective redundancy situation. On the contrary, on a plain reading, the clause applies to all redundancies and imposes an obligation on the respondents that they "will enter into consultation with the appropriate recognised Trade Union or employee representative…." It is not an option for the respondents to avoid the obligation but one which they have agreed to do in terms of the clause. To the Tribunal the plain wording of the second paragraph is to identify the consultative period in a collective redundancy situation but not to undermine the first paragraph. In addition, the clause states explicitly that one of the ways of achieving job losses other than by compulsory redundancy is "ie. inviting applications for consideration for early retirement and/or voluntary redundancies". Again, the Tribunal did not consider that the respondents could opt out of this unilaterally and without agreement of the relevant Trade Union.

113. The further argument for the respondents was that they had considered whether to invite volunteers for early retirement and/or redundancy but had decided not to do so because they considered it would bring forward only those who had longer service and that the redundancy package would be more expensive and costly at a time when they were seeking to reduce cost. The clause does not say that any volunteers coming forward require to be selected but only that such volunteers would be considered. There was no need for the respondents to accept any volunteers who came forward in the event that (with justification) they either considered the package too costly or that there was good reason to consider acceptance and it would upset the balance of skills with the retained workforce. The Tribunal considered that seeking volunteers for early retirement/redundancy was what the respondents had agreed they would do and not to do so was a breach of their own policy procedures on a plain reading of Clause 2.0 of their redundancy policy.

125. While the Tribunal recognised that the standards of behaviour outlined in Williams -v- Compair Maxam (above) are not rules of law, they considered that the standard of behaviour which would require consultation with the Trade Union regarding the implementation of redundancies, including agreeing selection criteria, was one which the reasonable employer in this situation would seek to do. The respondents' own procedure required supplying this information but the respondents ignored the Union in seeking to establish any agreed criteria. The Tribunal considered this was a standard of behaviour which a reasonable employer would have adopted.

127. Thus the Tribunal considered that there had been a failure by the respondents to:-

(i) follow their own procedure in terms of Clause 2;

(ii) advise the Union of the selection methods and consulting before making any provisional selection.

141. Accordingly, in relation to these two criteria, the Tribunal did consider that consultation may well have made a difference and could not say that the same result would have been achieved had the Union been able to have engaged in meaningful consultation with the respondents. The respondents, in their individual consultation, showed themselves quick to reject any alterations or upset to either the selection criteria or to its method of application. In the approach from the Union on behalf of the individual claimants at one meeting on 3 May 2006, there was an adjournment and then the meeting re-convened simply to indicate why it was that the respondents were not altering their view, Of course, having intimated to only two people of seventeen in the panel and without any prior consultation they had been provisionally selected for redundancy, the respondents had certainty backed themselves into a corner from which they were going to find it difficult to come out. To have accepted any alteration to their criterion would have resulted in them having to re-cast the whole selection matrix, perhaps coming to a different result, and then having to approach others with the delay and embarrassment that that would have caused. The Tribunal's view was certainly that the respondents, while not closed to changing their minds, were likely to be highly reluctant to do so, given that they had provisionally selected two people from a selection matrix that they had put together. However had genuine consultation taken place (as the Tribunal think a reasonable employer would have done) before coming to a view on selection criteria, then it was much more likely that they would have changed their criteria to some extent. Again, in this respect the Tribunal cannot say that there was a less than 50% chance of the same selection criteria being established with the same points and with the same result leading to dismissal of the claimants. Of the selection matrix, the points of the two individuals closest to the claimants were at "minus eight", with two others at "minus seven". An alteration in the points allocated for any of these particular criteria could have made a difference to the extent that the claimants may not have been selected. It was not agreed that the selection criteria used were based on custom and practice and that the method of scoring was established practice. So the respondents could not say that they would not have changed their minds because the selection criteria and scoring were well established. The Tribunal therefore considered the dismissals were unfair on this separate ground.

143. There was also suggestion made on the claimant's behalf that the combination of circumstances of:-

(i) no consultation prior to the selection matrix being made up and scoring completed;

(ii) only the claimants being advised of provisional selection;

(iii) no account being taken of any representation;

(iv) jobs becoming available at Hunterston and Greenock but no contact being made with the claimants;

(v) job applications being invited and application being made by the first claimant, but no interview granted all led to the inference that the selection was pre-determined. The Tribunal did not find this to be the case. They accepted the evidence from Mr Hemphill and Lucy McNulty that there had been no discussion as to how to organise selection.

144. However, having found that there were separate procedural failures of importance by the respondents in the matter and that the Tribunal could not say that the outcome would have been the same in respect of each failure, the Tribunal finds the dismissals to be unfair."

In those circumstances the Tribunal upheld the Claimant's claims and went on to make awards of compensation and of reinstatement.

The Respondent's case

9. On behalf of the Respondent the correct approach can be summarised in this way. A Tribunal must consider whether the response of a reasonable employer to the construction of the document was one which was open to this employer applying by analogy the judgment in Foley v Post Office, HSBC Bank Plc v Madden [2000] IRLR 827, Sainsbury's Supermarkets Ltd v Hitt [2003] IRLR 23 and the adoption into these circumstances of the words in Linfood Cash & Carry Ltd v Thompson [1989] IRLR 235 dealing with the credibility of witnesses. The criticism of the Tribunal is that while it unimpeachably uses the first person plural to determine the legal construction of the document it did not test against the standards of a reasonable employer, the actions of Mr Hemphill and Ms McNulty to see whether what was done by fell within the band of reasonable responses. It being acknowledged that the correct construction is that provided by the Employment Tribunal, yet it is contended that this was an honest and genuine mistake as to the meaning of the language, a mistake which could have been made by any human resources manager.

The Claimants' case

10. On behalf of the Claimants it is contended that the Tribunal was correct to adopt the plain meaning of the language which was open to no other interpretation. The Tribunal accepted that a reasonable employer could be given advice which was wrong and believe it and its actions would not be outside the band of reasonable responses but that was not the case here. The Tribunal have reached the correct conclusion.

The legal principles

11. In our judgment the relevant principles are as follow. Bells Principles paragraph 524 gives the law on the construction of contracts in Scotland:

"THE GENERAL RULE is that the words, according to their plain meaning and obvious intent, are to be taken as conclusive of the mutual intention of the parties; and that constructive or explanatory evidence is to be admitted only where the words are ambiguous and the agreement uncertain. Words expressive of engagement, when proved by a writing executed at the time, furnish the clearest of all indications of intention. Wherever this precaution of writing has not been followed, and witnesses are to be relied on, the object of the inquiry at the trial must be to get from them as nearly as possible the words made use of."

That applies as well to the construction of a collective agreement incorporated into a contract of employment.

12. An Employment Tribunal is entitled to use its own words when construing a document and it is its function to determine what the words mean to it. Whether it is correct or not is a matter which might be resolved on appeal but it is the duty when a construction point is put to a Tribunal for it to make up its own mind what the words mean. This involves looking at what the intention of the parties was, knowing what they knew and believed at the time of agreement. When turning to the question of the reasonableness under s.98(4), it is open to an employer to rely upon advice as to the meaning of the document which wais incorrect and still behave reasonably. A manager can be wrong yet honest and genuine; see Bouchaala v Trust House Forte Hotels Ltd [1980] IRLR 382.
13. In the approach to fairness, we accept the authorities we have cited in para 9 above in the argument of Mr Miller.

Discussion and conclusions

14. We uphold the judgment of the Employment Tribunal; it was correct. First, the approach to the meaning of the collective agreement is right. That much is admitted by Mr Miller for he accepts that lawyers reading this document would form the view which the Tribunal did. The Tribunal said that the words were plain. We agree. The obligation of the Respondent by reason of the undertaking in clause 2.0 was to consult where there was the possibility of a workforce reduction. It was made clear in argument that the Respondent accepts as correct the findings made by the Tribunal in paragraph 11 of its judgment (para 4 above) and so we can see no difficulty in applying the language of this collective agreement to the finding of fact that there was a reduction.
15. If the Respondent were interested in making savings and reducing the number of operators, that falls within the definition of the possibility of a reduction in the size of the workforce. Thus on the evidence given by Mr Hemphill recorded by the Employment Tribunal, clause 2.0 applied. It lost none of its force by the addition of clause 2.1. It must be born in mind that the phrase here is that there will be an extension of rights pursuant to statute. That means an extension beyond those rights which are vouchsafed to the Union and the employees by this agreement. The agreement goes beyond the minimum requirements of the statute. As a matter of construction we hold that the obligation arose where there was a possibility of a reduction in the size of the workforce and not only when the number involved was 20. The Tribunal was correct as a matter of construction.
16. The next issue is whether the Respondent could be faulted in terms of fairness under s.98(4) if it mistook the meaning which we have given this clause. It is possible, within reasonableness, for that submission to be adopted but in this case it fails on the facts. Ms McNulty advised Mr Hemphill that consultation was not required until a threshold of 20 redundancies had been reached. However, Mr Hemphill had reasons of his own recorded at the end of para 20 of the Employment Tribunal Judgment and which we put broadly during argument as being commercial reasons. Thus we are not dealing here with simply a mistake. A mistake was not a reason upheld by the EAT in Bouchaala for accepting that an employer behaved reasonably when it relied upon erroneous advice given by a government department. Besides, the situation is very different when a document is written not by a government official, but by one of the parties as here and where the construction is so obvious. It could not have been difficult for Mr Hemphill to read the document himself and to consider the plain meaning of it.
17. The Tribunal is acquitted of the charge that it substituted its judgment for that of the employer when deciding what was reasonable because in each case where mention has been made there is a comparison of the standard of the reasonable employer. The Tribunal does not say what it itself would have done. It tested the Respondent's actions against the standard of the reasonable employer; see the citations for example in paragraphs 141 and elsewhere. Thus the Tribunal in holding against the standard of "the reasonable employer" that this employer did not fall within that standard is by definition deciding that the action it took was not that which was within the band of responses of a reasonable employer. We reject the contention that the Tribunal did not take a necessary final step. The Tribunal's reasoning is plain. It has addressed the law itself correctly as to which there is no dispute and has, in our judgment, applied it correctly. For those reasons the appeal is dismissed.